Is Equity Release Worth the Risk in 2022?

Equity Release: Is It Worth the Risk?
Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui
Equity Release Is a Popular Choice for Many People as They Get Older. The Process Involves Giving Up Some of the Equity in Your Home to Pay off Debts and Access Cash, but It’s Not Without Risks.

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Are you over 55 and looking for ways to fund your retirement? By now, you’ve probably heard of equity release as it’s a booming market in the UK.

Equity release is a type of mortgage that allows you, the homeowner, to unlock the equity in your property without having to sell it.

If you are considering equity release, there are some important things you need to know about the risks and benefits associated with these products.

This article will discuss how equity release works, what it can be used for, and whether or not it is worth the risk in your specific situation.

Let’s simply unpack this tricky subject!

What You Need to Know Before Considering Equity Release?

There are some equity release pitfalls that you must be aware of.

Therefore, it’s vital to look at the alternatives before considering equity release.

There are many other options for older adults that don’t involve equity release, including downsizing to a smaller home or condo, and renting your house out while you live in it.

Alternatively, you could consider transferring the balance of your mortgage to another member of the family so they can take over payments and give you monthly income.

Or perhaps move into an assisted living facility with all daily needs met by staff members (not just “assisted living”).

Finally, there might be the option of obtaining supplemental security income from disability-related financial support1 if necessary.

Is Equity Release Safe?

The answer is, it depends. Equity release may not be safe for you if:

  • You’re still working, and the amount of money that’s released from your home could change how much you need to save for retirement by more than £500 per month
  • Your estate has a lot of other assets besides your house
  • There are specific debts or obligations tied to your property like an open mortgage or a shared ownership agreement2
  • You’re not yet 65 or older, and there’s a risk of needing to use the money for health care costs in your lifetime

It may be safe if:

  • You’re already retired
  • You don’t want to leave your home to your family for their future generations
  • Your estate has little or no other assets besides the equity in your house, and you don’t have any specific debts or obligations tied to it
  • You’re at least 65 years old

TAKE NOTE: While these are guidelines it’s important to note that each case is individual.

Do not defer away from equity release based on these criteria alone. You should rather consult an expert before deciding whether equity release is right for you.

However!

Equity release is generally a safe financial product. It’s regulated by the Equity Release Council3 and it ensures that the consumer is protected.

What Are the Risks of Equity Release?

There are always risks when you release equity from your home. These include:

  • There is no guarantee that you will get back the amount of money you release from the equity, should property prices plummet.
  • You’ll have a harder time qualifying for future mortgage loans, which can make it more difficult or impossible to move into another home.

Some lenders offer guarantees on reverse mortgages and allow you early access to your proceeds if needed, but they come with higher interest rates.

Other long-term alternatives are not subject to these risks; some are guaranteed by state programs specifically designed to protect older adults who need the income now but want their assets protected as well.

Should I Consider Alternative Solutions?

Examples of alternative solutions to using equity release:

  • Downsizing to a smaller home or condo and renting your house out.
  • Transferring the balance of your mortgage to another family member so they can take over payments and give you monthly income, for example, by giving them the title on the property.
  • Moving into an assisted living facility with all daily needs met by staff members.
  • Obtaining supplemental security income from the government if necessary.
  • Opening a reverse mortgage allows you early access to your proceeds if needed with higher interest rates.

It would help if you considered all of your options before deciding to use equity release because it can be a big step and one that will have an impact on your family and future generations.

Is Equity Release Worth the Risk?

The short answer is yes!

Many people decide to use equity release. However, the answer for you is unique.

You should always consult an expert before deciding whether equity release is right for you.

Once you’ve had all your financial questions answered and you feel confident in your decision,

Equity release can be a great way to free up cash for things like healthcare and long-term care; or even to buy that bucket list car!

Common Questions

How Do I Know if Equity Release Is Right for Me?

How Do I Reduce the Risk of Equity Release?

How Much Can I Receive With Equity Release?

Is It Possible That My Home Could Go Into Foreclosure if I Use Equity Release?

In Conclusion

Equity release is an important consideration for those who are nearing or in retirement.

Be sure to speak with a professional first and make your decision based on the facts. Equity release can indeed offer some financial relief.

Still, before signing on the dotted line, there is much research required and considerations of how this may affect other aspects of your life.

Equity release has risks, so be sure to research the pros and cons of these financial products.

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Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
John Lawson

Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.
francis

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
kath icon

Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.
nicola

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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