Is equity release a safe option? 

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Equity release is a safe, well-regulated option, with numerous rules in place to protect consumer wellbeing - Credit: Getty Images/iStockphoto

Equity release is used by people over 55 to release cash tied up in their homes, often for large purchases like weddings, home improvements or to gift money to their children. Also known as a ‘lifetime mortgage,’ you can continue to live in your home until you die or go into long-term care. 

Equity release is a safe option for homeowners to release tied up cash, with 37,000 homeowners over 55 doing so in 2019 alone, according to Lending Expert – and when looking at the benefits, it’s easy to see why. Equity release can help provide an additional source of income, which is great for those approaching retirement.  

Lending Expert explains why equity release is safe to use and gives some top tips for when you apply. 

Equity release is FCA regulated  

Both the Financial Conduct Authority (FCA) and the Equity Release Council regulate the equity release sector, meaning all lenders, brokers and advisors operating within this area must adhere to strict guidelines, and gain authorisation to both lend and advise on equity release deals. 

If businesses working in the equity release sector fail to meet the FCA’s guidelines, they could be met with heavy fines, or even have to shut down their operations entirely. Failure to comply with the mandatory guidance for this sector can be expensive, and even ruinous for a company. 

The Equity Release Council has also implemented rules for lenders and brokers in this area, which they must adhere to, including the following: 

  • Consumers can still stay in their homes 
  • No negative equity guaranteed  
  • Consumers have received the appropriate financial advice 

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Lenders and brokers must ensure that all those using an equity release product can still stay in their homes until either they pass away or need long-term care. This helps to ensure that equity release customers are never made homeless due to taking out this product. 

Equity release lenders also must ensure that their borrowers are never at risk of negative equity. This helps to protect borrowers and their beneficiaries from having to make repayments that are bigger than the value of their property. 

As part of the process of obtaining equity release, The Equity Release Council has also made it a requirement for consumers to receive the appropriate financial advice for this. This helps to keep the consumer’s best interests at heart, helping them to find the equity release product best suited to their individual needs. 

Equity release can put money aside for inheritance 

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Equity release is used by people over 55 to release cash tied up in their homes, often for large purchases like weddings, home improvements or to gift money to their children - Credit: Getty Images/iStockphoto

Some people may be concerned that equity release will not leave any inheritance for their children. With a lifetime mortgage, it is still very much possible to leave an inheritance for your loved ones.  

With certain types of equity release products, borrowers can ask the lender to put aside a certain amount of money for their inheritance. Additionally, many might also consider using the lump sum to give to their loved ones, so they can see them using and enjoying the money. It’s also tax-free, whereas inheritance is not. 

Equity release is a big decision when wanting to free up some of the money stored in your property. However, thanks to the strict regulations in place for this type of finance, consumers can rest assured that it is a safe, well-regulated option, with numerous rules in place to protect consumer wellbeing. 

Lending expert’s top tips for equity release 

Equity release is like a loan, so you receive the money and then start to pay interest on it each month, usually from around three per cent.  

The more you borrow, the more interest you will be paying over time. It’s best to try to avoid over-borrowing or consider using a drawdown lifetime mortgage where you can release money in stages and only pay interest on what you have used. 

Consider where you might be in another five, 10 or 15 years. Try to prepare yourself for this financially and how it will affect your equity release mortgage. If you make money from selling your property, you could clear your equity release in full and pay it off.  

Finally, if inheritance for your children is very important, consider an interest-only lifetime mortgage or voluntary repayment lifetime mortgage so that you can reduce the overall sum that you pay. With over 100 types of equity release, it is important to research and find the right one for you. 

To discuss your requirements, please enquire with Lending Expert today or speak to an advisor on 0161 820 8099