Equity release may have soared in popularity over the past few years, but there’s still a lot of confusion about how it works. If you’re aged 55 or over, equity release unlocks some of the cash that is tied up in the value of your home. You can either access it as a lump sum, or as flexible borrowing – perhaps to fund home improvements, or to pay off debts.
The most common type of equity release is a lifetime mortgage, where you take out a loan that is secured against your home. However, you could also opt for a home reversion, which allows you to sell some – or all – of your property to a home reversion provider, in exchange for a lump sum or regular payments. Either way, it can be a tricky process to understand, so the misconceptions that surround equity release mean that some homeowners have held back from applying for it. So, what’s fact and what’s fiction?
MYTH: I won’t be able to leave an inheritance for my family
Although you won’t be able to leave your home to your family, that doesn’t mean that you won’t be able to leave anything to your loved ones. The money from the sale of the property will be used to pay off the loan, but everything else will go to your estate. There are plenty of lifetime mortgages that allow you to protect a portion of the equity to keep as inheritance – but, if you prefer, you could use some of the equity release to provide your family with an early inheritance.
MYTH: My family will be in debt if I take out equity release
Although the amount that you choose to release and the interest will be a debt against your property, it will never be greater than the value of the house – you won’t owe more than your home is worth, as long as the equity release plan is approved by the Equity Release Council. This is because it will come with a ‘no negative equity’ guarantee, so even if the house sells for less than the value of the loan, the debt will be written off.
MYTH: I won’t own my home any more
When you take out a lifetime mortgage, you are simply borrowing against your home – you’re still the legal owner. If you go for a home reversion, you will be selling part of your home, but you will be able to live there rent-free until the house is sold. As long as it’s your primary residence, you will retain legal ownership of your home.
MYTH: It’s an unregulated market
Since 2004, the equity release market has been fully supervised and regulated by the Financial Conduct Authority (FCA), which makes sure that all equity release providers and advisers are authorised. Many are also members of the Equity Release Council (ERC) also represents qualified advisers, intermediaries and providers who operate in the sector, all of who must adhere to the Council’s regulations.
MYTH: I won’t be able to move house
As long as the house that you’re hoping to move to meets the criteria set out by your equity release provider, you have the right to move your plan to another suitable property. There may be certain costs associated with changing the plan – this will vary depending on your circumstances – but you won’t need to pay a penalty. However, you need to make sure that your equity release provider is happy to lend the same amount against the property you are hoping to buy.