This blog comes from an interview with Andy Rowden, Over 55s’ Finance Specialist
Just to give you some idea about equity release and lifetime mortgages; I’ve been in the industry now 20 plus years and first came across equity release many years ago when it came out. Basically, back then I wouldn’t touch it with a barge pole. The more I looked into it, the more I heard about it and I definitely was not very comfortable with the market at all. And my opinion was probably justified due to it’s very poor image and the way some things went on.
A few years ago though, the FCA, (Financial Conduct Authority) got hold of equity release and basically made them heavily regulated, even more so than standard mortgages are these days. I mean, as I said I’ve been a fully qualified mortgage adviser now for 20 years or so and yet I had to take additional qualifications to be able to advise on lifetime mortgages. So there’s a lot more regulation about it. It’s a more structured process and there are a lot more safeguards built in.
But there’s also a few myths now about lifetime mortgages (equity release) that really arose from what happened a few years ago.
MYTH 1: “I won’t own my own home”
You will. If you have a lifetime mortgage it does not mean you sell your home to a lender. It basically is secured against your own home, but it will be repaid when the last remaining borrower dies or moves out of the home and into long-term care. So just like your own mortgage, if you like, you still own that property yourself, even though there’s a loan from a lender against it.
MYTH 2: “I won’t be able to move house”
You will. You can actually transfer the mortgage to a new property providing the property is suitable, and that will be based on the own individual lender requirements. So you can check that and confirm it with the individual lender.
MYTH 3: “I’ll end up paying more than the value of my home and the children will inherit my debt.”
Well, this is a bit of a throwback to the original equity release, where it was possible to actually end up owing more than what your property was worth. All lifetime mortgages now (equity release mortgages) are protected by the equity release council with a no negative equity guarantee. So it’s 100% protected and nobody will owe more than the value of their home.
MYTH 4: “I already have an outstanding mortgage. I can’t release equity.”
Even if you already have a mortgage, you can (providing you qualify age-wise and from the property type point of view) have a lifetime mortgage that would repay the existing mortgage. And if necessary, give you some additional funds outside of that as well if you require.
MYTH 5: “I’ll have to make monthly repayments with a lifetime mortgage.”
The answer is that some products do offer the option to pay off the interest, but you’re not obliged to make repayments at all. You can make monthly payments to keep the capital the same throughout the term. You can make some payments. You can make no payments. It’s entirely up to you. You have that choice. The products now are far more flexible than they ever used to be. And you do have all of those options, should you want to choose one or more of them.
MYTH 6: “Equity release is just a last resort for people desperate for money.”
The answer really is people take out lifetime mortgages for a whole bunch of different reasons. More than a third, use the money to refurbish and renovate their home. I had a gentleman and his wife who loved their home, but did not want to move. However, he was finding that as he got older getting upstairs was more of a challenge. They couldn’t quite fit a stair lift into the property, so he raised some finance to put a lift in so he could go in and use that instead. So they were able to live in the home that they both loved and, of course, have the practical side with the lift as well. 17% of the people use their money for a dream holiday and 13% use the money to help buy a new vehicle.
So anyway, hope that all helps and why not check out our page on equity release for more information!