Is equity release safe?

How safe is it to release equity from your property and how are you protected?

For many homeowners aged 55 or over, equity release can be a good option to release funds for home improvements, to give financial help to family (which may be subject to inheritance tax), or to supplement income. Deciding to take out equity release is a big decision, which is why seeking expert advice is so crucial. We take a closer look at whether equity release is a safe option.

How safe is equity release?

Equity release firms are regulated by the Financial Conduct Authority and responsible lenders will sign up to the Equity Release Council.

When you take out a lifetime mortgage, which is a loan secured against your home, you'll always own your own home, so you'll be able to stay there until you, or the last borrower if you have borrowed jointly, die or move into permanent long-term care.

Lifetime mortgages also come with a 'no negative equity guarantee' that means you or your beneficiaries will never have to repay more than the value of your property when it is sold following death or entry into permanent long-term care, even if this is less than the amount owed.

A home reversion plan is where you sell all or part of your home in return for tax-free cash, without having to move out of your home. You will receive less than the market value for the share they sell but you stay living in your home until you die or move into permanent long-term care. You don’t need to make any repayments as it isn’t a loan, and the plan only ends when you (or the last borrower if you have a joint plan) die or go into permanent long-term care. At this point the home is sold and the home reversion provider will receive their share of the sale proceeds.

How is equity release regulated?

The industry is regulated by the Financial Conduct Authority (FCA), the UK's financial services watchdog. This means that all equity release lenders, brokers and advisers must:

• Have permission from the FCA to give equity release advice or lend money
• Follow FCA rules and guidance

Since 1991, the industry has been overseen by its own governing body, The Equity Release Council (ERC), formerly known as Safe House Income Plans (SHIP). All members agree to abide by the council rules, and 90% of the equity release sector are members of the ERC.

ERC product standards have rules designed to protect consumers and keep you financially safe:

• Lifetime mortgages, including the Saga Lifetime Mortgage, come with a ‘no negative equity’ guarantee. So when your property is sold, after you die or move into long-term care, you or your beneficiaries won't pay more than the sale proceeds, even if it comes to less than the lifetime mortgage amount owed.
• You can stay in your home for life or until you go into long-term care, with no threats of repossession, provided the property remains your main residence and you abide by the terms and conditions.
• For lifetime mortgages, the rate must be fixed for each release, or if variable, the rate must be capped for the life of the loan.
• You have the right to move your plan to another property providing it meets lending criteria.
• For lifetime mortgages you have the option to make penalty-free partial loan repayments.

Saga Equity Release and HUB Financial Solutions Limited are both members of the Equity Release Council. As members of the council, both Saga Equity Release and HUB Financial Solutions Limited follow its Statement of Principles that helps protect customers at every stage of the equity release journey. 

What are the downsides of equity release?

There are some things to consider carefully before deciding that equity release is the right option for you.

Lifetime mortgages will need to be repaid, and this will affect the amount of inheritance you can leave to your beneficiaries after your death. If you choose not to make full interest repayments on the loan, the compounded interest will build up and the total amount to be repaid will be higher than if interest is paid either in part or in full.

When you take out equity release your entitlement to some means-tested state benefits might be affected. As part of the Saga Equity Release service provided by HUB Financial Solutions Limited, a qualified adviser will complete a free state benefits check as part of their overall review. You'll be advised if equity release could affect any benefits you currently receive.

Some lifetime mortgages do have higher early repayment charges than others, so if your plans change and you want to repay some or all of your equity release early, you need to be aware of what the impact could be.

How do I take out equity release safely?

Whilst there are regulation and standards in place to help protect equity release consumers, as with most financial products, there are risks involved. Here are some tips to consider:

• Use an accredited provider – make sure they are a member of the Equity Release Council.
• Choose the right equity release product for your circumstances.
• Understand how taking out equity release will affect the inheritance you expect to leave to your beneficiaries.
• Make sure you receive a full state benefits check to ensure you're receiving all the benefits you're entitled to and that you won't lose out by taking out equity release.
• Consider taking the equity release funds in stages, drawing down only when you need them. With lifetime mortgages, you can also consider paying off the interest as you go, rather than letting it accumulate.
• Make sure you are aware of all the alternatives to equity release to make sure it's the right choice for you.

If you’d like to find out more about equity release you can use Saga Equity Release - a no-obligation, no-pressure advice service provided by HUB Financial Solutions. It's dedicated to finding out if equity release is right for you. To be eligible for equity release you must be aged 55 or over with a UK home worth at least £70,000.

The advice you receive through Saga Equity Release is provided by HUB Financial Solutions. If you decide to take out a Saga Lifetime Mortgage you'll need to pay an advice fee of £799, and HUB Financial Solutions will pay Saga an introductory fee.

A lifetime mortgage is a loan secured against your home. It will reduce the amount of inheritance you leave and may affect your tax position .