Have you heard conflicting stories about equity release and wondered which are facts and which are just equity release myths?

With equity release borrowing doubling between 2017 and 2022, it’s no surprise that misconceptions have surfaced, making this financial product seem more confusing than it needs to be.¹

In this article, the EveryInvestor team is here to debunk the 12 most common myths surrounding equity release, providing you with clear and accurate information; by separating fact from fiction, you’ll be empowered to make informed decisions and understand how safe equity release is.

Let’s discover the truth behind these myths and set the record straight…

What Is Equity Release?

Equity release allows individuals over 55 to unlock the value of their home without needing to sell it, providing additional cash to support financial needs in retirement.

This can be done through:

• A lifetime mortgage, where homeowners take a loan against their home’s value, repaid when the property is sold.
• A home reversion plan, where homeowners sell part or all of their property while retaining the right to live in it, with the proceeds repaid from the eventual sale.

Both options allow retirees to remain in their homes while accessing the equity built up over time.

What Are the 12 Most Common Myths About Equity Release?

The 12 most common myths about equity release include losing ownership of your home, leaving nothing for inheritance, facing unmanageable debt, or being forced to move.

These myths can cause unnecessary confusion and deter people from exploring this viable option when, in reality, protections set in place and flexible options dispel these misconceptions.

Let’s debunk 12 of these common myths:

Myth #1: I Will Owe More Than My Home Is Worth

No, you will not owe more than your home is worth; thanks to the No Negative Equity Guarantee, offered by lenders who are members of the Equity Release Council (ERC), you are protected from falling into negative equity, even in the event of market fluctuations.²

This guarantee ensures that, regardless of how much interest accrues or how your property’s value changes, you will never owe more than the home’s sale value when the loan is repaid.

If the sale of your home doesn’t cover the outstanding balance, your lender will write off the shortfall, ensuring peace of mind for both you and your beneficiaries.

Myth #2: Equity Release Is Unregulated and Unsafe

Equity release is highly regulated and safe, thanks to oversight by the ERC and the UK’s Financial Conduct Authority (FCA) which ensure that equity release providers adhere to strict standards that protect consumers.

As part of the ERC’s code of conduct, members are required to:

• Provide a No Negative Equity Guarantee in all lifetime mortgage plans, ensuring borrowers never owe more than their home’s value.
• Offer fixed or capped variable interest rates on lifetime mortgages, ensuring transparency and control over costs.
• Allow borrowers to make penalty-free repayments up to a specified percentage.³
• Permit homeowners to move house and transfer their equity release loan, provided the new property meets the provider’s criteria.
• Guarantee borrowers the right to live in their home for life or until they move into long-term care.⁴

These regulations ensure that equity release is a safe and viable option for homeowners, with strong protections in place.

Myth #3: I Have a Mortgage, so I Can Not Take Out Equity Release

You can take out equity release even if you still have a mortgage on your property; in fact, using equity release to repay an existing mortgage is a common practice.

One key benefit of this approach is that equity release loans do not require you to make monthly repayments during your lifetime unless you choose to do so.

By using the funds from equity release to settle your mortgage, you can become mortgage-free and eliminate the burden of monthly payments, allowing for greater financial flexibility in retirement.

Myth #4: Equity Release Is Always an Expensive Way to Borrow

Equity release is no longer always an expensive borrowing option, thanks to new products and repayment safeguards introduced by the ERC in March 2022.

Previously, interest would compound significantly over time, but now many equity release plans allow for penalty-free repayments, helping reduce the principal debt and making the process more affordable.

But, is there an alternative?

Yes; you could consider a Retirement Interest-Only (RIO) mortgage, which allows you to pay off the interest during your lifetime, leaving only the principal to be repaid when the property is sold and potentially reducing the overall cost of borrowing.

Myth #5: I Will Not Be Able to Leave My Loved Ones an Inheritance If I Take Out Equity Release

You can still leave an inheritance for your loved ones if you take out equity release, especially considering many modern equity release loans now offer inheritance protection—a feature that allows you to safeguard a percentage of your property’s value for your heirs.

For example, you could release 50% of the equity for yourself while protecting the remaining 50% to pass on to your loved ones.

Is that the only way to pass something on?

No; equity release can also be used to provide a living inheritance and allows you to see your loved ones benefit from your support during your lifetime.

Instead of waiting until after your passing, you could release equity now and gift it to your family, helping with things like a house deposit, university fees, or other major expenses.⁵

Myth #6: My Home Will No Longer Belong to Me If I Take Out Equity Release

With most equity release plans like lifetime mortgages, your home will still belong to you and you’ll retain full ownership; this is one of the key benefits of opting for this type of equity release.

Take note—If you choose a home reversion plan, you will cede a portion of your home’s ownership to the lender in exchange for a cash sum; however, you still maintain the right to live in your home until you pass away or move into permanent care.

Myth #7: I Will Be Required to Make Monthly Payments

With any kind of equity release, you will not be required to make monthly payments, as both the capital and interest on equity release are typically repaid only when the property is sold after you pass away or move into long-term care.

You can, however, choose to make payments during your lifetime to manage compound interest or reduce the loan balance.

If you take out a new lifetime mortgage that adheres to the ERC’s latest standards, you can make interest payments or repay part of the principal without incurring Early Repayment Charges.

Myth #8: I Can Only Take Equity Release as a Lump Sum

No, you no longer have to take equity release as a lump sum; modern plans offer much more flexibility, with options like the Drawdown Lifetime Mortgage, which allows you to access your funds gradually rather than in a single payment.

Instead of taking the loan as a one-time lump sum, a drawdown facility gives you the freedom to access your loan reserve in smaller instalments as needed.

The best part? Interest will only accrue on the amount you withdraw, not on the total available reserve, making it a cost-effective way to manage your funds and control the growth of interest over time.

Myth #9: I Could Be Evicted From My Home If I Take Out Equity Release

You cannot be evicted from your home if you take out equity release, as all plans offered by ERC members guarantee you the right to live in your home for life.

If you and your partner have taken out a joint plan, this right extends until the last surviving partner either passes away or moves into permanent care, ensuring you can remain in your home as long as possible.

Myth #10: Releasing Money From My Home Is a Last Resort

Releasing money from your home through equity release is not necessarily a last resort; it can actually be a valid financial strategy to consider in retirement and help make day-to-day living more comfortable.

Rather than waiting until all other options are exhausted, equity release can be part of a proactive financial plan to improve your quality of life in retirement.

Myth #11: My Partner Will Have to Move Out If I Pass Away First

Your partner will not need to move out if you pass away first—provided you have a joint lifetime mortgage; as mentioned in Myth #9, a joint equity release plan remains in place until the last surviving partner either passes away or moves into permanent care.

However, if the plan is only in your name, the situation may differ. In this case, your partner needs to seek independent legal advice to explore their options.

If your partner is a beneficiary of your estate and wishes to remain in the home, the executor could consider repaying the loan using other assets to allow them to stay.

Myth #12: Equity Release Is Not a Safe Form of Borrowing

Equity release is now a safe and regulated form of borrowing, thanks to oversight by the ERC and FCA in the UK.

To benefit from these protections, it’s important to choose a plan from a lender who is a member of the ERC, as this guarantees safeguards and consumer protections.

Why Is It Important to Seek Independent Specialist Advice?

It’s important to seek independent equity release advice to ensure that you are making an informed decision based on your financial goals, and while this article has dispelled common myths, it is not exhaustive, and there may be other important considerations.

Key reasons to obtain independent advice include:

• Comprehensive market search: An independent adviser can access the entire market to find the most suitable plan for your needs.
• Wider knowledge: Advisers have expertise in a variety of plans and interest rates, offering you more options.
• Exclusive access: Some equity release lenders only work through independent specialists.
• Impartial guidance: An independent adviser will walk you through the pros and cons of each plan and let you know if a plan isn’t the right fit for you.

Always seek professional financial advice before committing to an equity release plan to fully understand its implications and terms.

Common Questions

In Conclusion

Now that we’ve dispelled the most common equity release myths, you should feel more confident about exploring this financial option.

Remember, the key to making informed decisions is seeking advice from a trusted expert.

With the right guidance, you can move forward knowing you’re well-prepared to make the best choice for your financial future.