Is equity release safe?
It can help let you access additional funds, but is equity release a good idea?
Is equity release safe?
Equity release can be a suitable way for homeowners aged over 55 to borrow money, especially if they have no employment income. Equity release loans are offered with no-negative equity guarantee, which means you’ll never end up owing more than the value of your house.
However, there are some downsides to getting an equity release loan, such as the impact it can have on the value of your estate and the implications it can have for any means-tested benefits you currently have.
What is the Equity Release Council and what exactly does it do?
The Equity Release Council (ERC) is the industry body that governs equity release products and lenders. It was founded in 1991 and represents equity release providers, advisers, brokers and other intermediaries.
The ERC also helps protect equity release customers by providing the product standards for equity release loans, such as no-negative equity guarantee and the right to remain in your property after you’ve taken out an equity release loan.
Is equity release regulated?
Yes, in addition to the guidance and framework offered by the ERC, equity release loans are also regulated by the Financial Conduct Authority (FCA).
Is equity release a good idea?
Equity release is a popular way for older homeowners to get access to additional funds to supplement their existing income or pension. Depending on the type of equity release loan you apply for, you can also avoid having to make monthly interest payments, which can help free up your capital.
However, equity release also has a number of drawbacks and you’ll need to keep these in mind when deciding whether an equity release loan is right for you.
While equity release gives you tax-free access to the value in your home, it can have a serious impact on the size of your estate. It can also complicate any benefits you currently qualify for. Before applying for an equity release loan, you should talk to a qualified broker or financial adviser, who can explain the benefits and potential downsides of equity release and how it could affect your specific situation.
How to get equity release advice
If you’re considering an equity release loan, you should first contact a recognised equity release broker or specialist. While you can find general equity release guidance online, it’s important to get advice that’s tailored to your individual circumstances.
When looking for an adviser, you may want to seek out one who is a member of the Equity Release Council. Once you’ve found an expert, you should ask them the following:
- Am I eligible for equity release?
- How much am I able to borrow?
- How much will equity release cost?
- What are the different types of equity release and which is best suited to me?
Do you have to pay any fees for equity release advice?
Some advisers may require you to pay a consultancy fee for providing equity release guidance, but most will only charge you if you actually take out an equity release loan with them. Other advisers will not charge any upfront fees.
What’s the catch with equity release?
Equity release has no specific “catch” per se, but there are a number of things you should keep in mind when deciding if it is right for you. Like all lending products, it has its pros and cons, so will not be suitable for everyone. A good first point of call is to compare equity release providers and explore the different types of equity release available to you.
There are also specific eligibility criteria that you’ll need to meet to qualify for an equity release loan:
- You’ll need to be a homeowner
- You’ll need to be at least 55 years old
What are the pitfalls of equity release?
Some of the main potential downsides of equity release are:
- It can impact any means-tested benefits that you qualify for
- It will reduce the size of your estate and therefore the amount of money you can leave as inheritance
- While interest rates are relatively low on equity release loans, it can accrue quickly and end up being quite expensive over the life of the loan
Equity release myths
Myth 1: I could lose my home
When you take out an equity release loan, you still retain ownership of your property. As long as your loan has a no-negative equity guarantee, you’ll never be at risk of owing more than the value of your home.
Myth 2: Equity release is unregulated
Equity release is regulated by the FCA and also represented by the Equity Release Council, which sets rules and guidance for equity release lenders and borrowers.
Myth 3: I won’t be able to move house
Many equity release loans will allow you to sell your home and even carry the loan over to your new property. However, there may be additional costs to doing so. It’s worth speaking to an expert before making this decision.
Myth 4: Equity release will wipe out my estate
While it’s true that the cost of an equity release loan is deducted from the value of your estate, equity release is protected by a no-negative equity guarantee. Many lenders will allow you to set aside some of the value of your home equity as inheritance.
Myth 5: It’s expensive
Equity release loans are generally offered with relatively low rates, but due to the effect of compound interest, the overall cost of equity release can end up being quite high over time. If you’re concerned about interest costs, you can choose to take out an interest-only equity release loan, which lets you pay off some of the interest each month and can help keep the overall cost of interest much lower.
Frequently asked questions
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