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Equity Release Advisors – How Do They Help?

Compare equity release

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Do you want to compare equity release methods and know what to look out for? You came to the right place. Throughout this guide, we will discuss the various equity release options and compare the two types of equity release in the UK. 

What is equity release and how does it work?

Equity release is a method of borrowing against your property and is exclusively offered to homeowners over the age of 55. These homeowners can take out a lump sum or drawdown facility which is secured by the home equity on their main residence and does not require the homeowner to make any monthly repayments. 

The only time the homeowner is required to repay the loan is when the last surviving homeowner dies, in which case the money is recovered through the sale proceeds of the property. The property must be sold by beneficiaries to repay the debt, or they may have the option of clearing the debt with cash and keeping the property. 

The property may have to be sold earlier to repay the debt in the event that the homeowner is required to move into long-term residential care. Because they are no longer living at the property, it can be sold to repay the debt earlier. 

There are two ways of achieving equity release as a UK resident, either by taking out a lifetime mortgage or by using an equity release scheme called a home reversion plan. Either of these equity release options should only be considered after receiving financial advice and through a lender that is authorised and regulated by the Financial Conduct Authority. 

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What is the downside to equity release?

Equity release can sound too good to be true. These financial products really do allow you to access a lump sum loan you might not have to pay back until after death. But you should also know they are expensive methods of borrowing. 

Both a lifetime mortgage and a home reversion plan can double the amount you need to pay back. This will have a damning effect on the inheritance you leave behind to loved ones. 

Another downside of equity release plans is that most of them have eye-watering early repayment charges, meaning once you agree there is no getting out. Some lenders like LV and More 2 Life break this trend and offer 0% early repayment fees after 10 years. 

Lifetime mortgage vs home reversion scheme

A lifetime mortgage, also known as an equity release mortgage, provides a lump sum or drawdown loan that is charged with a fixed interest rate each month. You can sometimes volunteer to repay the interest only, but it is not required. If you do not choose to pay the interest back, the interest rolls up and gets added to the total owed, meaning the debt gets bigger after each month. You can use an equity release calculator to see the projected costs of any lifetime mortgage. 

The other type of equity release is a home reversion plan. This equity release product does not charge loan interest. The lender asks for a fixed percentage of the property’s future sale value in exchange for a loan. For example, you could access a loan equal to 30% of the property value but have to give up 65% of the future sale proceeds. 

What is the best type of equity release?

The most popular type of equity release in the UK is lifetime mortgages. Home reversion plans are less common but can still be found advertised with a number of well-known and legitimate lenders. 

Lifetime mortgages could be considered the better option because the debt you owe grows over time, in contrast to home reversion equity release, which can double from the outset. If the homeowner was to die quickly after taking out a home reversion plan, the cost of that loan over a short period would be astronomical. 

On the other hand, home reversion plans offer more assurance of what will need to be repaid because no interest is applied. This could be better if you want more accuracy over how much will be repaid. 

What are good equity release interest rates?

A lifetime mortgage with an interest rate below 5% is among the best deals. The interest rate you are offered on a lifetime mortgage will be determined by a range of factors, including your age. The older you are the lower the equity release interest rates you are likely to be offered. 

What is an equity release adviser?

An equity release adviser is someone who works as a financial adviser and has specialist knowledge in equity release. They will assess you for equity release and possibly help you find the best equity release interest rates. 

Ensure that any adviser you use is authorised and regulated by the Financial Conduct Authority. 

Will equity release advisers help to compare equity release mortgages?

Some equity release advisers work in-house for specific lenders. The lender must give you access to financial advice before accepting your application. So they allow you to get advice from their own advisors rather than using independent advisers. I

In-house equity release advisers must not pressure you into a decision or mislead you, and as they work for one lender, they will not help you to compare the best equity release plans.

Independent equity release advisers might help you compare equity release plans across a number of lenders, and subsequently, help with your application. 

How to compare equity release advisers

When you go seeking an equity release adviser, make sure to target one that has specialist knowledge and experience working in equity release, rather than a generic financial adviser. One way you can do this is to make sure the adviser is a member of the Equity Release Council (more on this to follow!). 

Another thing to consider is an adviser that charges a percentage of your loan for advice, usually between 1% and 4%, or a fixed fee adviser. If you are taking out a larger loan, the fixed fee adviser could save you money. 

What is the Equity Release Council?

The Equity Release Council is a group set up to protect homeowners taking out an equity release plan. All of the council’s members must commit to upholding standards and abiding by the group’s rules.

A number of rules are implemented to protect homeowners, such as guaranteeing they will not be forced to sell early, and the negative equity guarantee. The latter is a guarantee by the lender that they will never chase lifetime mortgage debts that exceed the sale value of your home.  So if your home does not manage to cover the debt owed on your lifetime mortgage, that remaining unpaid debt will be wiped. 

Does equity release affect your state pension?

If you take out an equity release plan and receive a large amount of money, it can affect your eligibility to receive some means-tested state benefits. Thankfully, the basic state pension is not means-tested, meaning your pension payments will remain unaffected by using equity release. 

However, pension credit payments are decided upon based on how much wealth you have. If you previously received pension credits before taking out equity release and have not spent your money, your pension credit payments could be reduced or even stopped. 

Is there a better alternative to equity release?

One alternative to equity release is to move to a less valuable home. If you sell your house and move to a cheaper property, you can create a nest egg to live off in retirement. This could prevent you from having to use an equity release mortgage and ensure your loved ones receive all of your estate when you die, including your home.