The question “Is equity release safe?” is a common query among homeowners, particularly those over 55 years old.
Although the value of the property can be accessed with equity release plans, it’s important to understand the procedure, the risks, and the possible advantages.
Let’s delve deeper into this topic.
Equity release is a financial scheme that allows homeowners, typically over 55, to unlock the cash value tied up in their home. It provides a chance to boost retirement income without selling or leaving your property. However, it is crucial to seek the right equity release advice before making a decision.
Many providers of equity release offer different plans, each with its terms and conditions. In the UK, the equity release market is growing, with more people considering this option to fund their retirement.
However, it’s essential to remember that releasing equity from your property is a long-term commitment and should not be made carelessly.
A significant sum, a consistent income, or both can be offered via an equity release plan. The money is released as a tax free lump sum and can be used for any purpose. However, the amount you can borrow is dependent upon your home’s value, age, and health.
While equity release benefits can seem attractive, it’s crucial to understand the costs involved.
One example of this is retirement interest. This includes interest rates, arranging costs, and charges for early repayment. It’s also important to consider the impact of an equity release loan on means tested benefits and potential inheritance.
Lifetime mortgages and home reversion plans are the two main types of equity release plans. While both allow you to access cash tied up in your home, they work in different ways.
The most popular equity release product is a lifetime mortgage. This is a loan secured by your home’s equity. With this kind of equity release plan, you can continue to own your house.
You can choose to make monthly repayments or let the interest roll up. The loan and interest is then repaid when you die or move into long-term care.
Home reversion plans, on the other hand, involve selling a part or all of your home to a home reversion company. Even though you are no longer the sole owner, you are still entitled to live there rent-free until you pass away.
However, this option is less popular due to its potential impact on inheritance.
The choice between a lifetime mortgage and a home reversion plan depends on individual circumstances. Before deciding, seeking professional advice from a qualified equity release adviser is essential.
Equity release plans are an attractive financial option to over 55’s who wish to use the equity tied up in their property to enjoy retirement or provide a sufficient retirement income to cover future care needs. It is different from other forms and types of mortgages/debt because this service doesn’t require you to repay your debt until you die or sell your home.
As a homeowner, you have two options: to either borrow a cash lump sum or receive a regular monthly income, in return for a portion of your home. The borrowed money equates to a value less than your property’s market value, with interest accruing on the borrowed amount. Typically, interest is much higher than with a standard form of mortgage.
The exact amount you receive depends on the rule/terms of your equity release product and contract, your property value, and your circumstances and lifestyle factors such as your age and health. You will never receive the whole value of your home, but an adviser can help you estimate what you might receive with different plans.
The good thing is, you are free to spend the whole amount of money exactly how you wish. Whether that be on home improvements, long term care, or if you simply want a pension pot for security, the choice is yours!
The safety of equity release plans is an important factor. One of the key protections in place is the “no negative equity guarantee.” This means that you will never owe more than the value of your home, protecting you from falling into negative equity.
Furthermore, a reputable equity release company is the Equity Release Council. This is because the industry body sets high standards to ensure that customers are treated fairly. All providers are required to stick to the Equity Release Council standards.
However, like any financial decision, there are risks involved in releasing equity. These include the potential impact on your means-tested benefits, and the chance of gaining less from the sale of the property than you thought.
You should also recognise the possibility of leaving less inheritance for your loved ones.
While the Equity Release Council and the Financial Conduct Authority regulate the equity release industry, it’s essential to understand these risks and consider your options carefully.
The equity release industry in the UK is regulated by the Financial Conduct Authority (FCA). The FCA ensures that equity release products are sold responsibly, with clear and fair terms.
The Equity Release Council also plays a significant role in maintaining standards within the industry. As a trade organisation, it sets out strict rules that all of its members must adhere to. This includes equity release advisers and providers.
These regulatory bodies work together to protect consumers. For instance, the Equity Release Council requires that its members offer unbiased legal counsel to clients seeking an equity release plan. This ensures that you understand the terms and conditions before committing.
However, even with these protections, it’s critical to seek independent financial advice before deciding on an equity release plan. Based on your individual circumstances, a financial advisor can help you to comprehend the advantages and disadvantages.
This YouTube video featuring Martin Lewis gives an insight into equity release schemes.
Additional protection is offered by UK law to people who are thinking about equity release. For instance, the Financial Conduct Authority requires that all equity release advisers be fully qualified and regulated.
Moreover, the law stipulates that equity release providers must supply a clear and comprehensive breakdown of the finances involved, from retirement interest to equity release cost. This covers the interest rate, any associated costs, and any potential for early repayment charges.
It’s important to know that you are entitled to continue living in your house for the duration of your life or until you enter long-term care. Thanks to the negative equity guarantee, the law also guarantees that you can never owe more than the value of your home.
However, it’s important to note that the law cannot protect you from the potential impact on your means tested benefits or inheritance. Therefore, you must take into account all of these factors when deciding whether equity release is a beneficial move for you.
Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements.
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All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation. By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.
The fee we receive is used to help keep this site operational and to produce new content.
Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
While equity release can provide a much-needed cash boost in retirement, it’s not without risks. A key example of these risks is that the value of your estate may be lowered, potentially leaving less for your loved ones to inherit.
Another risk is the potential impact on your entitlement to means tested benefits. It is possible that your ability to save money and your eligibility for certain benefits may be impacted by releasing equity.
It’s crucial to take the effect of interest rates into account. Whilst most equity release schemes offer fixed interest rates, the total amount to repay can still grow quickly if the interest is rolled up over the years.
Remember, equity release is a lifetime commitment. Therefore, it is vital to consider the potential impact of early repayment charges and retirement interest if you decide to repay the loan early.
To mitigate the risks associated with equity release, it’s crucial to seek professional advice. An equity release adviser can give a full assessment of your circumstances, recommending the most suitable product.
Additional peace of mind may result from choosing a plan from a member of the Equity Release Council. These financial advisers must adhere to a strict code of conduct, including the provision of a no negative equity guarantee.
If you’re concerned about the impact on your inheritance, some plans offer an inheritance protection guarantee. This enables you to set aside a portion of the value of your home for the benefit of your loved ones.
Remember, it’s essential to discuss your plans with your family. It is important to remember that releasing equity can affect the value of your estate and the amount of inheritance you can leave.
The effect of equity release on inheritance is one of the primary issues. Releasing equity can reduce the value of your estate, leaving less for your loved ones to inherit.
However, it is possible for an equity release scheme to include inheritance protections. This allows you to safeguard a portion of your property’s value to ensure an inheritance for your loved ones.
It’s crucial to talk to your family about your equity release plans. While it can provide financial freedom in retirement, it can also affect the amount you can leave as an inheritance.
Remember, an equity release adviser can provide guidance on protecting your inheritance, whilst also enjoying the benefits of equity release.
The table below shows you some of the best equity release rates, as at December 2023, for lifetime mortgages, from some of the leading equity release providers in the UK.
These rates may have changed since this table was updated and should be taken as indicative only. There may also be other providers not listed on this table that could offer better deals. In addition, the providers and products noted below may not be right for your particular circumstances. Therefore, we strongly recommend that you speak to an equity release adviser, who will be able to provide you with information on the latest rates, that are applicable to you.
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| Product Name | Interest Rate | Type of product | Offers |
|---|---|---|---|
| Just For You – J2.5 | 6.22% | Fixed | Free ValuationNo application fee |
| Just For You – J1 | 6.30% | Fixed | Free ValuationNo application fee |
| Premier Flexible Pearl | 6.43% | Fixed | Free Valuation |
| Premier Optional Payment Pearl | 6.43% | Fixed | Free Valuation |
| Horizon 240 Drawdown | 6.43% | Fixed | Free Valuation |
| Classic Drawdown Super Lite 2 | 6.47% | Fixed | Free Valuation |
| Horizon 260 Drawdown | 6.47% | Fixed | Free Valuation |
| Classic Elite Drawdown Super Lite 2 | 6.47% | Fixed | Free Valuation |
| Premier Flexible Pearl | 6.48% | Fixed | Free Valuation |
| Premier Optional Payment Pearl | 6.48% | Fixed | Free Valuation |
| Horizon 240 Drawdown Fee Free | 6.49% | Fixed | Free ValuationNo application fee |
| Classic Drawdown Super Lite 1 | 6.52% | Fixed | Free ValuationNo application fee |
| Premier Flexible Pearl | 6.52% | Fixed | Free Valuation |
| Premier Optional Payment Pearl | 6.52% | Fixed | Free Valuation |
| Classic Elite Drawdown Super Lite 1 | 6.52% | Fixed | Free ValuationNo application fee |
| Flexible Pearl | 6.53% | Fixed | Free Valuation |
| Optional Payment Pearl | 6.53% | Fixed | Free Valuation |
| Enhanced Lifestyle Flexible Option | 6.53% | Fixed | Free ValuationNo application fee |
| Horizon 260 Drawdown Fee Free | 6.55% | Fixed | Free ValuationNo application fee |
The equity release rates have been sourced from Equity Release Supermarket. These indicative rates and incentives may have changed since this article was last updated. Therefore, they should only be taken as a guide and we cannot guarantee their current accuracy. Please also note that we do not provide advice on or endorse any particular product listed here. The rate you are offered will depend on your individual circumstances and subject to lender approval. We recommend that you speak to an equity release advisor to see what the best options are for you.
If you take out a product with Age Partnership, we will receive a fee for introducing you to them. By contacting Age Partnership through us, the cost of any equity release product would be the same as if you had contacted them directly. The fee we received is used to help keep our site operational and to produce new content.
Before committing to equity release, it’s worth considering alternatives. Downsizing is one option, with moving to a smaller, cheaper property after selling your home potentially freeing up a sizeable cash lump sum.
Another option is to rent out a portion of your home. This can provide a regular income without the need to borrow against your property.
Keep in mind that each choice has benefits and drawbacks. A financial adviser can help you to explore these alternatives, determining the best solution for your circumstances.
When thinking about equity release benefits, it is important to get qualified advice. A qualified equity release adviser can explain the different plans available and help you to understand the costs and risks involved.
Therefore, they are able to advise on the most suitable product based on your needs and circumstances.
Talking about your plans with your family is another important step. This is because the decision to release equity can impact your financial future and the potential inheritance for your loved ones.
Remember, it’s your home and your future. Make sure you have all the knowledge and guidance you need to make the correct decision.
In the UK, organisations like the Equity Release Council and Age Partnership provide a wealth of resources and advice for those considering equity release. They can help you to understand if equity release is a good idea for you, whilst also helping you through the process.
When considering equity release, it’s important to choose a reputable equity release provider. These providers are regulated by the Financial Conduct Authority (FCA), ensuring they meet rigorous standards of transparency and fairness. Each equity release company offers a number of plans and provides unique conditions, prices, and advantages.
Although finding the right provider is partially about the best interest rates; it’s also about the level of service, the flexibility of the plans, and the provider’s reputation in the industry. Some providers specialise in certain types of equity release products, like drawdown lifetime mortgages, which give you a flexible option to access the value of your property.
You can research the market and select a supplier that best matches your needs with the aid of an expert equity release advisor. They can explain the equity release process, help you to understand the cost of equity release, and guide you through the application process.
As equity release is a substantial financial decision, receiving the appropriate financial and legal guidance is essential.
A financial advisor who specialises in equity release can provide guidance on whether equity release is a good idea for your individual circumstances. They can assist you in realising the advantages and disadvantages, possible effects on your inheritance tax, and the cost of equity release.
Legal advice is also essential. Before you can complete an equity release plan, the Equity Release Council (ERC) standards require you to consult with a solicitor. They ensure that you comprehend all of the conditions of your contract, including your obligations to pay interest and maintain your property.
It’s always useful to take into account the costs associated with equity release, the most obvious being the interest you’ll need to pay on the loan. Most lifetime mortgages come with a fixed interest rate, meaning that the rate won’t change over time. However, the interest is compounded, which means that over time, the amount you owe can grow quickly.
There are also arrangement fees, which cover the cost of setting up the equity release mortgage. These can vary widely between providers, so it’s important to factor these into your decision. In addition, a professional evaluation of your property may include value costs.
While equity release can be a great way to unlock the cash tied up in your home, It’s important to know the whole cost. and seek financial advice before proceeding.
If you have an existing mortgage on your property, it’s essential to discuss this with your financial adviser when considering equity release. In most cases, you’ll need to pay off any existing mortgage with the money you release. Alternatively, some equity release schemes allow you to keep your current mortgage.
It’s also worth noting that if you choose to release equity from your home, you’ll still be in charge of looking after the property. This can include costs like home insurance, repairs, and improvements. Therefore, this should be factored into your financial planning.
One of the major concerns people have when considering equity release is the impact on inheritance tax. The value of your estate decreases when you release equity, potentially reducing the amount of inheritance tax your heirs will have to pay.
However, this is a complex area and depends on many factors, including the size of your estate and the current inheritance tax threshold. Therefore, it’s important to get financial advice to fully understand the potential impacts.
Whilst equity release can help you out financially in retirement, it’s important to consider that it’s not always the best option for everyone. Make sure to evaluate all your options and get professional advice before making a decision.
Equity release can be a good idea for some people, but it isn’t suitable for everyone. It can give you a big sum that is tax-free, or an ongoing source of income to top off your retirement funds. However, it’s important to consider the long-term implications.
Equity release reduces the value of your estate and can affect your eligibility for means-tested benefits. It’s also a long-term commitment, and the cost of repaying the equity release could be higher than the initial loan due to the compounding of interest. Before choosing whether equity release is suitable for you, always consult with financial advisors.
Equity release works by allowing homeowners aged 55 or over to unlock some of the value in their property without having to move. There are two main types: lifetime mortgages and home reversion plans.
A lifetime mortgage involves taking out a loan secured on your home. You can choose either to make repayments, or let the interest roll up. When you pass away or enter long-term care, the loan balance and any accumulated interest are returned. Alternatively, home reversion involves selling a part or all of your home while retaining the right to live in it rent-free.
The Financial Conduct Authority (FCA) is a regulatory body in the UK that oversees the financial markets to ensure they work well for consumers. In terms of equity release, the FCA ensures that all equity release providers and advisers are regulated and adhere to strict standards of conduct. To do this, it is vital to clearly demonstrate what the costs and dangers of equity release schemes are.
Depending on the plan type you select and the provider, equity release expenses can change. These can include interest rates, arrangement fees, valuation fees, and potential early repayment charges. The interest on a lifetime mortgage can be fixed or variable, with the amount you owe growing over time. This is why it is essential to understand the full cost of equity release and get a detailed breakdown from your provider or adviser.
You can figure out how much equity you might be able to release from your home using a free online tool called an equity release calculator. You typically need to enter details like your age, property value, and whether you’re applying alone or with a partner. It is important to remember that the results are only a guide, the actual amount you can release potentially being more or less.
A drawdown lifetime mortgage is a type of equity release plan that allows you to release tax free cash from your home in smaller amounts, as and when you need it. This is instead of taking equity release as a lump sum. You only pay interest on the money you drawdown, which can reduce the total cost of the equity release. It’s a flexible option that may be tweaked to meet your needs.
Independent advice can be invaluable when considering equity release. Based on your unique situation, a third-party adviser can offer fair advice. They can explain the different types of equity release plans available, discuss the potential risks and benefits, and help you to make an informed decision. It is vital to choose an adviser who is regulated by the Financial Conduct Authority.
The Equity Release Council (ERC) is a trade body that represents the equity release sector in the UK. To guarantee that clients are treated properly, it requires strict requirements for advisers and service providers.
The ERC’s standards include a guarantee that customers can stay in their homes for life, a no negative equity guarantee, and a requirement for customers to receive independent legal advice.
There are many myths about equity release. One widespread misconception is the idea that you might owe more money than your house is worth. However, all plans from members of the Equity Release Council come with a no negative equity guarantee, meaning you’ll never owe more than your home’s market value.
Another myth is that you can’t release equity if you have an existing mortgage. In fact, you can use equity release to clear your existing mortgage. However, this will reduce the amount you have left to spend.
The ‘Equity Release Supermarket’ is an independent advice service in the UK. They offer guidance on a variety of equity release programmes from various suppliers., including a free online calculator and access to a network of qualified advisers.
When you release equity from your home, the cash you receive is tax-free, as you’re essentially taking out a loan against your home. Therefore, this isn’t considered income and isn’t subject to tax. However, you might have to pay tax on the earnings or gains if you invest the money and earn interest, or if you use the money to purchase another property.
William is a leading writer for our site, specialising in both finance and health sectors.
With a keen analytical mind and an ability to break down complex topics, William delivers content that is both deeply informative and accessible. His dual expertise in finance and health allows him to provide a holistic perspective on topics, bridging the gap between numbers and wellbeing. As a trusted voice on the UK Care Guide site, William’s articles not only educate but inspire readers to make informed decisions in both their financial and health journeys.
Article reviewed by Saq Hussain, who is a pension and financial expert, with over 25 years experience of the financial services industry. Saq has regualrly featured in the UK press commentating on financial and specifically pension and retirement related issues.
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Use the equity release calculator and see how much money you could receive.
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All equity release advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation. By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.
The fee we receive is used to help keep this site operational and to produce new content.
Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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