Is Equity Release a bad idea?

If you have landed on this blog post, then we presume you are on the hunt for valuable information about equity release and are wondering if it is right for you.

As equity release specialists, you may be under the assumption that we have product bias towards equity release, however, that is not the case. Equity release is not always the answer, and as members of the Equity Release Council, we have a duty to walk every customer through alternatives before recommending an equity release product to them. For some customers, downsizing, applying for grants, or other later-life lending solutions may be more suitable for their circumstances.

At North East Equity Release, we have many consultations in which the individual may be set on equity release, however, after we have offered expert advice and alternatives, they have ended up with a completely different financial product or solution.

Below is an example of one such client.

When Equity Release is not suitable:

Harry is an 89-year-old man who owned his home outright. He got in touch with North East Equity Release to arrange an appointment and discuss unlocking a large sum of money from his home. Upon meeting with our adviser, Harry disclosed that his wife had passed away the previous year.

Harry was now concerned that when he died, all of his estate would go to the Crown. Determined to not let that happen, Harry wanted to release as much money from his property as possible and put it in his bank account.

However, as Harry had no intentions of spending the money and did not have a Will, under the Rules of Intestate, this money would still go to the state.

The solution… A Will

During the consultation, our adviser recommended Harry arrange a Will and discussed potential beneficiaries to which Harry could leave his estate, such as his friends, the Church and charities close to his heart. The adviser also helped Harry to contact a trusted local solicitor so that a Will could be arranged and Harry’s money and possessions could be distributed exactly how he saw fit.

When equity release is a good idea

Maureen is a 61-year-old lady whose life drastically changed when her husband passed away suddenly. While there was no mortgage on the home, Maureen did not work and was not yet in receipt of her state pension, which left her living off savings.

With her savings running low and the cost-of-living pressures rising, Maureen was concerned that she was not going to be able to afford to stay in her home. While her husband was alive, the couple had planned on downsizing, however, due to the change of circumstances and Maureen’s strong emotional attachment to the property, she felt she now wanted to stay in her current property for another five years or so.

The solution… A Lifetime Mortgage

Following the principles and standards defined by the Equity Release Council, we gained an in-depth understanding of Maureen’s circumstances and discussed all of her options. Maureen opted for a Lifetime Mortgage which we arranged on her behalf.

The Lifetime Mortgage provided Maureen with an initial lump sum which enabled her to carry out some essential repairs to the property she was living in. The product included a drawdown facility, which meant that Maureen had access to cash as and when required to assist her with the cost of living. With a Lifetime Mortgage, Maureen was not required to make any monthly repayments.

While Lifetime Mortgages can be transferred to a new home (subject to lender policy), in this case, Maureen planned on downsizing, repaying the mortgage and buying cash when she moved.

As such, the priority was to source a Lifetime Mortgage with the lowest Early Repayment Charging (ERC) structure. We sourced a product that had fixed Early Repayment Charges which were reduced over the years and were just 3% of any outstanding balance in the fifth year, when Maureen anticipated moving home and repaying the mortgage.

We were also able to calculate the potential early repayment charge based on the initial lump sum, her predicted drawdown and accrued interest, which were a very small price to pay in order to allow her to stay in a home that she loved.

Is equity release right for you?

Equity release can be a complicated and complex decision to make. It’s essential that you seek professional financial advice before making any commitments. As qualified equity release advisers and members of the Equity Release Council, we will always suggest alternatives and help clients find the right solution for their unique circumstances.

For a free, no-obligation chat with a professional, contact us here.