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Equity Release Nightmares & How To Avoid Them

Equity release is a very safe scheme nowadays. There are many resources online explaining what equity release is and how it works, which helps homeowners to avoid dangerous equity release scams.

There are also more equity release products available today than ever before. This makes equity release safer as it means people can select plans that are tailored to their current situation, rather than enrolling on plans that may end up being disadvantageous to them in the long run.

Finally, equity release is regulated by the Financial Conduct Authority and the Equity Release Council. This ensures equity release lenders prioritise their customers’ needs and lend money to them in a safe way.

Though not every lender is regulated, homeowners are able to select one that is regulated if they want to ensure their experience of equity release is safe.

Please call our 24-Hour Helpline: 0330 058 1579

What are Some Common Equity Release Nightmares?

If you do not look into how to keep equity release safe, it is possible that you could end up facing some common equity release nightmares.

We will introduce you to a few of these so you know what to look out for:

1. Compound interest

Equity release works on compound interest, meaning interest is charged on the annual interest that accumulates, as well as on your loan amount. Evidently, this means you gradually pay more interest each year.

If you are aware of this, you can either relax in the knowledge that the interest does not have to be repaid, or you can reduce the amount of compound interest you are paying.

You could do this by selecting a voluntary repayment lifetime mortgage or an interest only lifetime mortgage, both of which allow you to repay some of the money and therefore owe less overall.

You could also choose a mortgage with low interest to ensure the final interest amount is lower. Home reversions would also be a sensible option as they do not involve interest at all.

However, many people are not aware that equity release interest accumulates so quickly. This means they may get into more debt than they imagined, and this can be very stressful for them.

This is especially true for people who could have used another scheme to fund their retirement, such as remortgaging. Once they realise how much compound interest impacts equity release, they may regret selecting the scheme over one that does not use roll-up interest.

2. Early repayment charges

Some equity release lenders charge an early repayment fee if their customers want to repay their loan. This could include customers who want to make partial repayments to lower their interest, or customers who want to repay their loan in full in order to move house.

The early repayment charge is not the same across the board, so it is important that you check whether your preferred lender does this, and if so, how much they charge.

It is wise to choose a lender without this charge, as it would offer you the flexibility to give up on equity release if you realised it wasn’t for you.

Unfortunately, some homeowners do not look into this before taking out an equity loan. This means they end up having to pay a large amount to move house, and this can be up to 25% of the amount left on their loan.

Often it is only around 10% (or less if the customer released equity a long time ago), but it will depend on the criteria of the lender in question.

As you can imagine, if you need to move house and therefore have to pay the fee, you could end up in a much worse financial position than you were before you took out equity.

This is clearly an undesirable outcome, so we encourage you to look into early repayment charges to avoid this equity release nightmare.

3. Inheritance

A very common equity release nightmare is when a homeowner takes out equity to fund their retirement without reserving some funds for their family, and therefore there is no money left for their loved ones when they die.

This is a very unfortunate situation as it may result in some family members struggling financially when they would otherwise be in a more comfortable position.

We believe this is particularly relevant at the moment, given that the 2022 Cost of Living Crisis is affecting so many families in the UK.

What’s more, it is possible that it could cause family arguments if certain family members approved of the homeowner’s decision to release equity, or even helped them to do it. It is best to avoid this at all costs.

If you do want to take inheritance into account, we encourage you to secure inheritance protection, which you will find is offered by many providers. Sometimes, you will have to pay more interest to get this, but it may be worth it for the security and stability of your family.

Please also remember that you should not feel obliged to leave an inheritance. Some pensioners are simply not close to their family, and they may not feel it necessary to leave funds to them.

In this situation, you could enjoy lower interest rates and larger loan amounts without feeling guilty.

Please call our 24-Hour Helpline: 0330 058 1579

4. Negative equity

We often talk about negative equity as an equity release nightmare. This occurs when homeowners owe more money than they borrowed when they pass away or enter permanent care. Of course, at this point, they are not affected by the debt, but their family is.

Negative equity can occur when the compound interest is not dealt with, or when the property value decreases in the time between the consumer releasing equity and passing away or going into care.

It is more likely for someone to enter negative equity if their property is low in value, their loan is very large, or they do not repay any of the interest or loan amount.

However, it is true that most people who release equity choose not to make repayments, and this is perfectly acceptable. As a result, we want to make it clear to you that negative equity does not have to arise as a result of a lack of repayment.

There is something on the market called a no negative equity guarantee (1). Many equity release providers offer this, and it means your family will never get into debt over your equity release funds, as the lender will only take the money they need from your property sale, and nothing more.

That being said, if they need to take the full amount from the sale, your family will be left with nothing unless you have specifically requested inheritance protection.

To avoid this, be sure to protect some funds for your family, and consider repaying interest if this is something you are able to do.

5. Not owning your home

The great thing about equity release lifetime mortgages is that they provide you with tax-free cash without making you give up your status as homeowner. However, not enough people are aware that if they select a home reversion plan, they will no longer be the owner of their property.

This means that the equity release provider is able to sell their home very quickly after they die, which can cause the family a great deal of stress as they have to prepare the home for sale in a matter of weeks.

It also means the provider benefits from any appreciation in value of the property, and the homeowner does not.

Though this can be an equity release nightmare, it is only a negative thing if it is unexpected. You may decide that a home reversion would be worth it as the positives outweigh the negative of no longer being the homeowner.

For example, it may be important to you to be able to access a lump sum of cash to fund an important project i.e. home improvements or luxury holidays. Home reversions allow you to do this, as there are no monthly payments involved.

Another example is that you may want to access as much money as possible, and home reversions allow you to access 80100% of your property, rather than the 2060% that is possible through getting a lifetime mortgage.

6. Not having an adviser

Not having an adviser is a serious mistake to make as an equity release consumer. You may believe you can figure it all out yourself, but a professional equity release adviser will have years of experience researching equity release, so you are much better off speaking to them.

It is also possible that you would miss out on certain deals without seeing an equity release adviser, as they will be up to date on all the latest equity release schemes and lenders. This means they will be able to suggest arrangements that would be suitable for you and your family.

It goes without saying that having an adviser is only beneficial if they are trained in equity release and regulated by the FCA and ERC. Otherwise, they are not obliged to be neutral with you, so you may end up receiving biased information.

They also do not have to explain the nuances of equity release, so you may not completely understand the scheme after meeting with them.

However, regulated advisers have to change their services on an annual basis according to what the regulatory bodies’ reports say. This means they have to ensure their advice is modern, neutral, and promotes safe equity release.

Without a regulated adviser, you may end up agreeing to something that will later disadvantage you. For instance, you may skip inheritance protection without realising the significance of this. Such a small error would have a huge impact, and an adviser would not allow this to happen.

7. Not having a solicitor

Solicitors also have an important role in equity release, despite the fact that it is less common to have a regular equity release solicitor than a regular equity release adviser.

Not having a solicitor is in fact impossible, as you are always obligated to have at least one in-person meeting with an equity release solicitor.

However, some homeowners choose to limit themselves to this one meeting, and then they continue to pursue equity release with no further legal aid.

We strongly advise against this, as you could end up getting confused with the mortgage lenders’ offer, which could lead to a serious equity release nightmare. For example, you may reject a low loan offer without realising there are many other benefits involved, or you may fall for an equity release scam due to not understanding the legalities of equity release.

Again, it is obvious that you will only reap the benefits of legal aid if your solicitor is trained in equity release. This is very important to remember, as your lender will allow you to find your own solicitor, so you must ensure you select a reliable one that is experienced in dealing with equity release.

8. Having to maintain your property

When you take out equity, you are expected to stay in your property for the rest of your life. At first, many homeowners see the positive in this; they get to access tax-free cash without having to move out of the home they worked hard to earn.

However, you must be aware of the negatives of this. You will be required to pay to maintain your property, so if anything goes wrong, you will need to make sure you can fund repairs (2). If you have had a home reversion, this may be even more frustrating as you will no longer own the home and yet will still have to maintain it.

That being said, you would get to live in the home for the rest of your life, and your cash would come in the form of a lump sum, meaning you would be able to use your equity loan to pay for any repairs or home improvements.

Please call our 24-Hour Helpline: 0330 058 1579

9. Losing your state benefits

If you are currently claiming state benefits, it is essential that you speak to a financial adviser or Citizen’s Advice to find out whether taking out equity would impact this.

Certain benefits will never be affected by equity release, as they are given to individuals regardless of their income. One example of this is disability benefit. However, means-tested benefits could be taken away if a homeowner keeps some equity release funds as savings.

Losing one’s benefits entitlement could be catastrophic, so it is very important that you speak to an adviser about this before going ahead with equity release.

It may be the case that taking out equity would be more profitable for you, and you would therefore be willing to give up your benefits to do this, but this is something to figure out before you get your loan rather than after.

10. Making a single application when you are married

Some people choose to make a single application for equity release when they are married.

There are a variety of reasons they do this, but it is often linked to the fact that they are eligible for equity release and their partner isn’t, or they could access more benefits by making an individual application.

For example, their partner may not yet be 55 years old, which means they would not qualify for an equity loan. Even if their partner does meet the minimum age requirement for equity release, they may be much younger than them, which means that together they would not be able to take out as much money.

Another common situation is that one member of the couple has a poor credit score, and the other does not want to be hindered by this. Though good credit scores are not essential for equity release, they can open up the door for low interest rates.

However, what some people do not realise is that by not having their partner on their application, they may be putting them in a very vulnerable position if their partner outlives them.

This is because the equity release lender will have to sell the home and take some of the sales proceeds, so the partner will be left without a home and potentially without any of the equity release funds (if nothing has been saved for them).

To prevent this, it would be possible to add your partner to your application at a later date, if their eligibility is something that will change over time (i.e. if they are currently too young but they will soon reach the minimum age requirement).

However, if they will always be ineligible, you would have to consider whether you would rather release equity on your own or choose an alternative to equity release.

If you go ahead with taking out equity, you could try to prevent your partner from struggling later down the line by implementing inheritance protection and trying to save for them with any pension funds or savings you have.

Please call our 24-Hour Helpline: 0330 058 1579

What are Some Positive Impacts Of Equity Release?

We have explained how you can end up in a challenging situation as a result of releasing equity, but we want to take the time to explain some positive impacts of equity release to reassure you that it does not have to be nightmarish.

1. It is open to many different people

Equity release is very accessible as you can get involved with it even if you do not have a high income or a good credit rating. For example, if you have no savings, no pension funds, and no employment income, you are still in with a chance of getting an equity loan.

The only thing you would have to consider is paying equity release fees, but if you cannot afford this, you would be able to use your equity loan to pay for each stage of the equity release process.

There are certain eligibility criteria that you must meet, but none of these are related to your income. You have to own a property worth £70,000 or above, and you have to be at least 55 years old. Most pensioners meet these conditions, which makes this scheme very accessible.

2. You can access a large amount of money

Some homeowners access more money with equity release than with any other loans, as the money comes directly from their property’s value. This means they can fully fund their retirement, especially if they have other sources of income to supplement it i.e. pension funds, savings, and employment funds.

Equity release funds are free from tax, which is another reason that the scheme is very profitable for homeowners.

The amount of money you can release is dependent on various factors, so it is not true that everyone will release a life-changing amount. However, if your property is high in value and you are in your 70s or above, it is likely that you would be able to access a lot of money.

3. Repayments are not mandatory

One of the main reasons people consider equity release is that they do not have to pay back the money they borrow, which means they can spend it freely without being concerned about debt.

If an equity release consumer has a no negative equity guarantee and inheritance protection, no matter how much money they use up of their loan, they can rest assured that neither themselves nor their family will get into debt that must be repaid.

This is because the homeowner does not have to pay back the money while they are alive, and the family does not have to pay back any of the money at all. Instead, the equity release lender uses the property as a way of getting repayment, so they sell the property and take the money from it.

4. You could buy a second home

There are not many schemes that would provide you with enough money to purchase a second home, but this is sometimes possible with equity release.

If you are on track to release a large amount of money from your home, you could choose to get a second home lifetime mortgage that you could use as a second home or a holiday home.

You may even be eligible for a buy-to-let lifetime mortgage, which allows homeowners to purchase a second property to rent out to tenants. This is perhaps something you have always wanted to do but never had the means to fund it.

Please call our 24-Hour Helpline: 0330 058 1579

How Can You Avoid Equity Release Nightmares?

There are certain things you can do to avoid equity release nightmares, and we are here to guide you.

1. Speak to an equity release adviser

The most important thing you can do is find an equity release adviser who is regulated by the ERC and FCA, and ask them all of your burning questions about equity release. We also recommend being open about your concerns, as they will be able to either put your mind at ease or advise you on how to prevent unsafe events from occurring.

It is likely that the adviser will have witnessed enough equity release nightmares to know how to help their clients avoid this. Don’t be afraid to question them about specific ‘nightmares’ you have heard about, such as homeowners struggling with negative equity, or not being able to leave an inheritance to their family.

However, do not make the mistake of being wholly negative about equity release before you give it a chance. The scheme is not well-represented by the media, so it would not be wise to rely on the stereotypes that you may see on a regular basis.

Before you speak to an adviser, have a look at some of the common myths of equity release to discover which ones are partially true and which ones are completely misleading. This will help you to get a more accurate, balanced view of what equity release is.

2. Find an equity release solicitor

Another important suggestion is to find an equity release solicitor who is willing to take charge of all of the legal processes of equity release, including organising property valuations and negotiating offers with the equity release lender.

The obvious advantage of working with a solicitor is that they will be able to spot scams much more easily than you, but another significant advantage is that it may reduce the stress involved with equity release, which will ensure you are in a better mindset to pursue equity release and make a sensible decision on what to do with your loan.

3. Make sure your equity release lender is regulated

It is vital that you find an equity release lender who is regulated, otherwise you are much more likely to end up in an equity release nightmare.

Lenders who are regulated by the ERC are obligated to follow a particular set of standards, which includes allowing customers to downsize without charging them, having a no negative equity guarantee, and allowing customers to remain in their home for the rest of their life (or until they go into permanent care).

Another benefit of having a regulated lender is that they have someone to answer to. If you are not happy with the service you are receiving, you will be able to make a complaint and have your voice heard.

4. Ask all the right questions

Professional equity release advisers should cover all of the important aspects of equity release. However, there are so many possible subjects to discuss, that it is possible they will fail to mention several of them.

This is why it is so important that you ask all the right questions, particularly ones that relate to your personal situation more than the average person’s. For example, if you want to take out equity but you have an existing mortgage, make sure to mention this. If you are set on having a home reversion rather than a lifetime mortgage, make this known.

The vast majority of your questions should be answered by the adviser, so don’t worry too much about this. They will have to go through a list of questions relating to your finances, so it is very unlikely that they would not quickly realise that you had an existing mortgage.

However, when it comes to your preferences with equity release, it is essential that you discuss these, as all equity release customers will have different desires for the scheme.

This includes which plans you are interested in, which product features you would like, and what you would like to spend your loan on.

Please call our 24-Hour Helpline: 0330 058 1579

Get in Touch With Equity Release Warehouse

We would be delighted to help you weigh up your options with equity release in a free consultation with one of our equity release specialists. All you need to do is ring us on 0330 058 1579 or ask us to get in touch with you here.

Speaking to an adviser really is the best way to avoid experiencing an equity release nightmare. We have seen it all, so we know the difference between safe and unsafe equity release. Using this experience, we can help you to make sensible decisions with your money and your property.

In our consultation, we will explain exactly how you would go about releasing equity. The entire process tends to take around 7 weeks, but this is different for each homeowner. It also costs money, and again, the amount will be different for everyone, but it will most likely be under £3000.

If you are interested in keeping equity release as affordable as possible, we will advise you on how to do this, such as encouraging you to shop around for budget-friendly advice and solicitors.

Having said that, the most important thing you should seek is quality. Do not settle on low-quality advice simply because it is affordable.

If you are in a desperate situation, you can request to use your equity loan to pay for the equity release fees, and that way you would be able to get quality advice regardless of your income.


[1] What is a no negative equity guarantee?,worth%20when%20it%20is%20sold.

[2] Equity release – 3.4 Repairs, insurance and other on-going costs

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