Darren from the team here at Bespoke Mortgage and Finance Centre joins the Mortgage and Protection Podcast to do some myth-busting on equity release. 

What is Equity Release?

Equity Release is a way of releasing the wealth that’s tied up in your property, without having to sell it and move to another home. Equity Release Mortgages are often referred to as Lifetime Mortgages.

Is Equity Release regulated? Is it safe?

It’s absolutely safe. It’s governed by the Financial Conduct Authority (FCA) and also overseen by the Equity Release Council. 

The FCA does not regulate accountants and solicitors

Who are the Equity Release Council? 

It’s a trade based organisation, for advisers like myself, plus lenders, accountants, and solicitors.

If I take out a Lifetime Mortgage do I have to stay in my property for the rest of my life?

No, you don’t have to stay in the property forever. A lot of people do because they want to, but under Equity Release Council standards, a Lifetime Mortgage product must be portable. That means if you want to downsize, or even upsize, you can move your mortgage to another property as long as it meets certain criteria.

If the property is not suitable then, depending on the lender, you could repay the loan by selling your home.

With a Lifetime Mortgage, can you end up owing more than your house is worth?

The Equity Release Council has made sure that this isn’t possible. All approved products have a ‘no negative equity’ guarantee – so you can never owe more than the property value.

There are also inheritance guarantees. You can have it written into your contract that you want to leave, for example, 25% of your home’s value to family – and that will be guaranteed. 

Are there ways to mitigate the increase in balance?

From a broker’s point of view, this is where we make sure we understand what the client wants and mitigate how much is owed to the lenders. Some policies let you pay the interest each month, so it’s taken care of rather than being rolled up and paid at the end of the loan. Other policies allow you to pay off some of the loan too. 

What does roll up of interest involve?

Ïf you go for a policy where you’re unable to pay the interest, or you choose not to, the interest that you would normally pay on a mortgage gets added onto the loan and increases each year.

You will eventually end up paying interest on this interest, so every year the debt gets bigger.

How do you reduce the debt?

One option is to make overpayments – but not all policies allow this, so it’s a good example of why you should seek advice before taking out an Equity Release policy. If you go for a product that doesn’t let you overpay, it could cost you a lot more money – even though it gives you a better rate of borrowing.

Other products will allow you to pay off the debt after three years, 10 years, or more. 

How can a Mortgage Broker help?

Ëquity release is a complex area and getting advice is essential. People talk about Equity Release, Lifetime Mortgages, Home Reversions and it can be confusing. 

This is a developing market and still needs to be smoothed out. There’s a lot of advertising pushing these products – but you shouldn’t make this decision quickly or without expert advice. 

Also, equity release isn’t suitable for everyone. You must be over 55, with the right size property and the right type of home. For more information on Equity Release and how you could make it work for you, talk to Bespoke Mortgages today.

For Home Reversion plans we act as introducers only.

Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration.