Four Little Known Truths About Equity Release

Uncovering the truths and myths of equity release

With a simple search online it’s easy to find articles claiming to reveal the ‘myths’ or ‘little known truths’ about equity release. In fact, many of the ‘myths’ you’ll read about are becoming more well known, such as the fact that you still own your own home with a lifetime mortgage.

So we decided to go the extra mile by really getting under the skin of this over-55s financial product. We wanted to present you with some genuinely lesser known truths about equity release. We’ve gone further, too, with four equity release myths and a summary of some pros and cons of equity release.

In this article we cover the following to help you decide if an equity release plan might work for you or not:

• Four little known truths about equity release

1. Truth #1 Equity release isn’t just for releasing cash from your main residence
2. Truth #2 You can use equity release to buy another property
3. Truth #3 Having bad credit history won’t usually stop you from being approved
4. Truth #4 You could access a better equity release deal if you have a health condition

• Four equity release myths

1. Myth #1  You could end up owing more than your home is worth
2. Myth #2  You won’t be able to leave an inheritance
3. Myth #3  You won’t be able to move home with a plan
4. Myth #4  You can’t arrange equity release if you have previously been declared bankrupt

• Pros and cons of equity release
• Summary: getting the truth about equity release

Four little known truths about equity release

Truth #1 – Equity release isn’t just for releasing cash from your main residence

Some people mistakenly think you can only use equity release on your main residence. A number of websites with equity release information are presenting this as a fact. 

The truth is, if you are lucky enough to own another property you may be able to unlock some of your tax-free money from it with equity release. It could be a perfect alternative to selling the property or arranging a remortgage. 

As with all other equity release plans, the money you release from the property is entirely tax-free and yours to spend however you wish. If you have an outstanding mortgage on that property, then it is a condition of equity release that you clear it with the money you receive.

Specialist second home lifetime mortgages, and buy-to-let lifetime mortgages are available. Through Equity Release Wise you can explore your options to get the most suitable product and best deal.

Truth #2 – You can use equity release to buy another property

Have you ever found yourself dreaming of a little getaway by the coast? Or perhaps you fancy branching out into the rental sector? 

The good news is that as well as releasing cash from a second home or buy-to-let property, you may also be able to fund a purchase through equity release. 

One example is unlocking a cash lump sum from your main home to put down a deposit on another property, or buy it outright. Another option is to arrange equity release on a property you want to buy in order to complete the purchase. 

These options exist because of the increasingly flexible nature of equity release plans on the market. Our selected equity release advisers can help you understand what’s available and help secure a suitable product. Call us on 0800 096 2215 or request a call back for a time that is convenient to you to arrange an initial appointment with an expert.

Truth #3 – Having bad credit history won’t usually stop you from being approved

Many people consider equity release as a way to get on top of their finances and pay off mounting loans and credit card bills. But if previous debts have led to you having a poor credit history, you might worry that you won’t be eligible. The good news is that simply having a poor credit history is unlikely to affect your eligibility.

As there are no mandatory monthly repayments with equity release, you don’t have to prove your income. That’s why having a poor credit history won’t usually be an issue, although you may find that during your application your lender insists that:

• You use some of your equity release cash to pay off any secured loan arrears.
• You pay off other debts such as credit card debt from your equity release money so creditors do not process a claim via the courts.
• You repay debts related to any County Court Judgements (CCJs) with the money you release, or before your equity release money is released. 
• You settle an outstanding Individual Voluntary Arrangement. Your lender will specify whether you need to do this before applying, or once your plan has completed and you have received your money.

Truth #4 – You could access a better equity release deal if you have a health condition

The last of our ‘4 little known truths about equity release’ is one that may not be ‘little known’ for much longer as more and more people are finding out about it.

A special type of equity release is for those living with certain health conditions or lifestyle choices. An enhanced lifetime mortgage could see you achieving a lower interest rate fixed for life, a higher cash release amount, or both. 

Common qualifying health conditions include high blood pressure, high cholesterol and diabetes. Many other conditions could also entitle you to the lowest rates. They include a history of cancer, heart attacks or having a very high or low body mass index (BMI). Even being a smoker now or in the past could see you qualify

Not all lenders offer enhanced terms, so some advisers may not automatically check your eligibility. But at Equity Release Wise we don’t want anybody to miss out. To find out if you qualify for enhanced terms, contact us and our selected advisers will look into your eligibility.

Four equity release myths

Despite the wealth of information out there, many myths about equity release continue to spread. To help you separate fact from fiction, we’ve answered some of the most common equity release myths that you might come across.

Equity release myth #1: You could end up owing more than your home is worth

Myth busted: A property can never go into negative equity when equity release is in place.

This is one of the most common equity release myths. Some years ago it was possible to owe more than a house is worth, but today’s plans are much safer and very heavily regulated. By selecting a plan approved by the Equity Release Council, you can be certain that no matter how much interest accrues on your plan, you will never owe more than the value of your home. 

The ‘no negative equity guarantee’ is one of the Equity Release Council’s Product Standards. As long as your lender is a member, this standard will protect you and your family.

Equity release myth #2: You won’t be able to leave an inheritance

Myth busted: Many equity release plans enable you to guarantee an inheritance for your loved ones. 

With a lifetime mortgage you can choose to ring fence a percentage of your home’s value. This ring fenced amount is a guaranteed inheritance, regardless of how much interest accrues on your plan. With a home reversion plan, you can hold back a percentage of your home’s value that you don’t sell to the reversion company. The company returns this to your family once your house is sold. Usually it’s when you pass away or move into long term care.

Equity release myth #3: You won’t be able to move home with a plan

Myth busted: You can certainly move home after arranging an equity release plan: it is in fact a protected right. 

The Equity Release Council has a strict set of standards that all members must follow. One of them is that customers can move home and take their plan with them, as long as the new home meets their lender’s criteria. 

Equity release myth #4: You can’t arrange equity release if you have previously been declared bankrupt

Myth busted: This is far from the truth: you simply need to be ‘discharged’ from bankruptcy.

This means you’ll need to be released from any debts and any restrictions that were put in place by your bankruptcy. Being discharged from bankruptcy usually happens automatically after 12 months. It will remain on your credit file for six years but as we have said already, a bad credit history shouldn’t affect you being approved for a plan.

Pros and cons of equity release

So you’ve uncovered four lesser known truths about equity release, busted some common equity release myths… what else is there to know? 

Well, as much as we believe in equity release as a way to help over-55s take control of their finances, we know it isn’t right for everyone. We always want to provide a balanced view so before we finish, here are some of the main equity release pros and cons for you to consider…

Pros

• You can unlock the tax-free money you need without having to sell or downsize your home.
• You can continue to live in your own home for the rest of your life, or until you move into long-term care.
• You don’t have to make regular interest payments as the loan plus interest is repaid from the sale of your home. (But you can make voluntary payments without incurring penalties if you wish to reduce the total amount repayable.) 
• You can choose to receive the money as a tax-free lump sum or by drawing down regular, smaller amounts as and when needed.
• Equity release can be a lifeline for over-55s stuck on an interest-only mortgage with no other means of repaying it.

Cons

• Equity release will reduce the value of your estate and the amount of inheritance you leave to your family.
• The total loan amount can grow quickly as the interest rolls up on a compound basis. (However, you can reduce this by making interest payments with an interest-only lifetime mortgage.)
• Releasing equity may affect your entitlement to some means-tested state benefits.
• If you are receiving home care fully or partially funded by your local council, a cash release may affect your entitlement, or you may have to pay more towards your care.
• There may be early repayment fees to consider if you wish to repay the loan early, although some lenders waive these in some circumstances.

You can find out more about benefits and drawbacks of equity release by visiting our information page: The pros and cons of equity release.

Summary: getting the truth about equity release

If you have any more questions after reading through the above information, your next best step could be to talk to an equity release expert. Nothing quite matches having a conversation with someone who really understands equity release and how it could work for you.

At Equity Release Wise, our selected advisers are authorised and regulated by the Financial Conduct Authority to give you all the guidance you need to make an informed decision. They are also members of the Equity Release Council, giving you further reassurance that you’ll be told the truth about equity release and what a plan could mean for you.

For extra peace of mind, all the initial advice you receive will be free of charge, regardless of how many quotations you request or questions you ask. In fact, you will only receive a fee for advice if you choose to go ahead with a plan. To find out how much you could borrow, check here – or talk to one of our friendly consultants by calling 0800 096 2215 or request a call back to arrange pressure-free advice and information.

About Richard Groom. A writer with 20+ years’ experience across several sectors including financial services, Richard has a passion for writing clear and simple content on even the most complex of subjects. In his spare time, Richard loves exploring the hills and mountains of the UK on long walks with his faithful cocker spaniel. Follow Richard on LinkedIn