Throughout the years, equity release has garnered quite a lot of negative attention in the eyes of the public, with many still proclaiming the pitfalls of equity release. This is thanks in large part to how equity release has been handled in years previous.
Due to the regulations put into place by the Financial Conduct Authority and the standards set by the Equity Release Council, the public perception of equity release is finally starting to pickup and is becoming a popular option for many.
Even still, with very mixed opinions found online, you may be wondering what the pros and cons of equity release are, so in this article we are going to take a look at the good, the bad and whether or not it is right for you.
There is a lot of upside for later life applicants in taking out an equity release plan. One of the biggest positives in this is how you are able to receive the equity that has been sitting within your property.
Here at UK Moneyman, we only offer equity release via a lifetime mortgage and there are two ways in which you can do this. The first is as a tax-free lump-sum, where you receive a payout in full, as a one-time payment.
The other is as a tax-free drawdown facility, where you are able to withdraw amounts of equity, as and when you need to do so. Speaking on payouts, it is also important to look at payments, as you will have options there too.
During your lifetime mortgage, you will have monthly interest payments to make back, though these can be quite flexible, as you won’t necessarily have to make back these payments. Many choose to simply let the interest roll-up, leaving them without monthly payments.
This can leave you with more expendable cash to play with (there are important negatives that we will talk about later on), though there are positives to paying it back too.
For example, if you would like to leave an inheritance for a family member, making payments means there will be more available for that inheritance whenever you pass or move into long-term care, after the sale of your home.
In addition to the positives of payouts and payments, you can also rest easy knowing that you are protected. As talked about at the start, there has been a negative stigma around equity release for a long time.
Due to events and practices in the past, there are now more safeguards in place to ensure that the later life customer who is looking to achieve equity release, is protected.
These safeguards have been put in place by mortgage brokers and mortgage lenders alike, as well as, most importantly, the Equity Release Council, of whom UK Moneyman are members of. Learn more about the Equity Release Council product standards.
The last big positive, is that it can be a true lifeline for interest-only mortgage prisoners. Many applicants in the 1990s and early noughties will likely have taken out an interest-only mortgage, where you will have needed a repayment vehicle.
A repayment vehicle is a means of paying back the full capital balance, as you will only be paying back interest, as the name suggests. To give an example, if you take out an £80,000 mortgage, you still have £80,000 left to pay, you’ve only covered the interest.
Because of the way affordability checks have changed, interest-only mortgage holders who are in later life, may now find that they are unable to remortgage or utilise one of the other options available to other homeowners.
In taking out equity release via a lifetime mortgage, you are paying off that final capital balance and taking out a new mortgage, releasing the equity that has likely grown in time, with those aforementioned flexible payment options.
This allows you to worry less, as a lifetime mortgage will essentially have it’s own repayment vehicle in your home, being sold to repay the balance either when you have died or you have moved into long-term care.
Additionally, with a no negative equity guarantee, you won’t owe anymore than what you borrowed, meaning your estate won’t have to worry about owing anything either!
Of course with any type of mortgage, there will also be downsides. One negative to equity release, is that allowing the interest to roll-up will basically erode the equity that is within your property.
This means that when the time comes to sell your property, either after death or moving into long-term care, there will be a higher balance to pay off in full, and this means there will be little to nothing left for inheritance.
Inheritance can be a deal breaker for many as well, due to the fact that their intention is to probably leave something like this for a loved one after they die. Luckily, you may have the chance to ring-fence some of your equity initially, tho there still won’t be much left afterwards.
Furthermore, as discussed, you are not always guaranteed to die in order for your home to be sold. Sometimes, you will have to move into long-term care. If there is enough equity in your property and you have made back interest payments, your care costs will be covered.
Unfortunately, if the interest has rolled up, when the property has been sold, there may not be enough funds to cover the costs of the care you require.
As we discuss in our article “Is equity release a good idea?“, this ultimately depends on who you are and what you are looking to achieve. Unlike conventional mortgage lending, equity release can only be obtained after getting equity release advice, through a later life mortgage broker; You cannot go direct!
The reason for this, is that whilst equity release can be great for some, for others, it may be a bad idea, and a very expensive bad idea at that. Instead, by having a later life mortgage advisor to run through all of this with you, your lifetime mortgage will be tailored to you exactly and your plans.
Equity release and lifetime mortgages are generally quite flexible and can be molded around you and your goals. Even with this in mind, your later life mortgage advisor will still look at alternatives for you and even conventional or unsecured lending, before equity release is discussed as an option.
In order to figure out whether equity release or an alternative, is better for you and your future plans, it is worth getting expert equity release advice from a qualified and professional later life mortgage advisor. They will be able to take a look at your current situation and best advise on how to proceed.
In taking equity release advice, you will have the best chance at avoiding future negatives as best as you can, with your later life mortgage advisor taking the appropriate steps to plan around any future decisions, such as ring-fencing inheritance, like we mentioned earlier on.
Equity release advice can also be a great way for younger borrowers to avoid these negatives, as a later life mortgage advisor will be able to take a look at holistic or phased entry into later life lending.
For those younger applicants who perhaps don’t quite meet the age bracket for equity release or are better suited for an alternative, there are also options for over 50’s mortgages, such as term interest-only, retirement interest-only, or other conventional mortgage routes.
Your later life mortgage advisor will let you know which one they think is better for what you’re looking to achieve. You are their number one priority and they will ensure you are as secure and protected as you can be, as you head into the later stages of your life.
To understand the features and risks, ask for a personalised illustration.
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 be repayable upon death or moving into long-term care.