Myths about equity release are often widespread from previous examples before it was a regulated market in 2004.
We want to challenge peoples past perceptions so you feel confident with equity release products.
Myth – “It’s unregulated”
Reality: Actually, you’ll find that since 2004, the equity release market is fully regulated. All equity release providers and advisers are authorised and regulated by the Financial Conduct Authority (FCA) – which regulates and protects to put your mind at rest. There is significant consumer protection in place – whether you choose a lifetime mortgage or a home reversion plan.
For extra piece of mind, there is also an industry trade body, the Equity Release Council (ERC), that represents providers,
qualified advisers, intermediaries and surveyors who work in the sector. Members must adhere to the council’s Statement of Principles, which puts in place safeguards for you.
Myth – “I can’t leave an inheritance”
Reality: Even though you won’t be able to leave your home behind for your loved ones, the money from the sale of the home will be used to pay off your loan – and anything leftover will go to your estate.
Plus, if you want to guarantee an inheritance for your loved ones, you can do so. You’ll be able to
ringfence some of the value of your home to leave as a legacy – just make sure you tell your adviser when you meet them for the first time. They’ll be able to find and tailor a suitable equity release plan for you.
Myth – “I’ll leave my family in debt”
Reality: When you take out an equity release plan in the form of a lifetime mortgage or home reversion scheme, you can rest easy knowing you’re fully protected by a “no negative equity” guarantee. This is because although the amount released plus interest will be a debt against your home, the amount charged will never be greater than the value of your house. The debt will be repaid from the sale of your home on death or moving into long-term care.
If there’s a downturn in the property market and your house was to fall in value (and the sale of your property wasn’t enough to repay the plan), any debt would be written off when the house is sold.
Myth – “I will lose my home and be forced to move out”
Reality: Not true – both home reversion and lifetime mortgages have safeguards to ensure this will never happen. Provided that the property remains your main residence, and you comply with the full terms of the agreement, you can remain in your home until you decide to move, go into full time care or until you die.
Myth – “I’ll be stuck in this house for the rest of my life”
Reality: Actually, this isn’t true with most plans – as long as your property meets the criteria of your equity release provider, you may be able to move and take your plan with you. You won’t have to pay a penalty, though there may be costs. This will be explained to you fully before you take out equity release, and it’s always a good idea to discuss the prospect of moving home with your equity release provider before setting the wheels in motion. One thing to note is that the value of the property you are moving to must be enough that the equity release provider is happy to lend the same amount against it. If not, you may have to pay off some of the amount you’ve borrowed.
Myth – “Its way too complicated, I might get it wrong”
Reality: Many people will be relieved to know that equity release is available ONLY as an advised product, and that you will also need to appoint a solicitor, meaning you will only get the correct advice.
Myth – “I’m unable to pay the interest payments”
Reality: Although some products allow you to pay the interest on the initial loan, you may choose to let the interest roll-up and therefore no monthly repayments are required. In this case, the initial loan, plus any rolled-up interest will only be payable on permanent vacation of the property, usually on death or moving into long-term care.
Myth – “I can’t arrange equity release as I still have a mortgage”
Reality: As long as enough money can be raised on the lifetime mortgage or home reversion plan to pay off the mortgage and any other loans secured on the property, then it is possible to arrange equity release if you still have a mortgage.