Don’t dive headfirst into the unknown waters of equity release!
The safety of any financial product is paramount to ensure you don’t suffer an irreversible loss. If not careful, you could risk signing away all your dreams. The question is: have the over 10,000 UK residents who’ve unlocked equity in 2021 made a grave mistake?
Luckily, we’re here to help you discover:
- How equity release has changed since the 80’s and 90’s.
- What releasing equity looks like in 2021.
- If you and your family are protected when releasing equity from your home.
- How to get the best out of your equity release deal.
We’ve done all the research, so you don’t have to. This includes combing over 220 equity release plans by the top providers, a detailed analysis of equity release then and now, and discovering how equity release works in 2021.
Is equity release a dream or just another nightmarish financial scam? And is it safe in 2021? Let’s find out now!
What You MUST Know
We’ve summed up the most important information about the topic in this quick video.
How Safe Is Equity Release?
Great news! The market has shifted!
In the 1980s and early 1990s, after a wave of corrupt practices in the industry, equity release schemes got a bad name. This occurred due to a couple of unscrupulous lenders undertaking expensive deals that resulted in homeowners (and their estates) owing them more than the value of their properties.
Nevertheless, there’s no need to worry. Is it really safe today?
These instances caused consumers to become wary about the safety of equity release but, on the positive side, resulting in tighter industry regulations.
With the new regulated Financial Conduct Authority1, things have improved drastically. Equity release is now safer than ever and progressively becoming a valuable tool for anyone over 55 who needs fast access to cash.
Equity release plans are regulated by the Financial Conduct Authority (FCA), and most providers are members of the Equity Release Council2, a trade body that sets the standards and best practices for equity release providers and independent financial advisors.
To ensure that you get the right plan, the council stipulates that:
- All rates must be fixed, or if not, the plan provider must have an upper limit or cap set for the lifetime of the loan.
- You have the right to live on your property for life or until you move into long-term care, so long as you abide by the terms and conditions of your equity release scheme.
- You can choose to move to another property as long as your lender is satisfied that the new property offers the same level of security for your equity loan.
- Any lifetime mortgage plan must come with a ‘no negative equity3’ guarantee which means that when your home is sold, and solicitors and agents fees have been taken into account, if the amount left is not enough to pay the unsettled loan, neither you nor your estate will be liable to pay any more.
Moreover, for your security, the Equity Release Council offers strict guidance on the sales process. It only allows you to take out an equity release loan if you get proper financial guidance and independent money advice services for equity release.
Make Your Retirement Comfortable With Equity Release
Since the disastrous period during the late 1980s and early 1990s when unregulated equity release providers took advantage of homeowners, suspicion and mistrust have plagued the industry.
Most people were (and some still are) nervous about taking out these plans. However, with various bodies regulating the market and updated requirements for providers and advisers, things now look very different from what they did back then.
Is Releasing Equity Safe for You & Your Family?
Although equity release is one of the most popular financial products on the market right now, there are still various concerns around it, which makes many ask: how safe is equity release?
Well, here’s your answer.
Here are some of the many reasons why equity release is considered better than in the past and why it could be the best decision you make this year.
1. The Financial Conduct Authority Regulates It
FCA is the official financial product watchdog, overseer, and regulator in the UK.
What does it do?
The trade agency oversees the lenders, brokers, and financial advisers who deal with financial products, including equity release services.
It ensures that lenders are registered and that they’re following the stipulated codes of conduct.
Moreover, you have adequate protection to ensure your best interests are looked after with the FCA at play. They also provide consumers with a way to take action against providers who are not conducting themselves according to the law, and will give you the best advice on the equity release companies to avoid.
2. The Equity Release Council
The ERC is the equity release governing body, and thus it insists that its members heed to a strict code of conduct designed to safeguard consumers.
Some of these safeguards include:
- Every consumer should receive financial and legal advice to ensure that equity release is the right option for them
- All equity release products must have a ‘no negative equity guarantee’ – your loved ones won’t have to pay back the excess outstanding loan amount if your property sells for less than you owe
- You have the right to reside in your home for life
- If you want to take out the equity from your home, you must have at least one or two face-to-face meetings with an independent solicitor who will handle the legal aspects
If you choose to take out an equity release plan, ensure that your plan provider is a registered member of the Equity Release Council.
3. Your Family Will Not Be Buried in Debt
If you want to take out a lifetime mortgage with an approved equity release company, you will most likely benefit from the no negative equity guarantee.
The ‘no negative guarantee’ was put in place to protect you. It ensures you never owe more than the value of your property – and you won’t saddle your kin with any debt.
If your residence decreases in value significantly and putting it up for sale isn’t enough to pay back your loan entirely, your lender will write it off when you pass away or move into long-term care.
4. You Have the Right to Remain in Your Home
If you have no clue about the perks that come with equity release, you probably think that you sell the rights to live in your home after unlocking the equity.
However, with a lifetime mortgage, you get to reside in your home. You won’t have to sell any part of your property to unlock the capital you require – you’ll be borrowing against the equity.
Therefore, you can continue residing in your home (which you retain ownership of) for as long as you wish to.
Moreover, as per the ERC’s rules, when you decide to unlock the equity from your property, if it’s a joint partnership, you’re assured to remain the sole proprietor until you both die, or you both go into permanent care.
5. You Can Move House
Most people believe that taking out an equity release plan means being tied up to your current estate forever. Well, that’s not the case. If you want to move houses, you can.
The ERC offers you the right to take your equity release plan with you, as long as you’re relocating to a ‘suitable alternative estate’ – a place that meets the lending rule of your plan provider. It’s worth considering that if you were to move to a less expensive home, you might have to pay back a portion of what you owe, depending on your lender.
6. You Must Consult an Advisor
As per the ERC’s regulations, you must receive advice from a suitably qualified professional before heading on to take out a plan.
Your adviser must also have special qualifications to become an equity release consultant. If you’re unsure that they’re appropriately qualified, the Equity Release Council has a member’s directory on its website where you can confirm this.
7. Your Estate May Retain Some Inheritance
Since you repay equity release plans (plus the interest) when your plan provider sells your home, it means your whole estate will not be an inheritance.
However, if there’s anything left over after everything’s been paid off, that can go to your heirs (as per your will).
If you, however, want to guarantee an inheritance for your family, your provider can offer you a particular option where you can choose to ring-fence some of the value of your estate. You only have to ensure that you let your adviser know, so they can find an equity release plan that suits your needs.
The Flexibility of Equity Release
Unlike traditional mortgages, equity release plans provide you with peace of mind. Most of the schemes don’t require you to make any repayments, and, as such, you cannot get into arrears, default, or have your property repossessed for non-payment.
Are equity release schemes safe?
As the equity release market continues growing and with more products entering the market every day, most providers give you plans with greater choices. They are:
- Schemes with a fixed rate for life, meaning you’ll always know how much you’ll have to pay back in the future
- Fixed early repayment charges, you‘ll be aware of the exact penalty, if you wish to repay your plan early
- Schemes permitting you to make ad hoc voluntary payments which, in the long run, will aid you in managing your future balance
- Downsizing protection elements make sure you can repay your equity release scheme, without penalty, if you move home after five years from the inception of the plan
- It’s easy to know what amount you can expect by using an Equity Release Mortgage Calculator UK.
Got Questions? Check These First
Is Equity Release a Safe Option?
Equity release schemes are the most secure financial products are they’re regulated by the FCA and are under the governance of the ERC. With the lifetime mortgage plan, you get to retain ownership of your home and continue residing there until you pass on or move into a retirement home.
Moreover, with the ‘negative equity guarantee ‘policy, you’ll never owe more than the value of your estate even if the estate values fall and the cash from your home’s sale isn’t enough to cater to the loan amount.
Now that we’ve answered your question, “is this safe?”, you’ll know that equity release can be a great option in the right situation. However, before making any final decisions, you must understand how equity release works and whether it is right for you.
With that in mind, you should always ensure that you seek advice from an independent adviser, who’ll talk you through the details, thus helping you make an informed decision.
If you have any questions on the safety, eligibility, and workings of this, be sure to use our free online calculator not only to see how much equity you can release but also to chat with an expert.