Equity Release received some ‘bad press in the early years, and unfortunately, some people still have negative preconceptions about this industry that no longer hold true. Equity Release has changed for the better, and each year in the UK thousands of older homeowners are taking advantage of these newer products to improve their lives and achieve financial freedom. You can now trust Equity Release just as much as you can trust a regular mortgage, in fact, even more so in many ways because with Equity Release there’s no chance of you ever losing your home or going into negative equity!
In this guide, we’ll explain why Equity Release got a bad name in the first place, how things have changed since then, and why these products are now a fair, safe and regulated way of releasing money from your property to enjoy a better life whilst protecting the home you love.
Why Did Equity Release Get a Bad Name?
The original version of Equity Release was called ‘Home Reversion’, and when it started in the 1990s the industry was unregulated. Unfortunately, this led to some underhand behaviour that meant some people lost their homes. Although Home Reversion plans are now regulated and improved, they have largely been replaced by the newer, fairer, and more flexible version of Equity Release called a ‘Lifetime Mortgage’. Here at Michael Usher Equity Release we don’t promote or arrange Home Reversion plans because we believe Lifetime Mortgages offer our customers greater benefits and security. Read on to learn how this newer type of Equity Release is so different and why you can trust it.
Why Do People Now Trust Equity Release?
First of all, the industry is now heavily regulated and the newer products are designed with the customer’s best interests in mind – allowing people to release equity without the risk of losing their home or going into negative equity. Secondly, Lifetime Mortgages offer a huge amount of flexibility. There are hundreds of products available to suit different needs and situations, so let’s have a look at how these versatile products work.
How Do Lifetime Mortgages Work?
One of the first things to know about a Lifetime Mortgage is that the lender does NOT own your home. You retain ownership of your property, and you can live in it until you die or move into permanent care. This is one of the main worries people have about Equity Release, so rest assured that with a Lifetime Mortgage you will NEVER lose your home!
You can release up to 60% of the equity in your home as tax-free cash, either as a lump sum or in instalments. There are also plans that allow you to draw down cash as and when you need it, creating a tax-free cash reserve and reducing interest liabilities. The youngest homeowner in your property has to be over 55 to qualify for a Lifetime Mortgage, and exactly how much equity you’ll be able to release will depend on your age, health, and the value and location of your property.
The great thing about these products is the flexibility they offer. You can choose for the interest to ‘roll up’ into the loan, meaning you don’t have to pay any monthly repayments. This does mean that your loan will steadily increase over time, but you’ll never go into negative equity or be kicked out of your home, and the loan is only repaid to the lender once you die or move into permanent care and the house is sold. Any increase in property value can also help to offset the increasing loan.
Another option is to pay the interest as you go to protect the remaining equity in your home. This can be a good choice if you would like to guarantee they’ll be a specific amount of equity left to pass on to your loved ones as inheritance when you die. You can go even further and pay off the interest and the loan as you go, much like a regular repayment mortgage. Doing this will reduce the amount of interest paid overall, and protect more of the equity in your home. With both interest repayment and loan repayment plans, you can either choose to pay regular monthly repayments or voluntary ad-hoc payments when you have the funds to do so.
How Can I Use a Lifetime Mortgage to Live a Better Life?
Lifetime Mortgages have become increasingly popular in recent years as older homeowners realise how much better their life could be with more money to play with. We believe everyone should be able to access some of their hard-earned equity to live a better life, and Lifetime Mortgages allow you to do this in a safe and fair way.
You can use the money however you wish, but some of the most common reasons people release equity with a Lifetime Mortgage are:
- Holidays, cruises and travel
- Home improvements
- Paying off debts or an existing mortgage
- Reducing or eliminating monthly repayments
- Hobbies, activities, or further education
- Investments (such as buying a Buy To Let property)
- Helping family (with weddings, getting on the property ladder, and university fees)
- Living later life with financial freedom!
The Bottom Line
Equity Release got off to a bumpy start in the 1990s, but back then the industry was unregulated and the products were different. Some underhand behaviour led to a few highly publicised yet extreme cases where people lost their homes. Since then, the sector has completely reinvented itself, and the customer’s best interests are now at the forefront of this growing industry. Equity Release is now heavily regulated, and the newer products, called Lifetime Mortgages offer a fair, safe, and flexible way to release money from your home to live a better life. You’ll always own your home, you’ll never go into negative equity, and you can live there until you die or move into permanent care.
At Michael Usher Equity Release we’ve been helping our local community with trusted Equity Release advice for 30 years. You probably have lots of questions, and we’re here to help you understand how these products work and whether they are the right choice for your situation. We never push you, the decision is always yours to make, and we welcome your friends and family to join in the discussion. Book your FREE no-obligation consultation with one of our friendly advisors to learn more – this can be carried out remotely via phone or video call if you’d prefer. We look forward to helping you!
