Myth Busters! Top 5 equity release myths
You shouldn’t believe everything you hear
Napoleon wasn’t that short, carrots don’t make you see in the dark and did Edison really invent the light bulb?
That’s the thing about myths – they’re not true. All it takes is a bit of research to find out the facts for yourself – and the same goes for misconceptions around equity release. You might’ve come across these top five myths before, and you wouldn’t be alone.
Despite this, more and more homeowners are consider releasing equity, freeing up cash from their biggest asset. Whether they use the lump sum to boost their income in laterlife, give their kids an early inheritance or to do up the house, equity release has come a long way over the years.
What started the rumours?
Well, they weren’t rumours to start with. In the UK, there was a small equity release boom in the 1980s. Because equity release wasn’t regulated like it is today, some people who took out equity release plans found themselves in negative equity, eventually passing on debts. Today, equity release has come along way with the market overseen by the Equity Release Council, who aim to put the customers interests to the forefront ensuring protections and safeguards. Reputable equity release providers will be members of the Equity Release Council, meaning they have all agreed to abide by the high standards and rules set by the industry body. These providers should always act with the best interests of the customer and will have designed suitable plans that come with a no negative equity guarantee.
With this in mind, we’re busting the top five equity release myths. There’s no denying it might not be the right route for everyone, but by setting the record straight and understanding the common myths, you might feel a little more comfortable that it could be an option to consider.
1.MYTH: “It’s unregulated”
TRUTH: Infact, since 2004, the equity release market has been fully regulated and supervised by the Financial Conduct Authority (FCA) – that regulates all equity release providers and advisors to protect customers and put your mind at rest. Whichever plan you choose, there is significant consumer protection in place.
There is also an industry trade body, the Equity Release Council (ERC), that represents providers, qualified advisers, intermediaries and surveyors who work in the sector, giving you extra peace of mind. Members must adhere to the high standards set by the Council which puts in place safeguards for you.
2. MYTH: “I’ll leave my family in debt”
TRUTH: Equity release plans offered by Equity Release Council members, whether a lifetime mortgage or home reversion scheme, come with a “no negative equity” guarantee so there’s no chance of you leaving debt if house prices fall. The way it works is that the amount you release plus the interest accrued will be a debt against your home, but the amount owed to your provider will never be greater than the value of your house. The debt will be repaid from the sale of your home when you pass away or move into long term care.
And even if there’s a downturn in the property market and your house was to fall in value (and the sale of your property wasn’t enough to repay the plan), any debt would be written off when the house is sold, so you needn’t worry.
3. MYTH: “I can’t leave an inheritance”
TRUTH: Whilst you won’t be able to leave your home behind for your family, the money from the sale of the home will be used to pay off your loan – and anything leftover will go to your estate.
If leaving a legacy is important to you, it’s easier to choose plan whereby you can guarantee an inheritance for your loved ones. When you speak to your advisor, let them know your wishes and they can arrange for you to ringfence some of the value of your home and leave it to your family.
4. MYTH: “I can’t move house”
TRUTH: With most plans this isn’t true – as long as your new property meets the criteria of your equity release provider, you can usually move and take your plan with you. You won’t have to pay a penalty, however there are costs involved. If you think you may want to move home in the future, it’s worth discussing this with your provider when you take out your plan, although if you don’t this doesn’t mean you won’t be able to move. All the information you need will be explained to you fully before you get your plan.
One thing to bear in mind is that you should check that the value and type of the property you want to buy is an amount that the equity release provider is happy to lend the same amount against. If not, it is possible you’ll have to pay off some of the amount you’ve borrowed early.
5. MYTH: “I could lose my home and be forced to move out”
TRUTH: With a lifetime mortgage, you will still be the legal owner of your home. And with a home reversion plan, you sell part of your home in exchange for a cash sum – but you can live there rent free until the house is sold when you pass away or move into long-term residential care. Rules set by the Equity Release Council state that when you take out an equity release plan, you have the right to keep living in your home.
Equity Release myths dispelled
So, there you go – we’ve revealed the most common myths that may have made you unsure about equity release. If you want to learn more about the types of plans available and what could be suitable for you, why not read through our handy equity release guide? And if you want to get your head around all the complicated, take a look at our A-Z of equity release to help you understand all jargon.
Remember – releasing the equity in your home is a big decision, so it’s important to consider all of your options and weigh up the pros and cons before making any decisions. You should seek independent professional advice, to make sure you understand what’s involved and whether equity release is suitable for you.
For more information about equity release visit the SunLife Equity Release Service page today.
Article correct as of 29/03/2018
The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to the accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.
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