Equity Release Companies To Avoid? Reviewed

Are you considering equity release but are unsure about which companies to trust? This guide is here to help. Each month, more than 7,000 people visit our website seeking guidance on equity release. 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. 

An equity release product – there are two available in the UK – provides the senior with a percentage of their home equity as a loan that does not need to be repaid each month in the way that most loans are repaid. 

Instead of repaying each month, the senior only repays their debts when they move into long-term care or after death from their estate. In either situation, the debt is repaid from the money raised from the sale of their home, unless paid off in cash by estate beneficiaries. 

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 and home reversion plans offer seniors two ways of achieving equity release. A lifetime mortgage debt grows over time but the amount owed can escalate and become unpredictable. On the other hand, home reversion plans offer somewhat more of an assurance of what your loan will cost in the end, but the total debt increase is instant. 

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?

Equity release is only available to senior homeowners above the age of 55. If you want to apply for an equity release product as joint homeowners then both applicants need to suffice the age criteria. A handful of lenders will apply maximum age limits to their equity release products. For example, if you want a lifetime mortgage from Nationwide, you must be between 55 and 84 to be considered. 

It is only possible to release equity from your main residence rather than second properties. In most cases, the home must not have any debt still attached, including a residential mortgage or secured loans. 

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. 

Interestingly, the council also states you can only get equity release legal advice from a law firm with at least four lawyers working at the company. This could rule out smaller local firms from helping you with equity release.  

Are equity release schemes safe?

Equity release products are safe when accessed from a lender that is authorised and regulated by the Financial Conduct Authority. This is a sign that the lender is a legitimate financial company in the UK. However, for additional protection, you should also be searching for lenders that are members of the Equity Release Council. 

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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. The money is not taxed and can be spent on anything you wish
3. It is an effective method of large borrowing for seniors
4. You do not have to repay the loan or the interest each month
5. You continue to live in the property and pay no (new) mortgage or rent
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. It is exceptionally expensive to get out of an equity release scheme. Most equity release companies charge high early repayment charges so it can be unaffordable for many to exit their plan. However, there are some equity release providers which wipe all of their early repayments costs after ten years. 
2. The loan you receive could significantly improve your wealth, but this new wealth could mean you become ineligible for some means-tested state benefits, such as Universal Credit or Pension Credits. 
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?

Yes, a number of UK banks also offer their own equity release product, which you may need to book an appointment to discuss. Few banks openly advertise the types of equity release on offer via their website. At the time of publication, Nationwide Bank provides plenty of detail about its lifetime mortgage product online. 

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. 

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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. 

Some of the best equity release companies

Now that we have explained some things that will help you identify equity release companies to avoid, it’s time to give you some companies to consider. Here are some of the best equity release companies at the time of writing, but you should always do your own updated research and speak with a financial adviser for personalised advice. 

1. More 2 Life – this company offers some of the best flexibility and will not charge the earth if you want to pay off some of the plan to downsize.
2. LV – this company is great when it comes to early repayment charges. In fact, after ten years there are no early repayment fees at all!
3. Pure Retirement – a highly respected company that has won awards for its customer service. A good sign is that they will only accept applications directly from independent financial advisers. 
4. Nationwide – this high-street bank offers free in-house advice and up to £1,000 cashback, which could be used to pay for an equity release solicitor. 
5. One Family – low costs and fixed advice at £950 inc VAT, they can be a cost-effective option for people taking out larger loans. 

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. 

Things to consider

Equity release will involve a home reversion or a lifetime mortgage, which is secured against your property and will reduce the value of your estate and impact funding long-term care. Our equity release partner, Age Partnership provides a personalised illustration to explain the full details. The money you release, plus the accrued interest is then repaid when you die or move into long-term care. Advice is required before proceeding with equity release and any existing mortgage must be repaid. Age Partnership provide initial advice for free and without obligation. Only if your case completes would Age Partnership’s advice fee of £1,895 be payable. Other lender and solicitor fees may apply.