Pros and Cons of Equity Release

Equity release is most commonly recommended as a lifetime mortgage that allows clients aged 55+ to release tax-free money from their main residence. With equity release, you’ll maintain full ownership of the property and you can choose whether to make monthly payments, like a regular mortgage, or not.

In this article, we’ll examine the pros and cons of equity release plans.

Pros of Equity Release

• Financial flexibility: You can take funds as either a lump sum or smaller chunks as and when required. You are likely to pay less interest taking the money as and when you need it. We’ll recommend the best way for you to minimise the interest payable, after thoroughly assessing your circumstances and what you want to achieve.
• Retaining ownership: With any regular mortgage, retirement interest only mortgage or lifetime mortgage (equity release) plan, you’ll have 100% ownership of the property. The outstanding loan is repayable on death or when you go into long term care. You’ll have the right to live in your property, or downsize if required, until you die or move into long term care.
• No negative equity guarantee: All lifetime mortgage plans have a no negative equity guarantee, meaning that when your property is sold, after your death or entry into long term care, your estate will never owe more than the property is worth when it is sold.
• Interest payment options: With lifetime mortgages, you have the flexibility to either pay a monthly interest payment, pay no monthly payment, or anywhere in-between to minimise interest rolling up. Your equity release advisor will discuss the best way forward here.
• Inheritance planning: We can work alongside your financial advisor and advise on equity release as part of your inheritance tax planning.

Cons of Equity Release

• Limited or poor advice: We come across situations on a regular basis where clients have received bad advice or advice which has been restricted to equity release plans. Always check that your equity release advisor is providing advice on the full range of later life lending solutions and is independent. We are one of a small number of companies in the UK able to advise on the full range and be independent.
• Should be a last resort: All other later life lending products such as a regular mortgage, a retirement interest only mortgage (RIO) and hybrid products should be considered by your advisor prior to an equity release recommendation.
• Impact on benefits: If you receive any means tested benefits, release equity could have a negative impact on the amount you receive.
• Reduced inheritance: Your children/beneficiaries will receive less inheritance. Choosing to release equity in smaller chunks is a way to maximise your inheritance.
• Early repayment charges: Equity release is not a short-term lending product, and all products will come with early repayment charges usually within the first ten years.

What should be considered first, before equity release?

Here at UK Moneyman, we are one of a limited number of mortgage advisors in the UK that can consider the full range of later life mortgage products.

The full range, in order of consideration, is a regular mortgage which, in some cases, can run until age 85, the wide collection of more specialist retirement interest only mortgage products (RIOs) and lifetime mortgages, including equity release plans.

Our specialist later life team will recommend the most appropriate product or combination of products for your personal situation. It’s important to remember that equity release is not the only answer, and another option may suit your circumstances and needs better.

You are only able to release equity, via an equity release plan, from your main residence, not a second home or buy to let property. Regular mortgage options maybe more suitable in these situations.

How Clients Use Equity Release Funds

There are many reasons our clients choose to release equity, the main ones being home improvements, divorce in later life, repaying an existing mortgage, gifting money to family and to supplement pension income.

Equity release plans are flexible, you can choose to take the money as a lump sum or in smaller chunks as and when required. Our equity release advice team will recommend the best way forward.

The Equity Release Process

Firstly, you can arrange your free, no-obligation consultation with our later life team. You can book this via telephone or online. We’ll answer all your questions and give you an idea about the products available to you, associated fees, and how much you’ll be able to release.

Following your initial meeting, if you decide to go ahead with us, your advisor will arrange a longer follow up meeting to run through things in more detail and get prepared for an application.

Along the process, we’ll make it as stress free for you as possible. We’ll help you with everything from arranging solicitors and any valuation/legal hurdles.

Involving Your Family

Equity release is a big decision; therefore, we encourage family members to be involved in the conversations from the get-go. Family members can be a huge help when going through the application process and always have lots of important questions.

Involving family members in the process will give you peace of mind that you have chosen the right company and help with the understanding of some of the pros and cons of the plan.

Your family members will, most probably, have their own questions also which we’ll be more than happy to answer.

With our video software, we can add multiple family members to the calls and discussions easily.

Book a Free, No-Obligation Consultation!

If you feel ready to take the next step with us, we’d love to hear from you. You can telephone or book online to arrange a free, no-obligation consultation where we can discuss your later life mortgage options.

We’ll answer all your questions and recommend a way forward. We don’t need anything in the call other than your ages and your address.

Evening calls are available to fit around any work or children’s commitments also.

To understand the features and risks, ask for a personalised illustration. Equity Release may come in the form of a lifetime mortgage or home reversion plan.

A lifetime mortgage may impact the value of your estate and it could affect your entitlement to current and future means tested benefits. The loan plus accrued interest will repayable upon death or moving into long term care.

A home reversion plan involves selling all or part of your home to a plan provider in exchange for a tax-free lump sum.

Written by
Dan Osman
Head of Later Life at UK Moneyman Ltd.
CeMAP & CeRER Qualified

26th March 2024

Date Last Edited:

About the Author

Dan Osman

Head of Later Life at UK Moneyman Ltd.

Dan joined the Financial Services sector back in 2002, but actually left the industry in 2008 before returning some years later. During the in-between years, he took a degree to become a Social Worker specialising in working with vulnerable adults.

Upon his return, Dan combined his experiences in the two sectors to become an Equity Release Specialist and he now heads up UK Moneyman’s Later Life Lending proposition. He genuinely believes in a holistic approach and always ensures his clients receive a proper consideration of all the options available, including non-lending alternatives to Equity Release.

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