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Understanding Equity Release Facts From Fiction. # Part 2

Mark Gregory

Last updated on 27 June 2023

In our last article, we looked at the truth behind the common myths we get presented with when it comes to equity release. Here, we extend our series to look at more collective misconceptions.

Some key points we revealed in Part 1:

• Equity release is available to homeowners aged 55 or over and can allow people to access equity from their home without necessarily the requirement of monthly repayments.
• Lifetime Mortgages and Home Reversion Plans are two possible ways to access equity release that that are available in the UK.
• Plans by approved providers of the Equity Release Council (and who are authorised by the Financial Conduct Authority) come with a ‘no negative equity guarantee’, which guarantees that you will never owe more than the property is worth when it is sold.
• Equity release may reduce the value of your home, but you can ringfence a portion for your loved ones’ inheritance.

# Myth 2: If I go into care, we will lose the house.

Moving into permanent care is one of the reasons an existing equity release plan can be brought to an end.

An equity release plan is designed to enable you to stay living in your home until you either die or become unable to live there. If you need to move into long-term care, and don’t have a spouse or partner who is entitled to live in the property, it usually needs be sold and the amount you borrowed, plus interest, will be paid back to your equity release provider.

In these types of cases, you will not be required to pay any early repayment charges, which can sometimes be repayable if you decide to repay your plan early.

In your equity release contract with your lender, this will explain how much time you are entitled to, or how long is allowed for those acting on your behalf to sell your property. Typically, lenders allow 12 months for the property to be sold in order to repay the equity release loan. This should give ample time for the best price to be obtained for the property. During this slae period, remember that interest will still be accruing on the loan, hence it’s in your best interest to sell the property quickly, but for the best price.

If you have taken out equity release jointly with your spouse, then the plan will continue as long as one of you remains in the home. So, if one of the joint borrowers moves into care, the equity release plan will keep running while the other partner stays in their property.

This also applies should one of you pass away. As long as the surviving borrower remains in the home, there is no obligation to pay off the equity release borrowed against the property.

It is only if the last remaining borrower either passes away or needs to move into permanent residential care that the above scenario will play out – your home will usually be sold to pay back the later life lending plan that you took out. However, this doesn’t have to be the case. Should there be alternative funds available to repay the loan – such as children collaborating, they could pay off the equity release loan with these funds – this retaining the property which they can use for rental or investment purposes.

Various instances can apply depending on your situation, so in any case if you’re planning to take out equity release, we always recommend that you discuss all of the features of the plan with no obligation and receive a personalised illustration with us at Equity Release Supermarket where one of our friendly advisers will help and guide you.

Our smartER™ tool can also help customers to research their equity release options. The platform enables you to view products and deals based on your personal circumstances to give you a much clearer idea of your options. It’s easy to use and will only show you accurate rates and exact amounts that are available.

# Fact 2: If you have a joint equity release plan, it only ends when the last owner dies or goes into permanent long-term care.

It's important to weigh the risks and benefits before making any decisions and consult with a financial adviser after your initial research.

However, what today’s lifetime mortgages do offer is the security of knowing you can remain in your property for life, even if one party dies or moves into care.

A feature that most lifetime mortgage plans have these days for joint couples is the 3-Year No early Repayment Charge – ‘Compassionate window’. This means that for any joint applicants, should one partner die, the remaining partner has the ability to repay the loan with no penalty within the next three years of that event. This means that if they want to pay up and move in with family, they can do knowing no early repayment charge will be levied by the provider.

This issue previously has been charged against the equity release industry on older plans – particularly Aviva with their original equity release plans having up to a 25% early repayment charge. With this new compassionate window joint equity release owners on certain plans have that important feature to consider.