What is the equity release no negative equity guarantee?

Page last reviewed: 22nd October 2024 ︱Next review date: 22nd October 2025

How to avoid owing more than the value of your home

Written in line with our editorial policy.

When taking out an equity release plan, it’s important to check that certain guarantees are in place to protect our rights. One of the biggest concerns equity release customers naturally have is the issue of negative equity. Specifically speaking, can we fall into it with a plan and how we can protect ourselves from it?

To help answer the question “what is the equity release no negative equity guarantee?” we will be discussing the following in today’s article:

• What is equity release?
• What is negative equity?
• What is a no negative equity guarantee?
• How do I include a no negative equity guarantee on my plan?
• Are there any other equity release guarantees?

We hope this article will help you understand everything you want to know about the equity release no negative equity guarantee. 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 if you just want to know how much you could unlock from your home, check your eligibility and get your free quote now.

What is equity release?

If you are a homeowner aged 55+ you may be able to use equity release to unlock tax-free cash from your home. 

A lifetime mortgage is the most popular type of equity release. If you wish, instead of making monthly repayments, you can leave the interest to roll-up. When you pass away or move into long-term care then your home is put for sale to repay the loan plus interest.

If you have any outstanding mortgage on your home then you would need to use the money you release to clear that first. But after that, you can spend the money on almost anything, from home improvements and holidays to topping up your retirement income. Take a look at just some of the popular reasons for equity release here. 

Not yet old enough to arrange a plan? There may be other ways to release equity if you are under 55. 

What is negative equity?

A property is in negative equity if its value is less than the mortgage that the homeowner has on it. It is typically a result of falling property prices. So if the property were sold, it wouldn’t raise enough money to fully repay the loan secured against it.

Negative equity has been a significant issue for many homeowners during periods of economic downturn, especially when house prices have plummeted. For instance, the UK housing market crash of the early 1990s and the 2008 financial crisis left many property owners facing negative equity, unable to sell or remortgage their homes without incurring a loss.

For those considering equity release, the prospect of negative equity can raise concerns. With an equity release mortgage, the loan amount, plus any accrued interest, is typically repaid when the property is sold—usually when the homeowner passes away or moves into long-term care. 

As interest on equity release mortgages compounds over time, the debt can grow quickly, particularly if no voluntary payments are made to offset it. This has the potential to eat into the estate’s value, leaving less for beneficiaries. In a worst-case scenario, homeowners may worry about leaving behind a debt that exceeds the property’s value.

However, the ‘no negative equity guarantee’ ensures that this is now not something to worry about. Thanks to this guarantee, which is a feature of any plan from providers who are members of the Equity Release Council, nobody will have to pay back more than the house is worth.

What is a no negative equity guarantee?

A no negative equity guarantee means that you will never owe more to your equity release lender than your property is worth, regardless of how much interest accrues on your plan. 

The guarantee was introduced in 1991 by the newly formed industry body, Safe Home Income Plans (SHIP). This safeguard was designed to protect homeowners and their families from the risk of accumulating a debt that exceeds the value of the home. SHIP was later relaunched as the Equity Release Council and the guarantee stayed in place. 

So what is the equity release no negative equity guarantee? In summary, it’s a guarantee that neither you nor your estate will be responsible for paying any shortfall between the money owed and the property value. That’s true even if property prices fall or considerable interest builds up on the loan.

If, at the time your property is sold – whether after your death or when you move into long-term care – the sale proceeds are less than the outstanding loan balance (including interest due), your equity release provider cannot demand any additional money. The debt is settled entirely by the sale of the home. Neither you, your family, your estate or your beneficiaries are liable to cover any remaining amount.

For those considering equity release, no negative equity guarantees offer real peace of mind. It means you can release equity from your home to boost your retirement finances without worrying that you’ll leave behind a financial burden for your loved ones.

How do I include a no negative equity guarantee on my plan?

You can ensure the no negative equity guarantee is built into your equity release plan by only choosing a provider who is a member of the Equity Release Council.

All plan providers who are members of the Equity Release Council must abide by its strict set of rules which protect the rights of customers. These include the equity release ‘no negative equity guarantee’, which 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.”

For your peace of mind, our selected advisers will only recommend plans from providers who are members of the Equity Release Council to ensure they meet their high level of standards.

Are there any other equity release guarantees?

As the equity release market continues to grow and evolve, and as a result of the Equity Release Council’s work, you will benefit from a number of other guarantees built into your equity release plan.

In addition to the no-negative equity guarantee, these standards and rules are in place to protect consumers from the ‘equity release horror stories’ of 30+ years ago. 

Here are some of the important protections that equity release customers are benefitting from today:

• The right to stay in your home. You can stay in your home until you, or the last surviving homeowner, passes away or moves into long-term care. 
• The right to sell your home and move. 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.
• The right to make penalty-free payments on your plan. You will have the right to make voluntary payments, up to a certain amount each year, without incurring penalties.
• A cap on interest rates. Lifetime mortgages must include a fixed rate for each release or, if you arrange a plan with a variable rate, this must be capped for the life of the loan.

Read our article on the equity release guarantees for more information on the protection these offer.

Speak to a specialist

By understanding the different equity release protections and guarantees for customers, comparing plans and providers and seeking professional advice, you can make informed decisions that will help you achieve your financial goals for retirement.

As part of 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 “What is the equity release no negative equity guarantee?” and 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.

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