Author: , CertPFS, CertCII(MP), CeRGI, CeLTM, CeRER
Last updated: August 3rd, 2022
Here at John Whyte Equity Release Sussex, we recognise that there’s much confusing and misleading information out there about lifetime mortgages. If you’ve read somewhere that equity release is best avoided, perhaps it’s time to think again.
Perceptions are changing, and there’s been a significant market growth and demand over the last few years – which should tell us something. As independent equity release experts and members of the Equity Release Council, as well as recently being accredited under SOLLA (Society of Later Life Adviser) and their new Later Life Lending Advice Standard (LLLAS), we feel well equipped to dispel some of the most common myths circulating. So, here goes:
1. Lifetime mortgages should only be used as a last resort
It is arguable whether this was ever true but even if it was, this is certainly no longer the case. In fact, a lifetime mortgage can be a very useful flexible financial option that allows you to tap into your property wealth to fund a variety of later life needs. Most people use the money to remortgage, make home improvements or as a gift to their children – but you can use the funds however you see fit.
2. You have to stay in the same property for the rest of your life
While the assumption is that you WANT to stay in the same property for the rest of your life, and you have the right to do so with a lifetime mortgage, you don’t have to stay there. Most lifetime mortgages allow you to move home. You can transfer the loan across to the new property as long as the mortgage provider’s terms and criteria are satisfied. A partial repayment may be required.
3. You will leave your family with debt when you pass away
A common misconception is that equity release erodes your inheritance, so that your heirs are left with debt. The truth is that, provided that all the terms and conditions of the lifetime mortgage are met, no debt is left to your estate. In fact, you will never owe more than the value of your home when it is sold, either when you move into long-term care or upon death.
4. There is no possibility to reduce the outstanding debt
Again, not the case. In truth, with some products you can make partial repayments up to a capped amount each year without incurring early repayment charges. Other products offer fixed early repayment charges that only apply for a set time period. Others again give you the option to make monthly interest repayments, though this won’t reduce the amount borrowed but merely slow that rate of increase of the capital loan.
5. You can’t get equity release if there’s an outstanding mortgage
This is not true. You can apply for a lifetime mortgage provided you pay off the existing mortgage balance, which can be done either with the funds released from the equity or by other financial means. You should be aware that using equity release to repay an existing mortgage may cost you more in the long term.
6. You can’t leave your property as an inheritance
Not necessarily. A lifetime mortgage is normally repaid via the sale of the property after you move into long-term care or upon your death. Once the loan has been repaid when the property is sold, any money left over can go to your beneficiaries. What’s more, some products allow you to ringfence part of your home’s equity to leave as inheritance.
7. Lifetime mortgages are unsafe and unregulated
This is not true. Lifetime mortgages are regulated by the Financial Conduct Authority (FCA). In addition, the Equity Release Council (ERC) was set up in 2012. This was when it was renamed, having previously been SHIP (Safe Home Income Plans) which started way back 1991, to provide consumer protection specifically for this market. Members, including ourselves, must adhere to the ERC’s standards of conduct and practice.
8. You will lose ownership and control over your home
No, there is no reason why you would lose control over your home. With a lifetime mortgage, you remain the owner of your property for as long as you want to live there, just as you would with a regular mortgage, as long as you meet the conditions of the lifetime mortgage.
9. Your debt will be greater than the value of your home
The ERC Statement of Principles contains a ‘No Negative Equity Guarantee’, which all members must offer. This means that you will never owe more than your property is worth once sold, even if this should be less than the amount outstanding. The guarantee applies when you meet the product’s terms and conditions, when you move into long-term care or upon death.
If you think a lifetime mortgage may be the right solution for your financial circumstances, speaking to an experienced professional adviser is key to help you make the best decision. Here at John Whyte Equity Release Sussex, we offer friendly, independent specialist advice to help you choose an equity release plan that’s right for you. If you would like to contact us, please send us a short message here and we will be in touch as soon as we can. Rest assured that any initial discussions or meetings are free of charge and without obligation.