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With over 80,000 equity release mortgages funded in 2020, this type of financial product is becoming increasingly popular for homeowners over 55 as a way to release money from their homes.

Whilst previously a more taboo kind of product, equity release has now fully entered the mainstream, with regular appearances on TV and in newspapers. This type of mortgage allows people over the age of 55 to release money that is tied up in their homes, either due to owning their property outright or due to paying off the majority of their mortgage over the years.

Seniors can release 20% to 60% of their property’s value and use this injection of cash, which is tax-free, to pay for home improvements, consolidate debts or to give money to their family in the form of gifting. With increasing living costs and the ageing UK population, the demand for equity release has increased, with the average household releasing around £60,000.

But with the occasional horror story that comes in the press out about equity release, it begs the question, is it safe?

Equity Release is Regulated and Has Terms to Protect Consumers

“Yes, equity release is safe,” confirms David Beard, founder of Lending Expert.

“Equity release is a very mature industry, closely linked with mortgages, and it is regulated by the Financial Conduct Authority and required lenders to be part of the Equity Release Council.”

“There are strict measures in place to ensure that customers are protected. For instance, homeowners have the right to continue living in their home until they die or go into long-term care, they can still retain 100% ownership of the property, so they can benefit if it goes up in value over time.”

“Also, and very crucially, there is no negative guarantee, which means that once you die or go into care, the sale of your property will cover the outstanding debt of the equity release loan. In short, your family and children will never be left with the burden of debt after you pass.”

Why Are There Horror Stories and What Do I Need to Consider?

Equity release has cropped up in the press every now and again and there are some people with bad experiences.

One of the main things to be aware of is that the rates for equity release are not necessarily that cheap. The rates are around 3% per month, whereas a typical mortgage could be 3% per year. So if you take out an equity release mortgage at 65 and live another 20, 30 or 40 years, the interest repayments could eat away at your savings and leave very little for your children.

The bad experiences usually surround the children of the borrowers who may want to inherit a large sum or keep the family home.

“But there are over 100 types of equity release products available” explains Beard. “So if you want to put money aside for inheritance or keep the family home, these are things that can be factored in and planned for accordingly. If you wait a little too long, these things can be a little hard to recoup.”

What Other Alternatives Are There for Seniors?

If you feel that equity release could be a bit risque, there are other products available for seniors looking to raise finance.

Getting a remortgage is a very popular option, which allows you to get new mortgage terms, taking into consideration your income, property, credit history and previous repayments. You may find that you get a much lower rate than your existing mortgage and you can also draw down a large sum upfront and just add the interest to your monthly mortgage repayments.

Another option is to get a second charge mortgage or second mortgage, which is another type of loan secured against your home. You can borrow large amounts too and continue to pay these off each month.

The only thing to note is that with remortgages and second mortgages, you should still have a regular income in order to pay them off, which may be tricky if you are over 75. But in some cases, having a regular pension or earning an income through part-time work can still be sufficient.