In this brief blog, we are going to discuss equity release companies to avoid, the downfalls of equity release and how you can ensure you find a good equity release company.
When looking to get an equity release product you may want to seek an independent financial advisor if you are worried that there may some equity release companies to avoid.
The independent financial advisors will have enough experience to let you know what equity release companies to avoid and what equity release providers may be best for you based on your personal circumstances.
Almost 40,000 households used equity-release products in the first half of 2018, according to figures from the Equity Release Council (ERC), an industry body.
What is equity release?
Equity release is when you release the equity in your home for a large lump sum, a regular income or a mixture of both. You can continue living in your home till you die or have to move into a care home and the capital plus interest is repaid by selling the house once you have moved out or died.
This means you don’t have to make any regular repayments. Equity release is usually only available to those over 55 years.
There are two main types of equity release and both have their pros and cons.
Types of equity release
Home reversion plans
What are the disadvantages of equity release?
There are some disadvantages of equity release. Here are some of the disadvantages of equity release below:
Equity release could leave you with negative equity. This is when what you owe on your mortgage is more than the value of your home. This is less prevalent now as all equity release lenders who are part of the equity release council offer a no negative guarantee.
Equity release could cost a lot and this is especially true for those who don’t make any monthly mortgage repayments to their equity release products. The interest in equity release products is compounded and this means the debt you owe rises at a much faster rate than if the interest was charged on simple interest.
When drawing down money from an equity release prodcut you may have income tax liability depending on how much equity you draw down per year. You should seek independent financial or tax advice on this if you are concerned about having an income tax to pay.
Loss of means-tested benefits
Depending on how much income you drawdown from your equity release product each year you may end up losing access to means-tested benefits. If you are concerned about losing access to means-tested benefits then you should speak to the citizen’s advice bureau about that.
Loss of inheritance
Due to how much interest is charged on an equity release product you may find that you don’t have much equity in your property to leave to your family as an inheritance. In most cases you can ringfence some equity you can be guaranteed your family will be able to receive some inheritance.
Are equity release schemes safe?
Equity release schemes are relatively safe as the equity release providers who provide the equity release schemes are regulated by the financial conduct authority and most equity release providers are members of the equity release council which provides them with strict guidelines on how to treat customers. Because the equity release scheme providers are regulated by the FCA then if you are mis-sold a product you can claim compensation from the financial services compensation scheme.
Most equity release providers now provide a no-negative equity guarantee which ensures they are much safer than they might have been in the past.
What is the interest rate on equity release?
The interest rate on equity release products will change from time to time as the equity release providers react to the economic environment. Interest rates on equity release products will range from between 4% and 6% typically. Lifetime mortgages will be usually around 5% and 6% but these rates can be fixed for the life of the equity release product.
What equity release companies to avoid?
There aren’t that many equity release companies to avoid as the regulation round equity release companies has now been tightened and most equity release lenders operating in the UK equity release market are members of the equity release council.
Bridgewater Equity Release
Legal & General
More 2 Life
Nationwide Building Society
The above equity release providers are all members of the equity release council so these are not equity release companies to avoid.
Equity release companies to avoid
The equity release companies to avoid are the ones who don’t offer the below:
A no negative equity guarantee
Great care to vulnerable customers
Don’t follow the equity release council advise
When the interest rates are too high and the customer could have gotten a better-suited product
Where there are incredibly high early repayment charges
Equity release companies offering large loans or mortgages before knowing your circumstances or regardless of your circumstances.
Other equity release companies to avoid are those offering to provide you with an equity release product significantly much earlier than other providers.
In this brief blog, we discussed equity release companies to avoid, the downfalls of equity release and how you can ensure you find a good equity release company. If you have any questions or comments please let us know below.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.