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Mis-sold Equity Release. Six Things That May Surprise You.


Although equity release has soared in popularity in recent times, many people still have misconceptions about how it works. 

The number of products on the market has increased over the years, and there are a variety of flexible features to sort through, so your options have never been more varied. This increased choice can also make for increased complexity and is one reason why over 90% of over 50s still believe the myths about equity release.

The six equity release myths that follow often lead to people overlooking the benefits of a lifetime mortgage, the most popular product. 

This article helps to debunk those myths and, if you still have further questions, you can should consult a qualified Financial Adviser.  They should offer you a no-obligation chat to give you the option to learn more about how equity release actually works. 

1: You can end up owing more than your home is worth

There are safeguards in place to ensure you never owe more than your home is worth. 

Provided you take out an equity release plan with a provider approved by the Equity Release Council, your plan will come with what is known as a no-negative-equity guarantee. This ensures you will never owe more than the value of your home when it is sold.

In the unlikely event that the market value of your home falls to less than the amount of your lifetime mortgage, the remaining balance will be written off. Typically, once the mortgage has been repaid, any remaining funds will be paid to your estate, or be distributed in accordance with your will. 

2: You have to make monthly payments

With a lifetime mortgage, whether or not to make payments is entirely up to you. As of March 2022, all new lifetime mortgage plans from lenders that are members of the Equity Release Council guarantee you the right to make optional, penalty-free repayments. These allowances usually cover up to 10% of the mortgage balance per year, but you can also choose to clear the interest monthly.

If you choose not to make any payments, then interest on the amount you’ve borrowed will roll up over time. This, along with the initial amount borrowed, only has to be paid back when the home is sold, when the last homeowner either passes away or moves into permanent long-term care.

3: You will no longer own your home

You still own your home if you take out equity release with a lifetime mortgage. This type of product doesn’t involve selling your home to the lender. Instead, you are simply borrowing against it, and you remain the owner.

The other type of equity release product, a home reversion plan, involves selling part or all of your property to a provider in exchange for a cash lump sum. However, home reversion plans account for less than 1 per cent of the market.

Unlike a conventional mortgage, a lifetime mortgage has no fixed end date, so the mortgage lasts for as long as you need it to. As many lenders restrict the choice of mortgages for the over 60s, this can be invaluable for older homeowners.

You will also still have the right to move home with equity release. Another safeguard of the Equity Release Council is guaranteed portability, meaning you can take your lifetime mortgage to a new home as long as it meets the lender’s criteria. If the new home is a lower value, then you may have to pay a portion of the lifetime mortgage back, which could come with early repayment charges.

4: You cannot release equity if you have a mortgage

Having a mortgage doesn’t mean you cannot release equity from your home. 

In fact, using property wealth to help pay off an existing mortgage is one of the most popular uses of a lifetime mortgage.

Steve Wilkie, Executive Chairman of equity release specialist Responsible Equity Release, explains:

“With a lifetime mortgage, the customer receives cash in exchange for a first charge on their property. This will then be used towards repaying the existing mortgage, all in the same legal transaction. They’ve now got a lifetime term, and no worries over repayment. 

Customers who want to make regular monthly interest payments can choose a suitable plan and it may be possible to set up a direct debit. If they can’t afford to pay anymore, the mortgage doesn’t default it automatically switches to rolled-up interest."

5: There won’t be anything left to leave your loved ones

Lifetime mortgages have become increasingly flexible in recent years, and there are plans available which allow you to protect a portion of your equity for inheritance.

Alternatively, if you don’t want your loved ones to have to wait until you die before receiving financial support from you, you could use equity release to provide them with an early inheritance. Bear in mind, however, that using a portion of your equity now means that the value of your estate will be reduced. Receiving a cash lump sum could also affect your entitlement to means-tested benefits. 

If gifting an early inheritance is of interest to you, you will be joining countless homeowners who enjoyed doing the same. In fact, according to YouGov data, since 2020 more than a third of first-time buyers have received some form of help from their parents. 

With the average new equity release customer unlocking almost £100,000 from their homes, there could be plenty available to offer support to your loved ones whilst still achieving your own financial goals.

6: It is an expensive way to borrow

Customers are often surprised at how cost-effective lifetime mortgages have become. 

As equity release has increased in popularity, the options available to customers have also increased, with many offering different opportunities to control the cost. 

For example, you can choose to withdraw one initial lump sum, while also allocating a reserve account of further funds that can be drawn down at a later date. Interest is not charged on the reserve until the money is released, providing you with a rainy-day fund to use in the future. This can offer you an effective way of limiting the roll-up of interest.


You should be aware though that any future money accessed will be fixed at the prevailing rate of the time of release, so any future releases could have a higher or lower interest rate than your initial sum. 

In addition to ways to mitigate the roll-up of interest, the interest rates themselves can be competitive. As they can be fixed for life, they don’t suffer at the hands of market shifts like variable rates on traditional borrowing might be. 

Your personal equity release adviser will also provide a personalised illustration, showing exactly how much you would owe over time should you choose to release equity. You can use this to consider your plans and whether you want to make any payments over time. 

More questions about equity release?

Go to the Equity Release Council website and search for an approved and qualified Financial Adviser near you. They can answer all your initial questions, offer personalised and no-obligation advice and book you in for your free no-obligation appointment at your convenience. 

All the plans recommended by them should be from lenders that are members of the Equity Release Council, which means that you will benefit from their customer-focused safeguards.

Despite modern Equity Release regulations offering some protection it can still be mis-sold. If you suspect that you, or a loved one has been mis-sold Equity Release contact Claimline Legal now for a FREE no obligation case review.

Claimline Legal is UK owned and UK based. We have been involved in personal financial claims for over 14 years. No upfront fees.

0800 779 7457


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