Is Equity Release High Risk or Low Risk?

Published / Last Updated on 12/10/2023

To answer the question of whether equity release is high risk or low risk, we need to understand what equity release actually is.

What is Equity Release?

This is where you release money from the value of you home via an equity release loan, full sale or partial sale of the property where you continue to live in the property.

Usually available for people aged 55 plus that own their home without a mortgage (or if there is a mortgage, it will be repaid by the equity release).

Equity release schemes can either be:

  • Retirement Mortgage:  where you borrow money and only pay the interest on the debt, much on the same way as an interest only mortgage.  Your debt is then repaid either when you die or when the property is sold if you move into a care home.
  • Lifetime Mortgage:  where you borrow money and the interest charged on the debt is never paid meaning that interest rolls up over the years giving you an even bigger debt that is repaid when you die or when the property is sold if you move into a care home.
  • Home Reversion:  You sell a share or the whole of your home for a monetary figure.  You no longer own the share in your property and when property prices increase and the value of the property and equity in it increases, when sold, you do not get the full value of the equity but the equity of your share only and the equity release company receives their share.

Is Equity Release High Risk or Safe?

Gone are the dark days of the 1980s and early 1990s where if the debt on your property went above the value of your property, you would be in negative equity and forced to leave.  Nowadays:

  • Equity release is now fully regulated by the Financial Conduct Authority meaning only qualified advisers with an equity release qualification can help you and they must ensure that the product is both suitable and affordable for your needs as well as ensuring it is in your best interests and you understand the pros and cons of what you are doing.
  • All equity release providers are also regulated by the FCA and have a no negative equity guarantee meaning you can live in the property for the rest of your days without fear of being evicted and only leave when you die or move to a care home.
  • Equity release is now a lower risk option and whilst it should not be a 'first stop' option for many, it is still a valid option for those that we consider suitable.

What Age?

Equity release is usually available from age 55 but in most cases, better rates and higher equity release values can be achieved when you are aged 65 yrs +.

How Much and When?

  • You should only consider equity release if you have no other savings (with the exception of pension funds that may be outside your estate on death).
  • You may consider using equity release to reduce the value of your estate.
  • You should not release equity simply to invest it or leave it in the bank.  It makes no sense to release equity and be charged say 6% pa if the money your released is then invested and earning lower than this.
  • You should only release equity to pay off other debts or borrowing if you have exhausted all other options.
  • You should only release equity if you really do plan to stay in your home and never plan to move again (unless you need to move to a care home).
  • Where possible, you should not release the full amount available to you and only drawdown what you need.  This means that you will not be paying interest on money that are yet to drawdown on.

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