Janet from number 47 was at mine last Tuesday, really sweating it about something her financial adviser had said. We’d known each other for years, and I had never before seen her so confused. She was looking into equity release – you know, where you get money out of your house without selling it. The thing is, what she discovered left her absolutely floored.
Now, I’ll be honest with you. I thought I had equity release sussed until Janet went on about it. It was very simple: borrow against your house, no monthly payments, and Bob’s your uncle. It turns out I was wrong. There are loads nobody ever bothers to tell you, and some of it is really quite shocking.
That’s why I’m writing this. But after doing my own homework and speaking to people who have been through it, here are 4 little known truths about equity release which I think anyone should know before they even consider signing anything.
That Interest? It’s Mental
Right, so here’s the first thing that’s going to make your eyes water. Interest on those plans climbs faster than mould on forgotten bread.
For example, let’s say you take fifty grand of value from your home. The interest rate’s at 7% – nothing to see there. So most folks think, “OK, I’m going to end up owing about sixty or seventy grand when this is paid back.” Mate, you’d be £138,000 in hock after 15 years. Twenty years? Nearly two hundred grand.
I know, I know. Sounds mad, doesn’t it? But that’s compound interest for you. You are paying interest on the interest, and that seems like double-dipping to me, but it is what it is. It’s also why some of the equity release horror stories aren’t really horror stories; they’re just maths that nobody bothered to explain fully.
Here’s how it doesn’t work like your regular mortgage. If you have a plain-Jane mortgage, you’re chipping away at that thing every month. The balance goes down. With equity release, there’s usually nothing going out each month, so that interest just sits there growing like nobody’s business.
However, some companies allow you to make payments if you’d like, which can sometimes make things a little more manageable. But this is crucial, you need to ask about it specifically. They won’t always offer the information up.
Your Kids Might Get Less Than They’re Banking On
This bit’s awkward to talk about, but we’re all adults here. In equity release, you are effectively spending what your children might have inherited. And that’s fine! It’s your gaff, your cash. You earned it; you deserve to enjoy it.
But here’s what confuses people. Inheriting a house with equity release on it can be a right faff for your family. When you die or are taken into a care home, that loan must be repaid. Usually means selling the house. Anything that’s left over after the lender gets a chunk of change is handed off to your lot.
Sometimes, and I’m not going to sugarcoat this, there’s nothing left. I know a bloke who drew sixty grand about twenty years ago. By the time he popped his clogs, the debt had grown so massive it ate up nearly everything the house was worth.
Now before you panic, this doesn’t mean that equity release is rubbish. It just means you need to have a real conversation with your family. There’s no sense in pretending everything is going to be rosy if it won’t. Some of them offer this thing called inheritance protection, where they promise to keep a certain percentage around for your kids. It’s more expensive for you in the beginning and you won’t be able to borrow as much, but it stops arguments later.
There’s an interesting flip side too. Since equity release reduces your estate’s value, it may even lessen the tax bill for an inheritance. If your place would have been worth four hundred grand but you’ve got a loan on it for a hundred grand, well now the estate is three hundred grand. Could put you under that inheritance tax threshold. Every cloud, right?
You’re Not Completely Trapped (But Nearly)
Listen, loads of people think once you’ve got equity release, that’s it. You’re stuck till you die. That’s not quite true anymore, though it pretty much was back in the day.
These days, if you’ve gone with a decent company – and by ‘decent’ I mean one that’s part of the Equity Release Council – you’ve got a bit more wiggle room. Many let you move house, as long as your new place is worth enough for them to keep the loan secure. They call it ‘porting,’ which is a daft word if you ask me, but there you go.
If you need to go into a nursing home, most plans now won’t charge you those early repayment fees if you can prove it’s for medical reasons. This is fairly new, as the old plans were absolute nightmares for this, which is where a lot of those equity release horror stories came from.
Speaking of early repayment charges, they’re no joke. Say you want out – maybe you’ve decided to sell up and move to Spain with your daughter – you could be looking at 10% or more in fees. That’s ten grand on a hundred grand loan. Ouch. Mind you, these charges usually get smaller as time goes on, and some places let you pay back up to 10% each year without getting whacked with penalties.
Bottom line? Don’t go in thinking you can change your mind next month without consequences. But you’re not completely locked in either.
The Protection’s Actually Decent Now
Alright, here’s where things get better. Equity release today is nothing like those dodgy schemes from the 80s that gave everyone the collywobbles.
If you stick with an Equity Release Council member – and seriously, don’t even look at anyone else – you get this ‘no negative equity guarantee’. Basically, it means you’ll never owe more than your house is worth when it’s sold. Even if house prices tank or you live to be 110, the lender can only take what the house sells for. Your family won’t be left holding a debt. That’s huge.
You’re also made to get your own legal advice before signing. Not the lender’s solicitor – your own. Someone who’ll sit you down and explain everything without the sales patter. They’ll make sure you actually understand what you’re getting into.
Can you lose your house with equity release? Not really, no. You still own it. You can live there till you die. The only way you’re leaving is if you choose to sell, need to go into care, or pass away. They can’t boot you out because you’ve missed payments – there aren’t any payments to miss.
The newer plans also let you pay some of the loan back without penalties (within limits), which the old ones never did. It means you can keep that interest under control if you come into some money or just want to protect more value for your family.
So What Do You Actually Do?
Look, these 4 little known truths about equity release aren’t meant to put the frighteners on you. They’re just stuff you need to know before making what’s probably one of the biggest financial decisions you’ll ever make.
Before you do anything, get yourself on an equity release calculator. They’re all over the internet, free to use. Bung in your age, what your house is worth, and how much you’re thinking of borrowing. It’ll show you how that debt grows over the years. Bit of an eye-opener, that.
Think about why you actually need the money. Is it for something one-off, like doing up the house or paying off a mortgage that’s coming due? Then equity release might make perfect sense. If you’re after regular income to top up your pension, there might be better options out there.
How does equity release work when you die? Your executor rings up the lender, and you’ve usually got about a year to sort out repayment. Most people sell the house to pay it off, though your family could use their own money to clear the loan and keep the property if they really wanted to.
The big thing is getting proper advice. Not from some commission-hungry salesperson, but from a qualified adviser who’s legally obligated to recommend what’s actually best for you. Big difference.
What’s The Verdict Then?
Equity release isn’t the disaster some newspapers make it out to be, but it’s not a free lunch either. It works brilliantly for some people and terribly for others.
The worst thing you can do? Rush it. Janet, remember her from the start? She ended up deciding it wasn’t for her. She’s downsizing instead, which gives her cash without all that interest building up. Her mate Susan went ahead with equity release and she’s over the moon – using the money to travel while her knees still work.
Both of them made the right choice for their situation. That’s what counts.
Your house is probably the biggest thing you’ll ever own. Any decision about it needs proper thought, asking awkward questions, getting advice from someone who knows their stuff, and being completely comfortable with how it all works.
These four truths? They’re just the beginning. But they’re the bits most people don’t find out until it’s too late. Now you know them upfront, which puts you miles ahead of where most people start.
Don’t let anyone rush you. Take your time. Sleep on it. Talk to your family. Then make your choice with your eyes wide open. That’s all anyone can do, really.
