A recent report by the Adam Smith Institute questioned the security of the equity release sector on the basis of undervalued no-negative equity guarantees. But with equity release continuing to grow in popularity as a source of later life income, it's important that the safeguards and assurances featured as part of these plans are recognised.
Once upon a time, equity release suffered a dent to its reputation thanks to unscrupulous lenders. However, with the introduction of rigorous regulation, the industry has undergone a profound transformation.
Product diversity and a consistent focus on the needs and security of borrowers, coupled with the varied economic pressures faced by over-55’s in the UK today, have seen its popularity soar.
Over £3bn pounds was released last year alone, and the trend looks set to continue with almost £1bn released in the second quarter of 2018 alone¹.
Modern equity release products called Lifetime Mortgages allow over-55 UK homeowners to borrow against the value of their homes.
Unlike other equity release products, such as Home Reversion plans, borrowers are guaranteed to retain full homeownership for life.
The cash they release is tax-free, and once it is used to clear any debt secured against the property – such as an existing repayment mortgage – the remainder can be spent entirely as they wish.
With a Lifetime Mortgage, there are no required monthly payments, and interest rates are either fixed for life or capped.
The loan is repaid only once the last deedholder residing in the property either passes away or moves into long-term care. The amount borrowed, plus interest accrued, can be repaid through the sale of the property.
By borrowing against their house in this way, the value of an estate may be reduced in the future, and it could affect their entitlement to means-tested state benefits.
It is important that if you are considering equity release that you get a personalised illustration of the features and risk from your adviser.
Lenders approved by the industry regulatory body, the Equity Release Council, provide equity release products that uphold a number of guarantees, which includes the no-negative equity guarantee.
This guarantees that borrowers will never owe more than the value of their home, and that they will never pass on Lifetime Mortgage debt to their heirs. This is supported by the fundamental security features that are built into this guarantee, including analysis of house price trends, extensive stress testing, and significant extra risk capital.
All of these contribute to ensure that the risk of the no-negative equity guarantee lies with the lender, not the borrower. With all Lifetime Mortgages provided by a lender approved by the ERC, customers benefit from three levels of protection: structured and regulated financial advice to begin with, independent face-to-face legal advice should they wish to proceed, and finally clear product safeguards in the long term.
Equity release is not a product to be considered without first seeking advice, but it can provide a life-changing sum of money to over-55 homeowners.
Whether the tax-free cash released is used for fulfilling retirement dreams, helping the family when they really need it, or simply for providing a cash cushion for later life expenses, it can make a huge difference.
Contact Responsible's Information Team today for a free, no-obligation chat, or use our online calculator to see how much you could release.
Who is Responsible Equity Release?
Savings Champion has partnered with award-winning equity release specialists Responsible Equity Release.
Responsible Equity Release have been providing the nation’s homeowners over 55 with quality later-life financial solutions since 2010.
Like us, they are passionate about what they do and combine modern financial solutions with good old-fashioned customer service.
Responsible Equity Release have a nationwide team of equity release experts on hand, ready to discuss your needs and wants for your financial future.
All the providers they recommend are approved by the Equity Release Council, meaning that all customer-focused safeguards come as standard.
Giving you the peace of mind to enjoy the comfortable retirement you deserve. With free, no obligation advice and personalised illustrations, they can help you find the Lifetime Mortgage that will match your later life ambitions.
This expertise is vital, as accessing some of the equity from your home with a Lifetime Mortgage may affect the value of your estate and your entitlement to means-tested state benefits. Plans are available that can help you to mitigate these impacts.
Notes
Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is Authorised and Regulated by the Financial Conduct Authority and is entered on the Financial Services Register under reference 610205. Only if case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490.
1. Source: Mortgage Finance Gazette, ‘Equity release lending within reach of £1bn for a single quarter’, 20/07/18
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