Equity release, or lifetime mortgages are often badly misunderstood with the consequence of someone not taking action, and someone acting on half information or misinformation.
It can be that situation where the person advising is only paid if you take out a plan, so the motivation can creep in to push a river up a hill – ie do something you maybe shouldn’t.
If you follow the correct, understood path and stay unemotional either way, deciding on equity release will be quite straight forward and emotionally easy.
Let me explain. Equity release was once a fairly ugly experience. High rates and the potential to lose your home isn’t an overly appealing recipe.
Today that world is non-existent with strong protection from the regulator (FCA) and superb guidance from the Equity Release Council.
For example: a no negative equity guarantee ensures you (or your estate) will never owe more than the value of your property when it is eventually sold. This means even if property values drop, the loan repayment will never exceed the sale price of the home. It ensures you and your families are protected from the risk of being in debt beyond the value of your home, offering peace of mind that debt won’t impact your estate negatively.
You have the guaranteed right to live in your property for the rest of your life or until they move into long-term care. Providers should not have the right to repossess the property if the terms of the agreement are met. This ensures you retain control of your living situation and aren’t forced out of your home prematurely, adding security to the decision to release equity.
Equity release schemes should come with either fixed interest rates or, in some cases, capped variable rates (the rate can only go so high but can fall indefinitely).
Fixed or capped rates prevent you from facing sudden increases in interest charges, helping to manage long-term costs and protect the value of the remaining equity in your property.
Many of the reputable providers now allow voluntary or partial repayments on the loan without incurring penalties, giving you more control over the interest that’s rolling up. This flexibility means that by repaying some of the interest or capital over time, you can help preserve more of the equity in your home for your estate or beneficiaries.
The provider should provide clear, upfront details of all associated costs, including any arrangement fees, legal fees, or early repayment charges which helps you make an informed decision, preventing hidden fees from eroding the equity released, or surprising families with unexpected costs later.
Equity Release Council members must ensure you receive independent legal advice before completing the equity release. This is to make sure the customer fully understands the terms and implications of the scheme. It means you can turn off that emotional brain that may be hurrying and allow the logical thinking to take charge. This helps protect your rights and ensures you are aware of all commitments and responsibilities, reducing the risk of misunderstandings or future disputes.
If you decide to move home, you should have the right to transfer (or “port”) your lifetime mortgage to a new property, subject to lender criteria. Life circumstances change and the flexibility to move, without a penalty or need to repay the loan early, gives you more options for managing your long-term living situation.
Equity Release Council standards mandate that you must receive advice from a qualified equity release adviser which ensures the product recommended suits your financial situation, goals, and preferences, reducing the chance of taking on a product which isn’t aligned with your needs.
Some lifetime mortgages allow you to ring-fence a portion of your property’s value to leave as inheritance. This option should be clearly discussed as part of the product terms. The maximum you can borrow will reduce obviously, but ‘cake and eat it’ applies.
Combined, these protections aim to make equity release a secure and flexible option, helping you manage your finances while protecting you from unnecessary risk or unexpected costs.
But, as always in this column, take your time, gather the facts, use an independent financial adviser like us and you will get to where you need to safely.
- Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. For a complimentary guide to equity release call 028 6863 2692 or email info@wwfp.net
