Are there any Problems Associated with Equity Release?

If you have a need for extra income and you have a house with little or no outstanding mortgage, you might benefit from equity release. It is a commonly recommended way to make your house work for you, but are there any pitfalls of equity release?

What is Equity Release?

There are typically two different types of equity release schemes. First, there is the Lifetime ortgage scheme, which allows you to keep full ownership of your home. It works by securing a loan against your home, which will provide you with a tax-free cash lump sum. There is no obligation to make any payments, unless you choose to do so, with the interest accumulating over time. The full amount is not due for repayment until you have died or moved into permanent long-term care, usually being achieved with the sale of the home.

Second, there are home reversion schemes, where you sell either a part of or the full ownership of your home. You are then provided with a lease to live rent-free for the duration of your lifetime. In this scheme, the reversion company is paid as you move out. These are less attractive prospects compared to a Lifetime Mortgage, as you won’t maintain complete ownership of your home and will usually be paid significantly lower than the market rate for your home.
Although releasing equity can be a great way to increase your income or have a bit of extra money at hand, there are some potential problems related to it.

1. It can end up being a costly option
Although the idea of an additional cash sum may sound lucrative, the terms of the deal might prove to be more costly in your situation. For instance, a Lifetime Mortgage provides you a loan with interest that will accumulate if you choose to not make any payments. On top of this, with the home-reversion scheme, you will get a lot less than the market value of your home, which might mean you are better off just selling the property and moving somewhere else.

2. Losing out on benefits
Another equity release pitfall is the possibility you might affect your entitlement to means-tested benefits. If you receive any benefit that is directly linked to the amount of money that you have, receiving a tax-free sum could have an impact.
Therefore, you want to check your situation by using the Government’s benefit calculator or by talking to one of our equity release advisers first. The addition of a tax-free sum might end up shrinking your total income by removing your entitlement to certain benefits. Remember any money you keep in savings from equity release will also need to be accounted for and declared with benefits in mind.

As well as keeping in mind any benefits you receive now, you need to consider any benefits you might be entitled to in the future. Perhaps you don’t receive Pension Credits now, but you might be entitled to them in the future.
If you are concerned about the impact releasing equity with a Lifetime Mortgage might have on your entitlement to means-tested benefits, one of our equity release advisers can help. They will offer a full review of your personal circumstances, and provide a personalised illustration indicating the features and risks. 
There are also flexible ways to release equity with a Lifetime Mortgage, including creating an interest-free reserve of equity that can be drawn down at a later date. By releasing equity at a slower rate, you can control the amount of funds in your account and better consider the impact that it could have on any benefit entitlement.
 
3. Consider what you want to leave behind
You also need to consider what you wish to leave for your children or grandchildren. Lifetime Mortgage schemes tend to mean that your relatives won’t receive as much money from selling the home when you die. If leaving an inheritance is a concern for you however, there are many features available to help with this. From making optional payments to reduce the impact of interest, to ringfencing a portion of your home’s value as a guaranteed inheritance, your Reader’s Digest Equity Release adviser can help. 

With the home reversion scheme, they might not receive anything, if you sold off the total ownership of your home.
Discuss your situation with an equity release adviser
To understand how these common equity release pitfalls might influence your situation, you should fill out our equity release calculator and get in touch with the friendly Information Team today. They can answer any questions that you might have, and should you be ready book you a no-obligation appointment with one of our equity release advisers. Please note that we only offer advice on Lifetime Mortgages, as they represent better value and allow you to remain the owner of your home.

Your adviser will help you to understand the features and risks of releasing equity with a Lifetime Mortgage, and investigate whether any of the potential pitfalls apply to your situation. If equity release is not the right option for you, then they will tell you.

By meeting with an adviser, you could benefit from our carefully selected range of products that they will compare for you. With flexible features prioritised throughout, we’ve designed this selection of products to offer great value for you and your family, both now and in the future. All products recommended will come from lenders who are members of the Equity Release Council. This will mean that they carry some inbuilt guarantees such as maintaining full ownership of your property, and never owing more than the value of your home.  
Whether you're curious as to how much you can release, or you want to take the initial steps towards releasing equity, our handy calculator will give you the information you require.

You can also contact us on 0800 029 1233 to discuss your needs with a view to arranging a no-obligation appointment with one of our financial advisers.
 
A Lifetime Mortgage may impact the value of your estate and could affect your entitlement to means-tested benefits. Think carefully before securing other debts against your home. To understand the features and risks ask for a personalised illustration. Reader's Digest Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490. Our adviser will talk through the setting up costs of a Lifetime Mortgage before you make any decision to proceed

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