Stay Away From These Equity Release Companies
You have to know everything about an equity release company before signing a contract with them and taking out a plan. Otherwise, you could be in trouble later in your life. We tell you the good and the bad of companies you should know about.
What’s Equity Release?
So, you’ve heard about equity release, and you’re wondering what it entails? So, let’s discuss it in a bit more detail. What exactly is equity release?
Equity release refers to items tied up in the property that lets you access your money. However, you can only gain access once you’re 55 years or older. Or in other words, you can get the capital value of objects in your house as a lump sum or an income based on the house’s value.
It’s such a great way to get quick cash access when you need it, with little interest to pay. (It’s at an all-time low of 2.25%.) So, you might be in for a treat! You can use your money for your dream vacation, renovating your master bedroom, building a pool house or helping out your kids.
Of course, you’ll need to pay that money back at a later stage.
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 making that decision. To help you with this life-changing decision, feel free to use the ERIR Calculator!
How much can you get? Use our Free Equity Release Interest Rates Calculator.
Best of all…
If you have some more questions preventing you from feeling secure and comfortable, we’ve answered frequently asked questions for you here. Also feel free to ask an expert for advice, that might be the best option for you.
We’ll answer all your questions » Request a Free Call Back from Experts.
Now, if you’re confident that equity release is for you, feel free to request a quote from a few providers, weigh them up and make your final decision.
Want to Get the Best Rate? » Get Quotes about Equity Release.
What Should You Know About the Types of Equity Release?
When you think about equity release, or you’re considering it as a loan option, you have to do your research so that you know as much as possible. Otherwise, you might some surprises, and not in a right way. Below we discuss the two types of equity release available:
1. Lifetime Mortgage
The first type of equity release is a lifetime mortgage. This type lets you take out a mortgage on your home if it’s your primary residence. However, you will remain the owner. You’ll have the option to ringfence part of your property for your family to inherit. You can also make repayments or let the interest increase.
Better yet, if there’s any loan amount or any accrued interest, it’ll be paid back when you pass away or need long-term medical care.
2. Home Reversion
The second type is a home reversion, which means you sell some of your property or your whole property. You can sell it to someone like a home reversion provider, and they’ll pay you a lump sum for it, but they can also pay you in regular payments. It’s your choice. However, you have to be at least 60 years old to apply for this.
Now, listen to this:
You can live in that property until you pass away without paying rent. The only catch is that you have to keep the property in good order and ensure it. There’s also the option to ringfence a section of the property for inheritance in the future.
The Benefits & Drawbacks
Let’s say your retirement income won’t be enough to sustain you like you thought it would, then equity release can be a significant saving!
- You get cash when you need it, but you can still live in your current property.
- The cash you receive will be tax-free.
- You won’t be required to make monthly repayments if you don’t want to.
- Interest rates will also be meagre.
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 so 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 is a committee that ensures and safeguards your equity release. The Equity Release Council or the ERC1 makes sure that there is a negativity equity guarantee for your equity release plan.
Equity release products are safe as they’re regulated. In the past, these products weren’t so secure as they are today. They’re secure because providers are required to get permission from the FCA2 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. It’s been known to be very high. However, in recent years, it’s been at an all-time low: 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.
When it comes to a lifetime mortgage, the interest rates need to be fixed, but they can also be variable. With variable interest rates, there’ll be a maximum limit of the loan’s lifespan.
It’ll be repaid to your beneficiaries after you pass away. And when it comes to a home reversion plan, you won’t be charged any interest rates. It’s always a good idea to discuss this with potential providers, or financial advisers to know how much you’ll be paying on interest.
Now, let’s look at some equity release companies…
The Best & Worst Equity Release Companies of 2021
Best in the UK
Names that are well-known in the UK are More 2 Life, LV, Just, Legal & General and Aviva are great companies to choose from.
Some more companies that are on the top of our list are:
- Hodge, which is the longest-established provider in the UK
- HSBC, a bank and financial service company
- Just, a savings, credit, pension and mortgage provider
- Key, an excellent company for equity release advice
- L&G, a multinational financial service
However, it’s also good to know which companies to avoid.
The 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 you should avoid.
Do your research! To show the contrast of the best vs the worst companies, let’s look at our top 5.
Top 5 Lifetime Mortgage Companies
It’s vital for your future finances that you should know everything about all the possible companies. If you go with one of the companies we suggest, you won’t have future problems. So, our top 5 should always be right for you:
In the UK, Aviva is kind of a household name. They’re known mainly for their pension plans and insurance products. To add to that, they’re one of the oldest providers. If you’re considering them, it’s good to know that their equity release products are award-winning as over 200 000 people would agree. Since 1998, Aviva has helped people release a total of £7 billion.
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 created 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 equity release market. They’ve created a superb retirement mortgage range to go with the 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 need long term medical care.
- Just Retirement
Extremely popular in the post-retirement marketplace, they are excellent in giving retirement income in the form of annuities. They’ve also started lending cash through equity release plans or schemes.
Let me tell you:
Just Retirement also has its equity release model, which has proved to be one of their strengths. Not only do they lend money, but they also fund other company’s equity release plans. Their equity release plans include a wide range of traditional lifetime mortgages; drawdown lifetime mortgages, interest-only lifetime mortgages, lump-sum equity plans, and enhanced equity release plans.
LV, or Liverpool Victoria, is known as a mutual society and was created in 1843. They work primarily for working-class people. They offer a range of equity release plans such as drawdown lifetime mortgages and lump-sum schemes. 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 field in 20155. They have two options for lifetime mortgage: L&G Income Lifetime Mortgage and L&G Flexible Lifetime Mortgages.
Let’s take a look.
• L&G Flexible Lifetime Mortgages
You get colour-coded to indicate the amount of money you can borrow according to your property’s value (LTV). For example, “Flexible Pink.” Furthermore, 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
There are also colour-coded. The same rule applies where you’ll pay more interest when the LTV is high. These plans give you a fixed monthly salary for 10-25 years. This income can start from £200 upward.
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 can be a saving, but it can also be a downfall, depending on your circumstances. You need to do the right research, and you need to be aware of everything. It’s essential to be sure when choosing a provider that they are going to help you as you want to be enabled. With the guidelines above, you’ll be sure to make the right choice.
Make sure you also check the best equity release companies for in-depth reviews of all the options.