Article by Scott Beaman
Equity release products have got something of a mixed reputation, as it is a big financial decision to make and most people are unaware of what benefits it can actually have. Although releasing equity from your home is not a suitable solution for everyone, we believe that these common myths should be busted – so people interested in pursuing this financial option in retirement are guided by facts and truths, not outdated theories and beliefs.
Equity release products are unregulated
All equity release products are regulated by the Financial Conduct Authority (FCA) to ensure that all customers are protected. The Equity Release Council (ERC) was formed in 1991 as the industry trade body who provides additional support to the equity release sector to make sure that their members always operate with their customers’ best interests at heart.
You don’t have the right to stay in your home
One of the main product standards introduced by the ERC ensures that all customers retain the right to remain in their property for the duration of the plan. Provided that the property remains as your main residence and you abide to the lenders terms and conditions, it is possible to stay in your home for the rest of your life, or until you move into long term care.
You will no longer own your home
A lifetime mortgage plan allows you to maintain full home ownership. This plan is the most popular plan with the over 55s considering taking out equity release.
However, if you take out a home reversion, you sell a percentage of your home ownership in exchange for a lump sum of cash, along with the right to stay in the property, rent free for as long as you live.
You won’t be able to move home in the future
If you are concerned that releasing equity from your home could inhibit your freedom to move and relocate in the future, you’ll be relieved to discover you still retain the right to move home. However, the lender can impose certain criteria which must be met with regards to any prospective new homes.
Retirement specialists, Age Partnership, explains: “All equity release plans offered by lenders that are members of the Equity Release Council are portable. This means that your plan can be moved to another home, so long as the new property is acceptable to the lender based on their criteria at the time.”
If you have taken a Lifetime Mortgage and wish to downsize to a lower valued property, then the lender may require part of the loan be repaid to keep it within their limits at the time. They will waive any Early Repayment Charges if they require that you do this.
Your beneficiaries will be out of pocket
A Safe Home Income Plans (SHIP) study in 2011 concluded that 67% of people thought that releasing equity from their property would result in their estate being completely depleted – leaving nothing for their beneficiaries. However, whilst releasing equity will reduce the overall value of your estate, there may still be some for your beneficiaries to enjoy.
Upon your death (or moving into long term care), your home will be sold and the lender will be paid the amount they are owed. Anything remaining after this amount will be inherited by your beneficiaries.
Your children will pick up the tab
Another great worry is that your children will be saddled with debt upon your death, however the no negative equity guarantee allows you to never pass on debt to your beneficiaries. In the unlikely event that the value of your house has decreased significantly, and it is no longer possible for the sale of the property to cover the amount you owe, the remainder of the loan will be written off by the lender.
Releasing equity is only for low income homeowners
The money released from taking out equity from the home has been used for a wide range of purposes over the years. Taking out an equity release plan is not necessarily based on your personal income (unless you opt for an interest only type mortgage), as the amount you can raise is based on the age of the youngest borrowers and the value of your home. Therefore any homeowner aged over 55, is entitled to enquire about equity release regardless of their personal wealth.
However, it is important to seek the help and assistance of an experienced professional before taking the plunge and releasing equity from your home.
Equity release may involve a lifetime mortgage or reversion plan. To understand the features and risks, ask for a personalised illustration.