Setting the record straight on equity release
Written in line with our editorial policy.
Social media is filled with comments about equity release. Some offer useful insights and guidance, but unfortunately others create unnecessary fear and confusion.
Although equity release has its downsides, care should be taken when reading some of the more sensational comments made about this form of later life lending. This is an ongoing issue, and one we addressed when we previously looked at Four lesser known truths about equity release.
To provide further facts and balance, let’s take a look at some recent comments made on social media and explain why they are potentially misleading.
The comment: “This is the absolute worst thing anyone could ever do, [if] you need money, sell and downsize or move area.”
The reality: While downsizing can be a good option for some – and it is almost always worth considering – it isn’t guaranteed to be the best or most practical solution.
Many homeowners don’t want to move due to emotional ties to their home, proximity to family, or the lack of suitable smaller properties in their area.
Equity release provides an alternative way to access funds without the upheaval of moving. It’s true that downsizing can be a less expensive way of releasing equity, but downsizing just isn’t a viable option for many people.
The comment: “These equity release companies are subprime lenders, same as payday loans.”
The reality: This is completely false. Subprime lenders target borrowers with poor credit ratings. In contrast, equity release providers tend not to consider someone’s credit rating, since typically there is no requirement to make regular repayments.
Like subprime mortgages, payday loans also require regular repayments, which is very different to equity release lifetime mortgages. Also, payday loans come with short repayment periods, whereas lifetime mortgages don’t need to be repaid until the borrower passes away or moves into long term care.
It’s also worth clarifying that equity release products are not only strictly regulated by the Financial Conduct Authority, but they are also overseen by the Equity Release Council. Equity release plans from the Council’s members come with protections such as a no-negative-equity guarantee that ensures borrowers never owe more than the value of their home.
The comment: “It’s your inheritance gone up in smoke.”
The reality: Equity release does reduce the value of the estate that can be passed on, but it doesn’t necessarily mean there will be no inheritance. Many equity release plans allow homeowners to ring-fence a portion of their home’s value for their heirs. This is known as inheritance protection.
Additionally, some people use equity release to help their children financially while they are still alive. Sometimes called a ‘living inheritance’ this can help children or grandchildren with major expenses such as buying their first home, funding education, or supporting a business.
By gifting their money, homeowners can see their loved ones benefit from financial support when they need it most, rather than making them wait until their estate is settled – which hopefully would be many years ahead.
The comment: “It means someone else owns your home.”
The reality: With a lifetime mortgage, the most common form of equity release, homeowners retain full ownership of their property. The loan is secured against the home, much like a traditional mortgage, but ownership stays with the borrower.
The loan is typically repaid via the sale of the home when the borrower passes away or moves into long-term care. But it can be repaid through other ways, for example if the borrower’s family chooses to clear the loan from their own funds so they can inherit the house.
