Is equity release a good idea?

Is equity release a good idea? Understanding the pros and cons

If you’re a homeowner aged 55 or over, the idea of accessing some of your property wealth may sound interesting. Before you consider releasing equity with a Lifetime Mortgage, it's essential to understand the pros and cons and whether it is a good idea.   

Royal London has chosen to introduce its customers to the experts at Royal London Equity Release Advisers. They will provide advice on equity release products from across the whole market and will make a recommendation to you based on your personal circumstances. You will not receive advice or any recommendation from Royal London. The information on this page has been provided by Royal London Equity Release Advisers to help you understand more about releasing equity. 

Getting to know the advantages of equity release 

Get tax-free cash

Equity release allows homeowners to access tax-free cash. This helps them achieve their financial goals with money released from the value of their home. These include clearing mortgages and gifting an early inheritance. 

Benefit from advice personal to you

Equity release is an advised product, meaning you can’t take it out without speaking to a qualified adviser. Through Royal London Equity Release Advisers, you’ll get expert advice and learn how property wealth might fit into your plans. And even after seeking this advice, you’ll have no obligations.  
 
Their advice fee will only be charged if you take out a product with their help. It won't be more than £1,690, and your adviser will discuss the setting up costs of a mortgage before you proceed.

Choose when to make payments 

Take control of your budget with the option to make voluntary payments towards a Lifetime Mortgage.  

Royal London Equity Release Advisers will only recommend products from lenders that are members of the Equity Release Council. This guarantees you the right to make penalty-free payments, subject to lender criteria.  

Never owe more than your home is worth

Rest assured that you won’t pass on Lifetime Mortgage debt to loved ones. With the no-negative equity guarantee, you will never repay more than the market value of your home. 

Potentially reduce the Inheritance Tax liability due on your estate

Reduce the potential amount of Inheritance Tax (IHT) owed by releasing equity from your home. By securing long-term borrowing against your property, you reduce your estate’s value. 

The value of your estate is the total of your assets minus any debts. A Lifetime Mortgage could help you to reduce your estate’s value below the IHT threshold. 

Do bear in mind that the FCA do not regulate Inheritance Tax planning. Speak with an adviser qualified in Inheritance Tax planning if this is something you are interested in.

Interest rates are fixed for life

Plan with confidence, knowing that lenders will offer to fix the interest rate for life. Your adviser will provide a personalised illustration, detailing how much you might owe over time.

Use this information to decide what kind of payments you may want to make and when to potentially stop them in the future.

Remain the owner of your home

Keep full ownership of your home with a Lifetime Mortgage. This product allows you to borrow against your property without selling it.

The disadvantages of equity release

There will likely be less to leave as an inheritance

One major drawback is that releasing equity will reduce the value of your estate, meaning there will be less left over to leave as a gift within your Will. Usually, the Lifetime Mortgage will be repaid with the sale of the home after you die or enter long-term care.

However, your estate can repay by other means if available to them.

It may affect your benefits position

Receiving a lump sum of cash can affect your entitlement to means-tested benefits. Make sure you speak to an adviser about your current entitlements. This way they can help you structure your equity release in the most efficient way. 

It is not designed for short-term borrowing

Lifetime Mortgages are designed to last for your lifetime with repayment usually coming after you die or enter long-term care. You will have the option to repay early, but there might be early repayment charges (ERCs).  

These ERCs can be high but will usually reduce on a sliding scale over time. If you’re likely to repay in the future, speak with your adviser about products with fixed and defined charges. With this feature, you’ll know exactly how much you would have to pay in each year after receiving the money.  

Your beneficiaries might still have to pay Inheritance Tax

Your estate might still have to pay IHT if you choose to make a cash gift with equity release. Inheritance Tax (IHT) may be due if you die within seven years and your estate is over a certain threshold. 

How to find out if equity release is right for you

Are you interested in what equity release could do for you? Discover more on the pros and cons by speaking with an expert adviser.  Royal London Equity Release Advisers can help you check the role of property wealth in your retirement plans. They can also compare hundreds of products from across the market.  

You can also rest assured that if equity release isn’t right for you, they will tell you.

Alternatives to equity release

If you’re thinking about releasing cash from your home but aren’t sure if equity release is the right fit, there are a few other options to consider. Downsizing to a smaller place could free up some money and lower your living costs. Or you could look at tapping into your savings or even remortgaging.

Each of these choices has its own advantages and disadvantages, and speaking with an adviser can help you understand which solution might best suit you and whether equity release is a good idea.

What happens next?

Use Royal London Equity Release Advisers’ equity release calculator to get an estimate of how much you could release. It will also put you in touch with the Information Team, who can answer questions and book a no-obligation appointment with an adviser.