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Is Equity Release right for you?
If you are over 55 you will almost certainly have been targeted by companies offering to help you release money from your property through an equity release scheme.
In fact, these specialised mortgages have never been more popular. A record 82,791 customers took £3.94 billion from their homes in 2018, according to the Equity Release Council – a 29% year-on-year increase.
The cash that equity release customers release against their properties is commonly spent on home improvements, care fees, clearing debts, holidays and helping their children buy their own homes.
However, equity release is not always the best answer for everyone. It might be better to downsize or re-mortgage or find other ways to borrow money that have no impact on the interest charged against your home.
One form of an equity release mortgages is called a Lifetime Mortgage, which works by charging interest on the money released and the loan is paid back when the last person remaining in the house dies, sells the home or goes into care.
The rule of thumb is that debt will roughly double every 14 years based on current interest rates. So, if you release £50,000 at aged 55 (the youngest you can take out this type of mortgage), you will end up paying £100,000 when you are just 69 years old. And it will be much more if you live longer.
The result may be very little money left to pay for care or to pass on to children – or even the loss of equity completely.
The second common form of equity release product is called a Home Reversion Plan. This also allows you to access cash, but the lender buys all or part of the house for less than the market value. When the house is sold, the proceeds are split according to the equity share owned by you and the home reversion company.
According to the Financial Conduct Authority (FCA) there were 139 different equity release products in the market as of August 2018. That compares to 58 in 2016 and only 24 in 2007.
“This is mirrored in the proliferation of advertising we’re seeing,” said Christopher Woolard, the FCA’s Executive Director of Strategy and Competition in a speech to the UK Finance Annual Mortgage Conference.
He said he had recently received a note through his door that “promised ‘help if you are 55 and over’ and attempted to woo with offers of a ‘free initial consultation’ and ‘nothing to pay until completion’.”
“As a regulator, we are squarely behind the development of innovative products that meet the changing needs of consumers,” he continued. “But we are looking to firms to use their common sense when lending, and make sure they’re matching the right products to the right consumers.
“Past experience shows that when lenders compete on loosening their criteria, it does not end well – for consumers or firms.”
However, the best way to find out whether equity release is right for you is to talk to us. We are Chartered Financial Advisers and will ensure you are aware of all the alternatives that might be suitable for you based on your personal circumstances.
We can also guide you round all the various equity release products now available and help find you the deal that works best for you. Give us a call now for an initial discussion with one of our experts.