Financial Misconceptions - and possible impacts to consider

Misconceptions - and possible impacts to consider 

Equity Release is available to people over 55. The amount that can be raised is based on age and property value - the older you are, the more you can borrow. Broadly, there are two types of scheme – Home Reversion and Lifetime Mortgage. 

With a Home Reversion Plan, you sell part of the value of your property to the plan provider while retaining the right to remain in the property.  The value released can provide you with a tax free lump sum or regular income. Your home remains yours with no interference from the plan provider and you remain responsible for its upkeep. The percentage you retain in your property remains the same regardless of any property value change.  

The plan ends when you leave the property, either because of death or moving into care. The property is then sold and proceeds shared according to the proportions of ownership. 

With a lifetime mortgage, you don’t sell anything. It is simply a long term mortgage with no compulsory monthly repayments. Instead, interest is added to the balance of the loan and repaid when you sell the property. Any value above the outstanding loan amount is paid to you or your estate.  

A common misconception with equity release is the fear of being forced to sell the home. Nowadays, equity release is regulated by the FCA and tightly controlled. All lenders who are part of the Equity Release Council offering lifetime mortgages offer a ‘No Negative Equity Guarantee’. Therefore, if the amount owing grows beyond the value of the property, it does not become a debt to you or your estate and you won’t be forced to sell it. 

Initially a Lifetime Mortgage helped you borrow money without needing to make monthly repayments, unlocking some of your home’s value without moving. However, with many Interest Only mortgages maturing without repayment plans in place, Lifetime mortgages can be a lifeline to homeowners who can’t repay the mortgage but don’t want to sell the home either. And there are now options allowing you to make repayments if you wish, avoiding interest roll-up. 

When considering equity release, remember the possible impact on next-of-kin. It can be a shock if family members expect to inherit the proceeds of a property sale, not realising an equity release debt must be paid first – potentially leaving no inheritance. We strongly recommend you consult with your family prior to entering into any Equity Release plan.  There are alternatives, like downsizing, that would avoid the need to incur debt.  

If you are considering equity release, make sure you talk to a fully qualified equity release adviser working for a firm regulated by the FCA. They have the knowledge to help you through your options and you will have the protection of FCA rules should things go wrong. 

Craig Davidson 

Davidsons IFA