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Common Misconceptions About Equity Release
When meeting with older homeowners who are considering taking up an equity release plan, we often hear a range of concerns about this type of borrowing. In many cases, this is based on limited knowledge about old products available many years ago, before regulation and safer equity release standards came into being. Here, we can address some of the main concerns and anxieties our clients may have before we are able to explain the products and allay their fears:
All equity release lifetime mortgages are regulated by the Financial Conduct Authority, who lay down strict conditions for their sale. All providers and advisers who adhere to Equity Release Council standards offer key protections, ensuring your peace of mind. There are risks, with the main one being that your debt will rise if no payments towards the interest charges are made during the life of the loan, but all risks will be explained carefully in writing before you proceed.
With a lifetime mortgage, you retain full ownership of your home. You will simply have a mortgage on it, just like many homeowners with conventional mortgages. The loan is repaid when you sell the house, die or move into long term care. In the meantime, it’s all yours.
As you own the home, you can sell it and move at any time. You will simply have to pay the mortgage off, or transfer it to any new and suitable property you want to buy and live in. The amount you can pay for a new home may be restricted depending on whether the loan has grown, and by how much.
With a lifetime mortgage, you choose whether to make any repayments at all, or not. You are not required to pay anything if you don’t want to, or cannot afford it. Any unpaid interest will be added to the debt so it will grow over time, and be repaid with the original loan when the property is eventually sold. If you make payments of interest, the debt will remain level. You can start to make payments, stop or reduce them later, or make lump sum payments if you prefer, subject to the lender’s terms.
Absolutely not. The lender will only take whet they are owned at the point the property is dol, and not a penny more. The remaining ‘equity’ in your home – the difference between the outstanding debt and the selling price - will pass to the beneficiaries of your estate.
All lifetime mortgages that meet Equity Release Council standards provide a ‘no-negative equity’ guarantee. This means that if your debt reaches the value of your property, it will stay there, protecting your family from any financial burden. As lenders offer this guarantee, they are naturally cautious as to how much they will consider lending you in the first place, in case you live to a significant age, and house prices do not grow as expected in the long-term future.
If you were to release a large amount of equity and simply put it in the bank, then yes, your state means-tested benefits could be affected. So, your adviser will guide you on how much you can safely leave in savings without compromising these benefits. You can also draw your mortgage money in small amounts known as ‘drawdowns’ only as and when needed – this can help to keep your savings under the necessary limits.
While equity release can reduce the value of your estate, there should be equity remaining depending on how long you live for. Also, you can gift some of the money released to family while you are still alive to see their enjoyment of using it. You may help them more now than when they are much older at the end of your life.
It is true that anyone considering it needs to firstly consider any alternative options they may have, which could save the property equity. However, for many it offers a way to fund a variety of later-life needs where perhaps the homeowner does not have alternative funding such as selling possessions, borrowing from family, taking in a lodger or where pension incomes do not allow alternatives.
If the debt is not too large, the existing mortgage can often be repaid using part of the lifetime mortgage proceeds, and in some cases leave some money left over for your own use. Many of the plans we arrange are simply to repay existing mortgages where the term has come to an end but there is no plan in place to repay the loan.
A Lifetime Mortgage is only applicable to those 55 and over, and it could affect eligibility to state means-tested benefits and the inheritance you may leave. To understand the features and risks, ask for a personalised illustration. Equity release includes Lifetime Mortgages and Home Reversion Schemes. We can advise and arrange Lifetime Mortgages and will refer to an approved specialist for Home Reversion schemes.
Andy Wilson Financial Services Ltd is registered in England No. 07547809. Registered Office: Landmark House, 1 Riseholme Road, Lincoln, LN1 3SN.
Andy Wilson Financial Services is a trading name of Andy Wilson Financial Services Ltd, an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Conduct Authority.
The guidance and /or information contained within this website is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.
