• February 29, 2024
 Most Over 55s Believe Equity Release ‘Myths’

Most Over 55s Believe Equity Release ‘Myths’

SunLife’s equity release director Simon Stanney busts the seven biggest myths surrounding equity release.

Equity release lets you get cash from the value that’s tied up in your home, and as a result, is becoming increasingly popular amongst homeowners over 55 looking to boost their retirement income, maybe pay for home improvements, or help support family.

But there are many misconceptions about what it is and how it works; just one in ten over 55s who are aware of equity release, actually understand all its product features. So, to help, Simon Stanney, equity release director at SunLife busts the seven most common equity release myths.

Equity release myth # 1 – It’s unregulated

In the past, equity release was unregulated, but now all equity release providers and advisers are regulated and supervised, by the Financial Conduct Authority which means all equity release advisors, brokers and lenders must get permission from the FCA to sell equity release products.

The Equity Release Council – a trade body that represents the equity release industry – also provides another level of protection because all members have to follow the Council’s Statement of Principles which include the ‘no negative equity’ guarantee, which ensures you’ll never need to pay back more than the value of your home, and ‘security of tenure’ which guarantees you can stay in your home for life.

Equity release myth #2 – I can’t release equity because I’ve still got a mortgage

Actually, one of the top 5 reasons why people take out equity release is to pay off their mortgage, but according to our research, 65% of over 55s wrongly assume that if you have a mortgage, you can’t take out equity release. If you do have an existing mortgage and take out equity release, the amount you release has to clear the existing mortgage or any other debt secured on the property, then after that, the remaining money can be spent as you want.

Equity release myth #3 – I can’t leave an inheritance

A quarter of over 55s think that if they take out equity release this means they won’t be able to leave an inheritance. But, while you won’t be able to leave your home behind for your loved ones – the money from the sale of the home will be used to pay off your loan – any funds remaining will go to your estate.

And if you want to guarantee an inheritance for your loved ones, you can. You can ringfence some of the value of your home to leave behind; you will need to tell your adviser they will be able to recommend a plan that enables you to do this.

Equity release myth #4 – I’ll leave my family in debt

Due to the FCA regulation and ERC principles, when you take out an equity release plan, you’re fully protected by a “no negative equity” guarantee which means contrary to popular belief (51%), you will not be leaving your family in debt.

The no negative equity guarantee means that, even though the amount released, plus interest will be a debt against your home, the amount charged will never be greater than the value of your house and will be covered by the proceeds from the sale of your home either when you die or move into long-term care.

Equity release myth #5 – I could lose my home or be forced to move out

According to our research, 39% of over 55s think that if they take out an equity release plan, they could lose their home or be forced to move out, but this is not true. When you choose a lifetime mortgage, you are still the legal owner of your home. And when it comes to home reversions plans, you sell part or all of your home in exchange for a cash lump sum – but then you can live there rent-free until either the house is sold, you die or go into long-term care.

Equity release myth #6 – I can never move house again

More than half of homeowners over 55 assume that if they take equity from their home, they will be stuck in that property forever. But, as long as you meet the criteria of your equity release provider, there is no reason why you can’t move and take your plan with you. There will be costs associated with moving the plan, but they will be explained to you fully before you take out equity release.

Equity release myth #7 myth – I have to pay tax on the cash released

Our research shows that 55% of over 55s didn’t realise the cash lump sum released from your home is tax-free. But, when you borrow against your home with an equity release plan it’s not classed as income which means there’s no income tax to pay on the money, although the amount you have in savings can affect any State benefits you are receiving or may be entitled to

Simon concludes:

“Equity release can offer a solution for many over 55 homeowners looking for a boost to their finances, but it is not for everyone. Getting advice is a necessity and it is also important to talk things over with family and loved ones because taking out equity release is likely to affect them too by reducing their inheritance.”

To read our blog about equity release and what you should ask equity release advisers to understand if it is right for you, visit the Sunlife website.

Simon Stanney, Equity Release Services Director, Sunlife