Is Equity Release Safe in (2022)?

How Safe Is Equity Release in 2022?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Do You Want to Know How Safe Equity Release Is in 2022? Discover 7 Key Safety Factors & How Equity Release Is Regulated. Read This So You Don’t Get Caught.

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You may be wondering, is equity release safe in 2022?

Well, don’t dive headfirst into the unknown waters of equity release before finding out!

The safety of any financial product is paramount to ensure you don’t suffer an irreversible loss.

If you’re not careful, you could find yourself signing away all your dreams.

The big question is, have the over 10,000 UK residents who’ve unlocked equity in 2022 made a grave mistake? Let’s find out.

What You’ll Learn in This Article:

    We’ve done all the research, so you don’t have to.

    This includes combing over 220 equity release plans by the top providers, conducting a detailed analysis of the equity release market, and discovering exactly how equity release works.

    Here’s what we found out.

    How Safe Is Equity Release in 2022?

    Great news! The equity release market has shifted!

    After a wave of corrupt practices in the industry in the 1980s and 1990s, equity release schemes got a pretty bad name – thanks to unscrupulous lenders.

    These instances caused consumers to become wary about the safety of equity release.

    On the positive side, this resulted in tighter industry regulations.

    With the new regulator, the Financial Conduct Authority1, things have improved drastically.

    Equity release is now safer than ever and progressively becoming a valuable tool for homeowners over 55 who need access to cash.

    Equity release plans are regulated by the Financial Conduct Authority (FCA), and most providers are members of the Equity Release Council (ECR)2.

    The ECR is 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 equity’  guarantee. This 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 for the debt.

    Moreover, for your security, the Equity Release Council offers strict guidance on the sales process.

    The ECR only allows you to take out an equity release loan if you get proper financial guidance and independent money advice services for equity release.

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    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 equity release plans.

    However, with various bodies regulating the market and updated requirements for providers and advisers, things are now very different from what they were back then.

    Is Releasing Equity Safe for You & Your Family in 2022?

    Although equity release is one of the most popular financial products on the market right now, there are still various concerns around it.

    It’s because of this that some are still wondering just how safe is equity release?

    Well, we’ve got the answers you need.

    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

    The Financial Conduct Authority 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 service providers.

    It ensures that lenders are registered and that they’re following the stipulated codes of conduct.

    Moreover, you have adequate protection to ensure that 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 information on the equity release companies to avoid.

    2. The Equity Release Council

    The Equity Release Council is the equity release governing body, thus, it insists that its members adhere 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 guarantee3. This means that your loved ones won’t have to pay back any 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 release 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 Won’t 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 equity 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 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 application, you’re assured to remain the owner 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 to your current estate forever, which isn’t 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’. This means 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 taking 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 directory4 where you can confirm this.

    7. Your Estate May Retain Some Inheritance

    Since you repay equity release capital, plus the interest, when your plan provider sells your home, it means your whole estate will not be fully available for 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 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 can’t get into arrears, default, or have your property repossessed for non-payment.

    Are equity release schemes safe in 2022?

    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 rate5 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 informed 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 which make sure you can repay your equity release scheme, without penalty, if you move home after 5 years from the inception of the plan.
    • It’s easy to know what amount you can release by using an equity release mortgage calculator in the UK.

    Is Equity Release a Good Idea?

    Yes, equity release is a good idea if you’ve received confirmation from a financial adviser, and the firm you select is a member of the Equity Release Council.

    Common Questions

    What Is SHIP?

    Should I Recommend Equity Release to My Parents?

    Can I Lose My House With Equity Release?

    In Conclusion

    Now that we’ve addressed whether equity release is safe, you’ll know that equity release can be a great option in the right situation.

    However, before making any final decision, you must understand how equity release works and whether it’s 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 will you be able to see how much equity you can release, but you’ll also be able to chat with an expert to determine if equity release is safe.

    Before You Go…

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