Equity release companies: checks and warning signs

Are you considering equity release but are unsure about which companies to trust? This guide is here to help. We're here to provide clear, easy-to-understand advice, giving you the knowledge needed to make smart decisions.

In this guide, we’ll cover:

• The basics of equity release and how it works.
• The potential risks involved with your home’s equity.
• How to get a fair and realistic quote.
• The differences between lifetime mortgages and home reversion plans.
• Which companies to steer clear of when considering equity release.

Equity release can seem complex. It’s normal to feel a bit confused, but don’t worry; we’ve got your back. This guide will break down the process, helping you understand what to look out for and how to protect your interests.

Let’s dive in and make sense of equity release together.

What is equity release and how does it work?

Equity release is an option for seniors who own their own home and want to access a lump sum or drawdown to help fund their retirement, or to pay for added luxuries such as holidays. 

A lifetime mortgage is a loan secured on your home; you retain ownership. Interest that is not paid is added to the balance. The loan is usually settled when the last borrower dies or moves permanently into care, subject to the contract. Required or optional repayments vary by product. A home reversion plan is a sale of part or all of your home, usually below open-market value, in return for money and the right to remain under the plan’s occupancy terms. It is not a loan. The provider receives its agreed share when the home is sold.

A lifetime mortgage normally becomes repayable after the final borrower dies or moves permanently into care, subject to its terms. Sale is common, but other available funds may be used.

It might be possible to pay off equity release companies early, but this could trigger expensive early repayment charges. 

Getting involved in an equity release scheme is serious and should be carefully considered against alternative ways to raise cash in later life, such as downsizing. 

What is the best type of equity release?

Lifetime mortgages involve secured debt that can grow with unpaid interest. Home reversion sells a share below market value; the provider’s future sale share follows the agreement. Compare both cost structures with advice.

There is no best type of equity release, but it is well-known that more seniors in the UK use a lifetime mortgage over a home reversion plan. 

Who is equity release available to?

Most standard lifetime mortgages start at age 55, but some payment-term lifetime mortgages are available from 50 and require interest payments for an agreed period. Home-reversion minimum ages and all other eligibility rules depend on the provider. Check the youngest applicant’s age and the actual product criteria.

Eligibility depends on the product, age, property, credit circumstances and any required affordability assessment. Minimum property values and borrowing limits are lender-specific. An existing mortgage normally has to be cleared at completion, often using some of the released funds.

Do I need financial advice before using equity release?

Before applying to equity release providers you must receive financial advice and legal advice, which is also a rule imposed on lenders by the Equity Release Council. Financial advice is there to ensure you understand the equity release plan and how it works, as well as assess you for options to avoid equity release. Legal advice is required to ensure you have not been mis-sold an equity release plan from a rogue financial adviser, as well as to represent you throughout the process of applying. 

Choose an eligible legal professional acceptable to the provider with appropriate experience. There is no general Council rule requiring every advising firm to employ four lawyers.

Are equity release schemes safe?

Regulation and safeguards do not make equity release risk-free or universally suitable. Verify the firm’s identity and relevant FCA permissions and check the actual product protections.

The advantages of equity release

The benefits of using an equity release plan are:

1. You can receive a lump sum or drawdown loan
2. A lifetime-mortgage advance is borrowed capital; permitted uses, later taxes and benefits effects need separate assessment.
3. It is an effective method of large borrowing for seniors
4. Many lifetime mortgages allow interest to roll up without regular payments, but some require interest payments for a set period. Optional repayments, limits and any early-repayment charges depend on the contract.
5. Occupancy, insurance, maintenance and any payment or rent obligations depend on the plan.
6. It can be an optimum method of making later life more enjoyable and comfortable

What are the downsides of equity release?

Along with the overall cost of equity release and how this expense harms the value of your estate you pass on, there are some other downsides to equity release. The main ones are:

1. Early-exit costs vary. Obtain the actual charge schedule and exemptions; no universal rule removes every charge after ten years.
2. Released funds increase accessible cash but also create debt or sell ownership. Retained capital may affect means-tested benefits.
3. You may need permission from the equity release company if you want to make significant changes to the property, such as restructuring the layout. 

Do any banks do equity release?

Current bank involvement and product availability must be checked directly. A historic Nationwide reference does not establish a current offer.

Where can you get an equity release plan?

Equity release products are available from a wide range of companies that operate in the financial or even insurance industries. For example, companies like Aviva offer an equity release loan. Some companies work exclusively to offer equity release products only. 

Equity release companies to avoid

Not everyone should pick the same equity release company because the company and its product needs to suit your personal circumstances. The same logic should be applied when trying to find out which equity release companies to avoid. One company could offer the best deal for someone, but should be avoided by another person. 

Nevertheless, here are some tips on how to identify the companies to avoid for you:

1. Everyone should avoid companies that are not authorised and regulated by the Financial Conduct Authority. 
2. It is highly recommended to avoid companies that are not members of the Equity Release Council, unless recommended otherwise by your independent financial adviser.
3. Avoid companies with no downsizing clause if you have plans to move to a less valuable home in the future. Without a downsizing clause, you may be required to pay excessive early repayment costs.
4. Avoid companies that do not allow you to make voluntary interest payments if you plan on trying to mitigate the debt and maximise the estate you pass on to loved ones. 

How to compare provider terms

The following names are examples discussed in the sector, not a verified current ranking. Ask an authorised adviser to check availability and terms.

1. more 2 life: compare the specific plan’s payment allowances, charges, moving conditions and flexibility.
2. LV: check current availability and the exact early-repayment schedule; historic ten-year terms are not a universal promise.
3. Pure Retirement: assess current product terms, distribution and service evidence; an adviser-only route does not itself prove suitability.
4. Nationwide: verify current availability directly; this guide does not confirm a current £1,000 cashback or free-advice promotion.
5. OneFamily: obtain a current written advice quote, market-coverage explanation and commission disclosure; do not rely on a historic £950 fee.

Should I use equity release?

The best way of understanding if equity release is the best option in your circumstances is to keep reading about these products and speak with an equity release adviser. Martin Lewis suggests that it is best used as late as possible and by releasing as little as possible. 

Just remember to only use equity release companies that are fully regulated by the Financial Conduct Authority.