Is equity release safe?

This content was reviewed and approved by Amy Fletcher.

The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.

If you’re 55 or over and a homeowner, equity release can help you unlock cash tied up in your property without having to move or downsize.

But one of the first questions people ask is: ‘Is equity release safe?’

This guide will explain more about equity release, how it could give you a more comfortable lifestyle, and examine the various safeguards and protections in place.

What is equity release?

Equity release is a simple way of turning the value of your home into tax-free cash and comes with several safety features. It’s a loan that’s repaid from the sale of your property when the last borrower dies or moves into long-term care.

With equity release, you can continue living in your home while you spend the money how you wish, whether to fund your retirement, go on holiday, or help your family.

People often take out equity release through a lifetime mortgage, and you can receive your money as a lump sum or series of smaller payments, called a drawdown.

Lifetime mortgages have changed a lot in recent years, with more controls and regulations in place to protect customers. If you have heard negative stories about equity release this is normally associated with historic plans. This guide covers what equity release means today and the safeguards in place.

Is equity release safe?

Equity release plans are generally protected by a range of safeguards and assurances, giving you peace of mind. These include:

1. Equity release products must be regulated by the Financial Conduct Authority

If you take out equity release you are bound by the terms and conditions of the plan. However, regulations exist to ensure these are fair and reasonable for the customer.

The Financial Conduct Authority (FCA) plays a leading role in regulating equity release and maintaining fair and proper conduct within the industry for the financial safety of customers. Customers are also protected so their loan will continue if their lender goes out of business.

2. Plans must meet Equity Release Council standards

The Equity Release Council is the regulatory body that sets industry standards for equity release providers. It isn’t compulsory to join if you provide equity release products, and joining requires you to comply with the standards set. Many companies that provide equity release products do join to ensure that the equity release market works for consumers. An Independent Financial Adviser can confirm whether a plan you have been offered meets Equity Release Council standards.

Please note, LV= is a full and active member of the council and all of the equity release products we provide advice on comply with their rules and principles.

3. Plans must include a No Negative Equity Guarantee

Providers who are registered with the Equity Release Council have to include a No Negative Equity Guarantee. This means you won’t owe more than the value of your property when it’s sold, even if the debt amounts to more than the sale price.

No Negative Equity Guarantees give you and your loved ones financial protection so that no debt is passed on, once the property is sold.

Equity release providers signed up to Equity Release Council standards include a No Negative Equity Guarantee with their products. However, No Negative Equity Guarantees don’t apply to all circumstances, so it’s essential to review the terms and conditions.

4. Can only be taken out through a qualified financial adviser

Equity release is only available through a qualified adviser. This will give you confidence that the choice you will make is based on professional and independent advice. You could also speak to an equity release adviser who will explain the different types of equity release and the pros and cons of each product.

Seeking qualified financial advice will help you feel safe and understand more about equity release and the options open to you. The information will ensure you are making the right choice and are aware of any benefits and drawbacks.

For an estimate of how much money you could release in equity, use our equity release calculator.

What are the advantages of equity release?

There are many advantages to equity release, and most plans meet Equity Release Council standards as mentioned above. This means:

	You won’t owe more than what your property is worth Plans from providers on the Equity Release Council have a No Negative Equity Guarantee so you won’t owe more than the value of your home when it is sold and no debt will be passed on to your loved ones from your estate.
	You can still move to another property if you wish In most cases, if you’re looking to relocate, you can transfer a plan to your new home penalty-free, so long as your provider approves the new property. However, if you have a home reversion plan you won’t own all your property and may not have enough equity to move.
	You’ll have the right to remain in your property for life With a lifetime mortgage specifically, you’ll retain full ownership of your home. This means you won’t have to downsize unless you want to, and you’ll have the right to live in the property for the rest of your life.
	You’ll be able to downsize in the future if that’s what you decide Most plans allow you to downsize. Some providers offer downsizing protection to stop homeowners from incurring penalties when moving home.

Are there alternatives to equity release?

Whether equity release is right for you depends on your personal circumstances and financial goals. You may find other ways of borrowing money better suited to your needs, such as an annuity that provides a guaranteed income for a fixed term or the rest of your life. You may also have other assets and savings you could use instead of taking out equity release or any type of loan.

If equity release isn’t right for you, there are other ways to use your home to access cash including downsizing or remortgaging. A financial adviser will explain the possible alternatives to equity release that would suit your financial circumstances.

Equity release FAQs

When people ask: ‘Is equity release safe?’ it is usually followed by a series of frequently asked questions which we highlight below.

Do you pay interest on equity release?

There is no requirement to make regular interest payments, but you will be charged compound interest on a lifetime mortgage. The interest rate you’ll be charged varies between each lender and product but will be fixed for the duration of the loan. As lifetime mortgages use compound interest, the interest can mount up quickly if you choose not to make regular interest payments.

With a home reversion plan however, you don't pay interest because it's not a loan; you sell a portion (or all) of your home to a provider for a tax-free lump sum, retaining the right to live there rent-free, and the provider gets their share of the sale proceeds when the home is eventually sold.

Will equity release impact any inheritance I leave behind?

Releasing equity from your home will reduce the amount of money you can leave behind as an inheritance.

Some providers offer inheritance protection which allows you to safeguard a portion of the value of your home to pass on to others. However, doing this can reduce the amount of equity release money you can borrow.

Do early repayment charges apply to equity release?

If you repay some or all of your lifetime mortgage early (before the last-named borrower dies or moves into full-time care) you may incur an early repayment charge. If you have a current mortgage, you may also be charged for early repayment by your lender in the process of setting up your new equity release plan.

Will equity release affect my means-tested state benefits?

Any cash you access through equity release could affect the money you’re receiving in means-tested state benefits both now and in the future. That’s why it’s essential to seek financial advice when considering equity release.

If you’ve asked, ‘Is equity release safe?’ speak to one of our financial advisers

Our friendly advisers are ready to answer all your questions about lifetime mortgages and can help you to understand the best retirement financial options for you and your circumstances. Contact us today and find out more about your equity release options.