Equity Release: Myth or Reality

by Richard Jeffcock of the Equity Release Partnership

I am often asked whether a property will be re-possessed or will the equity release provider take a greater share of the property in the event of a downturn in the property market. The answer is almost always a ‘No’ unless you were sold a terrible product in the 1990s in which case I may be able to help you refinance these on better terms.

The focus of modern equity release is on securing a loan against the property and not by the lender buying a share. The loan only becomes repayable upon the passing away / entering into long term care of the last applicant. Because of this, you will not be asked to vacant your home.

Will I ever owe more than my property’s value

Equity release lenders are subject to government regulation which means their products must meet quality standards and they do. Recently, Nationwide Building Society started offering equity release products which confirms equity release is a legitimate option for releasing cash from your property.

As part of an application, lenders will show the amount owed after each year using the interest rate applicable for the loan. They will also illustrate the potential value of your property assuming a 1% per annum growth rate so you can compare the two figures. House prices have increased on average by 2.9% per year since 1973, and at much higher rate since 1990, so 1% is a conservative estimate.

Most equity release products come with a ‘No negative equity guarantee’. This means you will never owe more than the value of your house. The need for such a guarantee is potentially very low, however because property inflation and life expectancy cannot be guaranteed it is a sensible inclusion.

An example of the equity in a property before and after releasing tax free cash:

Property value at commencement: £350,000

Property value after 15 years using 1% compound growth each year = £402,000

Amount of equity released: £100,000 (fixed at 3.75% interest per year in this example)

Equity Release repayment value after 15 years = £167,500

Equity in property at start of loan = £250,000 (£350,000 – £100,000)

Equity in property after 15 years = £234,500 (£402,000 – £167,500)

It might be surprising to note the amount of equity at the start of the loan is not vastly different to the amount remaining after 15 years. It is also important to note you may be able to make optional repayments which would reduce the amount outstanding. I would be happy to provide a free illustration for your circumstances.

More about me

I am a fully independent equity release expert with access to the entire equity release market. I specialise in the Cotswolds and surrounding areas. My focus is on putting your needs first.

To find out if you might be eligible for Equity Release, I offer a free, no obligation telephone check which takes no more than 15 minutes. If you decide you want to take things further, I can visit you in your home, or the process can be completed over the telephone or by video chat. Any advice I give throughout the process is free, and my fee of £995 only becomes payable if equity is released from your home.