Misconceptions around equity release still prevent people from seriously considering it an option.
Claire Singleton (pictured) is chief executive of Legal & General Home Finance
In a new world of increasingly lengthy retirements, many homeowners are looking for ways to unlock money tied up in their property. With the aspiration for many to remain in their home, equity release has become a popular option.
However, misconceptions around equity release still prevent people from seriously considering it an option.
At Legal & General we recently conducted a series of focus groups to gauge current views on lifetime mortgages. The conversations uncovered five common myths.
Myth one: I will be thrown out of my home
No - you will never be expected to move out of your home. If you do take out a lifetime mortgage, crucially you are still the owner of your house and the property stays in your name.
The Equity Release Council states that when you take out equity against your home, you and your partner still jointly own the property and you both have the right to live there as long as you want until the last survivor dies or goes into long-term care.
Myth two: It’s expensive and interest will roll up over time
Not necessarily. When you can take your lump sum or are drip fed an ‘income’, you can choose for the interest to be added to the total loan amount. This means you don’t have to pay off any of the interest over your lifetime, and instead it is repaid when your home is sold.
However, if you do want to manage the amount you owe, many providers offer the option to repay some or all of the interest, like Legal and General’s Optional Payment Lifetime Mortgage. This means it won’t roll up over time and the original loan amount stays the same.
Myth three: I will end up in negative equity
Things have moved on dramatically. Today the market is highly regulated, with the Financial Conduct Authority (FCA) introducing important consumer protections. Most lenders are also members of the Equity Release Council.
This means that any plan you take out by an approved provider will come with a no-negative-equity guarantee.
So, whatever happens, you’ll never repay more than the value of your home when it is sold - even if that’s less than the amount owing.
Myth four: If I use equity release, I have to take all my money in go
Nowadays, there is greater flexibility. A typical lifetime mortgage releases a percentage of your housing equity as a lump sum. You will also need to pay-off your existing mortgage if you have one.
However, taking a large amount isn’t for everyone. With modern lifetime mortgage products, you don’t have to take all the money in one go.
For example, providers like Legal & General offer the option to ‘draw down’ your housing wealth in stages. Taking the money in smaller sums, rather than in one go, will also reduce the amount of unpaid interest that is added to the loan each month.
Myth five: I won’t be able to leave my family an inheritance
That depends. Equity release can actually be used to gift your children or grandchildren an early ‘living’ inheritance, at a time when it really matters and when you can see them enjoy it. Recipients of such ‘gifts’ may have to pay inheritance tax in the future. Instead of receiving it in their 60s or 70s when it’s “too late”, it could give them support at a time when it’s arguably more beneficial.
So to conclude, it’s no wonder borrowers are struggling to separate fact from fiction when it comes to equity release.
We’ve seen a number of inaccurate statements, masquerading as fact.
It is true that equity release won’t be right for everyone. But for some people, unlocking money tied up in property can make a real difference to their lives. Because of the long-term nature of a lifetime mortgage, it’s important that people get good financial and legal advice.
A financial adviser will help homeowners to understand which product is right for their needs and also get to grips with the potential tax and inheritance implications.
For those who are considering equity release our new in-house financial advice offering aims to cut through the complexity of later life lending, helping people achieve their best and most colourful retirement.
