The five equity release guarantees explained

What equity release guarantees are in place to protect you?

Written in line with our editorial policy.

“Nothing is certain except death and taxes”, or so Benjamin Franklin believed in 1789. However, if you’re considering an equity release plan then there are a few handy guarantees around today that you can add to the list. Five of them in fact.

To help you understand these important equity release guarantees and how they work to protect your rights, we’ve put together the following information:

• What is equity release?
• What are equity release guarantees and who sets them?
• What are the five different equity release guarantees?
  • 1. The no negative equity guarantee
  • 2. The right to stay in your home
  • 3. The right to sell your home and move without penalty
  • 4. The right to make penalty-free payments on your plan
  • 5. Fixed or capped interest rates

We hope this article will help you understand everything you want to know about equity release guarantees. For further information and advice, please don’t hesitate to contact our friendly selected equity release advisers.?

Simply call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment with an adviser for you. Or to find out how much you could unlock from your home, check your eligibility and get your free quote now!

What is equity release?

Before we get going on the crucial safeguards and protections built into a plan, let’s have a quick recap of how a plan actually works.

Equity release is a financial tool that allows homeowners aged 55 or over to unlock some of the tax-free cash from your home’s value without having to sell the property or move out.

There are typically no monthly repayments to make with a lifetime mortgage as the interest can be left to roll up each month. The interest and the loan itself is then typically repaid through the sale of your home when you pass away or move into long-term care. 

However, if you are concerned about the amount owed growing in size over time, there are repayment options available including interest-only plans and making voluntary partial repayments.

Equity release can be a particularly useful financial option for those seeking to top up a retirement income, pay off an outstanding mortgage or meet other financial needs.

Not yet 55? There may be other ways to release equity if you are under 55. 

What are equity release guarantees and who sets them?

The equity release market has grown and evolved quite quickly over the last couple of decades. Today there are many providers offering hundreds of plans between them. 

To protect consumers, the industry’s regulatory body – the Equity Release Council – created a strict set of rules to ensure its members provide a fair and high quality service for all.  

All providers wanting to join their panel of approved members must sign up to abide by their Code of Conduct, which includes five strict standards. These standards, or guarantees, include the right to remain in your home for life and never owing more than the value of your property.

For your peace of mind, our selected advisers will only recommend plans from providers who are members of the Equity Release Council.

You can check if a provider is a member of the Equity Release Council here.

Read on to discover the five standards, or equity release guarantees, that customers are benefitting from today.

What are the five different equity release guarantees?

The equity release guarantees ensure that providers offer products and services which conform to the best practices of the sector.

We will explain these five standards in greater detail further on. In a nutshell, these equity release guarantees mean that all customers will have:

• 1. A no negative equity guarantee
• 2. The right to stay in your home
• 3. The right to sell or move house
• 4. The right to make penalty-free payments
• 5. A cap on interest rates

The Equity Release Council also insists that all customers must receive advice before signing up for a lifetime mortgage or home reversion scheme. This rule helps to prevent equity release horror stories from happening and ensures customers do not rush into a plan if there is a better financial option available to them.

1. The no negative equity guarantee

The Equity Release Council’s no negative equity guarantee states that:

“When your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.”

 This guarantee means that you or your family will never owe more to your equity release lender than your property is worth. That’s regardless of how much interest accrues on your plan. 

As a result, you or your family will not have to make a payment if the property is worth less than the outstanding loan when you pass away or move into long-term care.

2. The right to stay in your home

An equity release plan from a member of the Equity Release Council guarantees that you can stay in your home until you, or the last surviving homeowner, passes away or moves into long-term care. 

This guarantee could be especially important if you love your home or want to stay close to your family and friends – something that many people value a great deal in retirement.

3. The right to sell your home and move without penalty

Lifetime mortgages are typically ‘portable’. This means you have the right to transfer your plan to a different acceptable property if you move. 

By selecting an Equity Release Council approved plan, you will be free to move house and take your plan with you penalty-free, subject to your new home meeting your lender’s criteria.

You can read more about moving and selling your home with equity release here.

4. The right to make penalty-free payments on your plan

All products approved by the Equity Release Council ensure you will also have the right to make voluntary payments towards your plan without incurring penalties. 

Each provider has their own criteria which determine the upper limits for how much you can pay each year before you incur early repayment charges. For instance, Aviva and Just both allow you to make payments of up to 10% of your overall loan every year, penalty-free.

5. Fixed or capped interest rates

Another important equity release guarantee set by the Equity Release Council is that lifetime mortgages must include fixed rates for each release. If you arrange a plan with a variable rate then this must be capped at a stated maximum level for the life of the loan.

This guarantee will allow your adviser to forecast  how much your loan will grow over a set number of years to help you decide if you want to go ahead with a plan. It also means you won’t have to worry about future interest rate hikes above the capped level affecting your plan. 

The guarantee of fixed or capped interest rates will also help you work out the impact a plan will have on the amount of inheritance you leave. This obviously will depend on how long you go on to live after taking out your equity release plan.

Speak to a specialist

Understanding the different equity release guarantees and protections for customers is a great first step, but it’s just one part of the equity release journey. 

You’ll also need to compare plan features and providers and decide which type of plan will best suit your current and future needs. Only then can you make an informed decision to achieve your financial goals for retirement.

To help you navigate the process, our friendly selected advisers will be able to:

• Check your eligibility and if a plan would be the best financial option for you.
• Search for the most competitive equity release quotations.
• Explain all the pros and cons of each type of plan you are considering.
• Help you decide which plan best suits your unique wants and needs.
• Answer all your questions, such as “Are there any additional equity release guarantees included in my plan?”, or any others you might have.
• Expertly guide you through the service.

Our selected equity release specialists are ready and waiting to help you explore your equity options and find the best plan for your needs. Please call 0808 178 3055, or request a call back for a time that suits you. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn