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Equity Release Council
Equity Release Advice

Debunking Myths of Equity Release

Equity Release has been around since the 1960's and has grown in popularity significantly, with the number of plans taken out having trebled in the last 5 years alone.

Despite the rise in popularity however, many misconceptions still exist around Equity Release that prevent many people from considering it. Here we will discuss the myths around these retirement products.

So what are the most common myths?

My home can be repossessed

If a lifetime mortgage is approved by the Equity Release Council (ERC) it will display their kitemark. This ensures a number of consumer guarantees, one of which being 'Tenure for Life'. This means that the property is not at risk of repossession as there are no contractual repayments required during the borrower's lifetime. The borrower however is responsible for keeping the building insured and maintained to a reasonable standard throughout the term.

I, or my beneficiaries can owe more than the value of my home

Again, as long as the lifetime mortgage is approved by the ERC it will include a 'No Negative Equity Guarantee' ensuring that one can never owe or leave a debt to their beneficiaries which is greater than the value of the property.

My children won't inherit anything

Many lifetime mortgages offer a feature known as Inheritance Protection. This allows a borrower to protect or 'ring fence' a fixed percentage of their property value to pass onto their beneficiaries. For example, someone who protects 50% of their property will only have to repay the original loan plus accrued interest, however this will never exceed 50% of the value of the property. This will of course reduce how much a borrower can release, as the lender can only advance monies against the un-protected portion of the value.

I will lose ownership of my home

With all lifetime mortgages the borrower retains ownership of their home entirely. As with any other mortgage, a legal charge is registered against the property with the Land Registry until the loan is repaid.

I will have to make repayments

Whilst many lifetime mortgages allow the option of making repayments, these are always optional. Any lifetime mortgage approved by the ERC will allow interest to be added to the loan on a compound basis over the borrower's lifetime with the balance becoming payable after death or exit into long term care.

The loan will double in 10 years

This is now an outdated misconception with interest rates having reduced so much. Whilst it does of course depend on the interest rate that applies to the lifetime mortgage. However, with interest rates now starting [at time of writing] at 2.84% fixed for life, a £100,000 'roll up interest' lifetime mortgage would take almost 25 years to double to a balance of £200,000. It is worth remembering however that the majority of lifetime mortgages offer you the option of servicing the interest payments and as such, compound interest is reduced or won't accrue at all.

I cannot release equity as I still have a mortgage

One can still take out a lifetime mortgage as long as the amount released can fully repay the mortgage owed. Any surplus funds can be released to the borrower.

With such a large choice of lifetime mortgages and a wide range of consumer features, it is very important to take independent advice from an equity release specialist adviser. This ensures that you not only secure the right amount of capital to access now and in the future but also that you have the flexibility you need throughout retirement, which can be a long time!

Contact us for more information if you are considering releasing some equity from your home.