We’ve produced an equity release myth buster to correct the common misconceptions around equity release.
The 1980s
Equity release has previously had bad press.
In the 1980s, there was a mini equity release boom in the UK but unfortunately, the products offered at that time were not regulated and allowed firms to give poor advice, many of which were also unqualified to give advice on equity release.
The problems arose when, in the early 1990s, the rapidly rising interest rates, alongside fixed annuities and falling house prices, left borrowers with negative equity on their homes and monthly arrears. Families couldn’t move house and were also left with debts that they had no way of paying off. Equity Release was deemed to be inflexible and expensive and so the bad press began….
Things have changed!
Today, equity release is very different from what it was in the 1980s.
In 1990, with the growing need for consumer protection, the Safe Home Income Plans (SHIP) were formed. These plans ensured that all members abide by strict rules and regulations.
In 2012, built on the legacy of SHIP, the Equity Release Council was launched and now represents over 180 member firms – including Bower and over 500 individuals. Each member is committed to the Council’s aims and objectives to ensure good outcomes for the consumer where protections and safeguards are a continuing feature.
Back in 2004, the Government announced that lifetime mortgages would be regulated by the Financial Services Authority (FSA). On 1 April 2013, The Financial Conduct Authority (FCA) took over these responsibilities and now continue to regulate the conduct of more than 58,000 businesses with the aim to make business honest, fair and effective so that consumers get a fair deal.
How the market has grown
Over the last few years, the equity release market has been growing at an average rate of 7.1 percent per quarter (1)*. Perhaps due to an increase in property prices and the need for another means of income for retirement.
Although the market is going from strength to strength – it is projected to be worth over £5b in 2020(2)* and was worth £3.94b in 2018(3)*. There are still many equity release myths flying around, which could be holding back many thousands of people who, if they were to consider it as a financial option, may benefit from equity release.
This is why we’ve listed the common equity release myths and put the record straight, so you have the correct information to help you come to a balanced decision that’s right for you.
Equity Release Myths
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“I’ll lose my home” – MYTH
No, you won’t.
With all equity release plans, you can remain in your property for life, provided it remains your main residence. With lifetime mortgage plans you still own 100% of your property so could never be forced to move out. Plus, all Equity Release Council plans offer a ‘No Negative Equity Guarantee’ which means you will never owe more than the value of your property when it is sold. This also means that you will not pass on any debt to your loved ones.
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“I can’t leave an inheritance”- MYTH
Yes, you can leave an inheritance.
If you have an equity release plan you can still leave an inheritance for your family.
With some plans, there is the optional feature of the “Inheritance Protection Guarantee” which allows you to protect a fixed percentage of your home’s value for your beneficiaries.
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“It’s not regulated”- MYTH
Equity release is regulated.
Today, all equity release plans are regulated by the Financial Conduct Authority.
On top of this, Equity Release Council approved plans come with a set of guarantees that act to protect your financial future. Bower only recommend ERC plans or those which offer the same set of guarantees.
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“I won’t be able to move house” – MYTH
Many plans are portable which means you can take your plan to a new property (subject to lenders criteria).
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“I’ll have to make monthly repayments” – MYTH
With a lifetime mortgage, you do not need to make any monthly repayments
Although you can if you want to. You decide whether you repay all, some, or none of the interest over the life of your plan.
As with all lifetime mortgages, the loan plus interest continues until the plan comes to an end, usually when you pass away or move into long-term care.
At this point, the property is sold to repay the original sum borrowed, plus any interest that’s accrued.
Find out more…
There are many new plans available, so why not find out how much you could release from your home, using Bower’s free equity release calculator which gives an instant result.
If you have any other questions around equity release and want to know the facts from the fiction, just get in touch and we will explain in more detail, anything you’re unsure of.
(1)*Business Telegraph – Dramatic rise in equity release by over-55s to fund retirement.
(2)*Financial Reporter – Equity release lending hits record quarter in Q4.
(3)*Mortgage Finance Gazette – Equity release market will exceed £5 billion in 2020.
