Is equity release a good idea?

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

If you're a UK 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. 

What is equity release?

Equity release refers to a range of products that allow UK homeowners to release some of their home's value as tax-free cash. The most common is a Lifetime Mortgage, a loan secured against your home. This is usually only paid back when the last homeowner dies or enters long-term care, and the home is sold.

Getting to know the advantages of equity release 

Get tax-free cash

Equity release allows some UK 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 the help of a qualified adviser. Through Royal London Equity Release Advisers, you'll get expert whole of market 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 

Royal London Equity Release Advisers will only recommend Lifetime Mortgages from lenders that are members of the Equity Release Council, meaning they meet the recommended product standards. As such, you could make penalty-free repayments, subject to lender criteria. These could take the form of:

• Monthly payments to clear interest
• Regular payments to reduce the amount owed
• Or ad hoc payments when you have money available

Whether making payments is a good idea will depend on your individual circumstances. It can help to control the amount owed and potentially allow you to pass on a greater inheritance to your beneficiaries, but you don't want this to come at the expense of your quality of life. An adviser will help you to explore the impact of making payments and what the best approach is for you.

Never owe more than your home is worth

Rest assured that with all Lifetime Mortgage products that Royal London Equity Release Advisers advise on, you will not owe more than the value of your home. With a no negative equity guarantee, any amount above the market value of your home would be written off.

Potentially reduce the Inheritance Tax liability on your estate

By releasing equity from your home, you reduce the value of your estate which in turn can potentially reduce the amount of Inheritance Tax (IHT) owed. But remember, securing long-term borrowing against your property also reduces the amount you can leave as an inheritance.

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

Remember that tax treatment will depend on your individual circumstances and rules can be subject to change in the future.

Interest rates are fixed for life

Plan with confidence, knowing that Royal London Equity Release Advisers only work with lenders that offer fixed-for-life interest rates or, where variable, have an upper limit. Your adviser will provide a personalised illustration, showing exactly 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

For those looking to leave an inheritance, one major drawback might be the fact that releasing equity will reduce the value of your estate. This means 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 some lenders will reduce them 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

If you choose to make a cash gift with equity release the person receiving the gift may need to pay Inheritance Tax (IHT) in the future. For example, it might be due if you die within seven years of making the gift and your estate is over a certain threshold.

Tax treatment depends on your individual circumstances and may be subject to change.

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 a variety of products and features from across the whole 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.