Our approach to retirement has changed, with people living longer and enjoying diverse lifestyles.
We also know that Covid-19 has had an impact on people’s finances and retirement plans. In this changed world of retirement, many people are looking for ways to unlock money tied up in their property to help fund their later life.
The equity release sector has evolved over recent years to offer customers a wider range of flexible options.
Equity release won’t be right for everyone as there may be cheaper ways to borrow money but, for some people, unlocking money tied up in a property can make a real difference.
Here, we bust five common myths about equity release and set the record straight on the role equity release can play in retirement planning.
Myth One: Equity release is too costly
Reality: The equity release market has become increasingly competitive, which means there are now a larger number of products nudging interest rates down.
For some standard lifetime mortgages interest is added to the loan, meaning debt can grow quickly. However, nowadays, if you want to manage the amount you owe, some products offer the option to repay some, or all, of the interest.
This means if you choose to pay all the interest, the interest won’t roll up over time and the original loan amount stays the same, as long as you maintain this interest payment.
Myth Two: You’ll no longer own your property
Reality: Whilst it’s a common misconception that equity release is a form of selling the home, this isn’t the case.
When a customer takes out a lifetime mortgage secured against their home they are still the owner and have the right to live there until the end of their life, or until they decide to enter long-term care.
Myth Three: You will end up owing more than the value of your home
Reality: When you take out equity release, you won’t end up owing more than the value of your home. Most lenders are members of the Equity Release Council so, any plan taken out with an approved provider, will come with a no-negative-equity guarantee.
This means you’ll never repay more than the value of your home when it is sold, even if that’s less than the amount owing, providing that you meet the terms and conditions of the product you are buying and the property is sold for the best price reasonably obtainable.
Myth Four: Equity release means you won’t be able to leave your family an inheritance
Reality: Last year we conducted some research which found that nearly half (46%) of older people in the UK provide financial support to younger family members, so we know that inheritance is important to customers.
One option is to use equity release to enjoy a ‘living inheritance’, where you gift your children or grandchildren an inheritance within your lifetime – this is one of the most popular reasons for taking equity release. However, it’s worth remembering that doing this may mean that recipients may have to pay inheritance tax in the future, so talk to your lifetime mortgage adviser about this.
Alternatively, there are now a range of lifetime mortgages which enable you to protect a portion of your equity to leave something to family or loved ones – known as inheritance protection.
Myth Five: You have to take all of your money in one go
Reality: This might have been the case in the past but, nowadays, there is much greater flexibility as many modern lifetime mortgage products offer alternatives. For example, providers, including Legal & General, offer the option to ‘draw down’ your housing wealth in stages.
Taking the money in smaller sums, rather than in one go, also reduces the amount of unpaid interest added to the loan each month.
There are also income lifetime mortgage products, that provide a steady income over a selected term.
Claire Singleton is CEO of Legal & General Home Finance
