Is equity release the best option?

January 6, 2016 by Brendan O'Neill

Lenders

Over recent years, equity release has gained a poor image which, according to the Financial Conduct Authority (FCA), is still a problem. For many people, releasing money from their home to pay for an exotic holiday, refurbishment or just to pay off some debts is a tempting solution. However, the FCA has allegedly suggested that the fees paid for equity products are too high, which can mean that there’s nothing left to leave descendants.

The equity release industry has argued that the fees are a reasonable amount to pay and that it is a good time to take out an equity release policy. Originally, equity release worked by allowing a finance company to buy a percentage of your home. This deal would then see them give you the cash to be used for its intended purpose, with the company not asking for any repayment until either you die or you sell the property. At this time, the money will be repayable, along with any profit.

Equity release is generally based on a different product called the lifetime mortgage. Although the property will remain yours, the money will be secured against the value of the home. When you die, the money borrowed will be repayable, along with the fixed amount of interest.

Currently, the lowest interest rate is 5.4% and is fixed for the lifetime of the mortgage. However, experts are concerned with the compound interest, which may result in no equity remaining in the property at the end of the term.

Prior to applying for equity release, consult with a mortgage adviser, who will have studied the various products as part of CeMAP training.