So, you’ve heard about equity release, and are wondering what it entails. Great, let’s discuss it in a bit more detail. What exactly is equity release?
Equity release refers to accessing the hidden value tied up in your home. It allows you to access this value in the form of tax-free cash. In other words, you can get a percentage of the market value of your home as a lump sum or regular instalments. However, you can only gain access once you’re 55 years or older.
It’s such a great way to access quick cash when you need it, and during your lifetime you won’t have to worry about instalments or interest charges (which is at an all-time low of 2.25%.) Of course, you’ll need to pay that money back (plus interest) to your provider at a later stage.
How much can you get? Use our Free Equity Release Interest Rates Calculator.
So, you’re certainly in for a treat! You can use your money for your dream vacation, renovating your master bedroom, building a pool house or helping your children out.
Considering Equity Release?
If you’re considering equity release as a way to borrow some money, there are a few things you’ll need to know before deciding.
To help you with this life-changing decision, you need to do the math. Feel free to use the ERIR Calculator and make sure you know exactly what you’re dealing with.
But that’s not all…
You probably have an array of questions about equity release, don’t you? No problem! We’ve taken the time to answer all of the most frequently asked questions for you, right here. You can also ask an expert for advice, and ensure you’ve covered all your bases.
We’ll answer all your questions » Request a Free Call Back from Experts.
Now, if you’re confident that equity release is for you, it’s crucial to request quotes from multiple providers so that you can weigh them up and make your final decision.
What you should Know About the Types of Equity Release?
When thinking about equity release, or considering it as a loan option, you have to do your research so that you know as much as possible. Otherwise, you might encounter some surprises and not the good kind.
Below we discuss the two types of equity release available:
1. Lifetime Mortgage
The first type of equity release scheme is known as a lifetime mortgage. This type lets you take out a mortgage on your home if it’s your primary residence. However, you’ll retain full ownership. You can also make repayments towards the loan or let the interest build up. You’ll also have the option to ringfence part of your property for your family to inherit.
So, any accrued interest will be paid back when you pass away or move into a home for long-term medical care.
2. Home Reversion
The second type is known as a home reversion scheme, which allows you to sell a percentage of your property or your entire property. The buyer will be a home reversion scheme provider, and they’ll pay you a lump sum or regular payments. It’s your choice. However, you have to be at least 60 years old to apply.
Now, consider this:
You can live in your home until you pass away without paying rent or making payments toward the loan. The only catch is that you have to keep the property in good order and insured.
The Benefits & Drawbacks
If your retirement income won’t be enough to sustain you (like you thought it would), then equity release can make all the difference in the world.
- You get cash when you need it, no questions asked.
- You can still live in your home and don’t have to pay rent.
- The cash you receive will be tax-free.
- You won’t be required to make monthly repayments if you don’t want to.
Learn More » Is Equity Release A Good Idea?
The one drawback that is very important to note is that you won’t get your home’s full market value out. Compared to selling your home on the market, you’ll get far less money when going the equity release route.
- Another disadvantage is that your heirs will get less money when you pass away.
- You can end up owing much more than what you borrowed.
- When you pass away, your family will have more stress dealing with the equity release providers.
Learn More » Pitfalls Of Equity Release
Is Equity Release Safe?
If you’re wondering if equity release is the way to go, you need to be satisfied that it’s safe for you. So, let me tell you something. There’s a committee that will oversee and safeguard your equity release process. They’re called the Equity Release Council or the ERC1 and they’ll sure that there is a no negative equity guarantee in place for your equity release plan.
What does this mean for you?
Equity release products are safe as they’re regulated. In the past, these products weren’t as secure as they are today. This is because providers are required to be registered with the FCA2 and comply with their strict rules and codes of conduct.
What are the Interest Rates?
Now, let’s look at the interest rates relating to equity release. Although known to be very high, things have changed. In recent years, rates have hit an all-time low of just 2.25%! The only catch is that you’ll be required to pay interest on the money you release, and in turn, the amount of money you owe will keep increasing over time.
When it comes to a lifetime mortgage, the interest rates are usually fixed, but they can also be variable. With variable interest rates, there’ll be a limit to the loan’s lifespan.
The bottom line is:
Any excess after the sale of your home will be paid to your beneficiaries after you pass away. And when it comes to a home reversion plan, you won’t be charged any interest. It’s crucial to discuss this with potential providers, and your financial adviser to know how much you’ll be paying in interest.
Now, let’s look at some equity release companies…
The Best & Worst Equity Release Companies of 2021
Best in the UK
There are many well-known equity release providers in the UK. More 2 Life, LV, and Aviva are great companies to choose from.
Some companies also worth mentioning include:
- Hodge, which is the longest-established provider in the UK
- HSBC, a bank and financial services company
- Just, a savings, credit, pension and mortgage provider
- Key, an excellent company for equity release advice
- L&G, a multinational financial service provider
However, it’s also good to know which companies to avoid.
Worst in the UK
Any equity release company that doesn’t have a ‘no negative equity guarantee’, that isn’t a member of the ERC, or charge high interest rates should be avoided.
Do your research! To contrast the best and worst companies, let’s look at our top 5.
Top 5 Equity Release Companies
It’s vital for your future finances that you know everything about the companies that provide equity release services. If you choose one of the companies we suggest, you won’t have anything to worry about. Our top 5 providers are reliable, experienced, and will take care of your needs.
Aviva is a household name in the UK. They’re known mainly for their pension plans and insurance products. To add to that, they’re one of the oldest financial service providers. If you’re considering them, it’s good to know that their equity release products are award-winning and that over 200 000 people have made use of them. Since 1998, Aviva has helped people release a total of £7 billion from their homes.
Aviva’s primary services include:
- Inheritance guarantee services
- Voluntary partial repayments
- Enhanced borrowing (if you have certain medical conditions)
- Downsizing protection services
- Relaxed lending services
Aviva has a lot to offer, and they’ll be an excellent choice.
- Hodge Lifetime
In 1965, Hodge Lifetime launched its first equity release plan, making them the longest established provider in the UK. Julian Hodge Bank Limited is the product provider2. As one of the oldest providers, they’ve built up an excellent range of equity release products and an established customer base. They’ve created a superb retirement mortgage range to go with their traditional lifetime mortgage plans.
Hodge Lifetime provides an interest-only mortgage plan requiring monthly interest payments. The rest of the loan must be paid back when you pass away or move into long term care.
- Just Retirement
Extremely popular in the post-retirement marketplace, they’re known for their excellent range of annuities. They’ve also started lending cash through equity release plans.
Let me tell you:
Just Retirement has a unique equity release model, which has proved to be one of its core strengths. Not only do they lend money directly to borrowers, but they also fund other company’s equity release plans. Their equity release plans include a wide range of traditional lifetime mortgages, including drawdown lifetime mortgages, interest-only lifetime mortgages, lump-sum equity plans, and enhanced equity release plans.
- LV (Liverpool Victoria)
LV, or Liverpool Victoria, is known as a mutual society and was established in 1843. Their target market is working-class people to whom they offer a range of equity release plans such as drawdown lifetime mortgages and lump-sum schemes. With this versatile provider, you can get equity release on your primary residence, your secondary residence, and your holiday home.
- Legal & General
They’re also a household name and joined the lifetime mortgage industry in 2015. They have two lifetime mortgage options: the L&G Income Lifetime Mortgage and the L&G Flexible Lifetime Mortgage.
Let’s take a closer look:
• L&G Flexible Lifetime Mortgages
You get colour-coded based on the amount of money you can borrow according to your property’s value (LTV). For example, “Flexible Pink.” The amount of interest you’ll pay will depend on the LTV.
All these are drawdown plans that L&G offer. With these, you’ll be able to borrow a minimum amount of £10,000. The “Flexible” mortgages range allows voluntary repayments which give you up to 10% of what you borrowed annually, but you won’t be penalised.
• L&G Income Lifetime Mortgage
Also colour-coded, the same rule applying to the Flexible Lifetime Mortgage applies here. You’ll pay more interest when the LTV is high. These plans give you a fixed monthly payment for 10-25 years. This amount starts from £200.
Want to Get the Best Rate? » Get Quotes about Equity Release.
Of course, it all depends on what you’re looking for. But overall, here are 20 of the best companies in the UK:
- Age Partnership – a member of the Equity Release Council, quality guaranteed
- Ashfords – advisory service on legal elements regarding mortgages
- Aviva – biggest insurance company in the UK and best pension provider
- Barclays – multinational investment bank and best in business worldwide
- BBC – excellent for lifetime mortgages and reversion plans
- Bridgewater – American, but serve foreign banks, investments and pension funds
- Canada Life – allows you to invest in mid-cap companies
- Club Crown – development on real estate and equity release
- Daily Mail – spreading equity release awareness
- Equity Release Club – a private capital initiative
- Equity Release Supermarket – best advisory service in Britain
- Equity Release Wise – manage private equity closed-end money
- Go Compare – a versatile insurance company, even pet insurance
- Guardian – daily newspaper in Britain talking about equity release
- Halifax – private equity firm investing your money in profitable companies
It protects you so that you don’t pay more than you owe to your equity release provider. However, when your lifetime mortgage plan comes to an end, the lender will sell your house and settle the loan amount plus any interest.
If the estate market value decreases and the money can’t repay your mortgage, the lender won’t request more cash from your estate or heirs. Since you’ll be protected by the ‘no negative equity guarantee’, they aren’t legalised to do so. Therefore, consider the equity release firm that will offer you this protection. And yes, it’s needed as you can see.
Companies in the UK that aren’t registered with the FCA, or are members of the Equity Release Council should be avoided. Why? Because then they’re not under strict rules and regulations that are for your benefit.
Providers who are members of the ERC offer:
- A no negative equity guarantee
- Capped/fixed interest rates
- The right to live in your house for life
- The right to move to a new house
Yes, the only job of the Equity Release Council is to protect you and your finances. That’s all they’re there to do. They’ve set up rules and regulations to protect you from cad companies that are only out to get your money.
In the end, equity release offers many advantages, but it can also have its fair share of downfalls, depending on your circumstances. You need to do the research, and you need to speak to professionals who can analyse your situation and advise you appropriately. It’s essential to choose a provider that offers the most competitive rates, flexible products that can be tailored to your needs, and ongoing customer service. With the guidelines above, you’ll be sure to make the right choice.
Make sure you also check out our list of the best equity release companies for in-depth reviews of all the options.