Six equity release myths exploded

By Mike LeGassick, Independent Financial Adviser

If you’re in need of a cash lump sum, you may consider joining the thousands of people who have taken out an Equity Release plan, enabling them to borrow money against the value of their home.  Yet ‘urban myths’ about Equity Release still abound; so it's time to set the record straight.   

Myth 1:  You won’t own your home any more.

There are two ways to release the cash tied in up your home.  The first is ‘home reversion’ – and in that instance then yes, your home is sold to the home reversion company in exchange for cash and the right to remain living in the property. 

But the far more usual approach to equity release is a ‘lifetime mortgage’, covered by The Equity Release Council guarantees.  You borrow money against the value of your home, but the property remains yours.  The equity release company is granted a legal charge over your title deeds to ensure that any remaining debt is repaid to them when the property is sold.  But importantly the property is still yours and you can live in it for the rest of your life if you want to.

Myth 2:  You won’t have anything to leave the kids.

That’s often not the case.  If you have borrowed money against your property then any outstanding debt will have to be repaid from your estate; and depending on how much debt remains, your family may have to sell your property to repay it.  It’s unlikely the remaining debt will swallow up the entire value of your estate.  And remember that equity release comes with a 'no negative equity guarantee', so you can never leave your family with a debt greater than the value of your property. So there will probably still be something left for the family, as well as any money raised on the equity release.

Myth 3:  Equity Release is only for old people trying to make ends meet.

Actually, Equity Release schemes are available to those over the age of 55 (not old at all!!) – and the money can be used for all sorts of things!  So even if you have a few years left in the workplace, you can still get a cash lump sum and have time to make some repayments before you retire.

Do remember that with the pension rules changing in 2015 there may be other ways for you to access cash – ie, from your pension pot.  It’s vital to take advice from an independent financial adviser to find your best option. 

Myth 4:  Equity Release is for people with large properties and no cash.

Equity release can also be used to help you move home – even to a more expensive property.  If the proceeds from your property sale aren’t sufficient, you could make up the difference by releasing some equity from your new home.   This could be an option for those who may struggle to get a conventional mortgage over the age of 55.

Myth 5:  You can get some money to help out the family.

Yes you can, and it’s appealing to think that you could help a child with a deposit on their first home.  But… do tread carefully, because sizeable cash gifts are subject to tax legislation.  If that’s your intention, do ensure you take specialist advice.

Myth 6:  An Equity Release specialist is better than an IFA.

An Equity Release Specialist probably wants to sell you an equity release scheme.  An Independent Financial Adviser knows that there are often other ways to help you achieve your goals.  An IFA has no vested interests, and will look at the whole picture of your finances, such as how Equity Release might affect your benefit entitlements (or even if you’re receiving all you could!).  

For equity release advice tailored to your situation, get in touch today.