Equity release is an increasingly popular way to raise funds for the over 55s – but is it right in all circumstances? To help consumers decide, free2 has launched the Equity Release Advice Service, provided by expert, independent advisers, with access to the whole of the equity release market. Find out more here.

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Equity Release - time to get an expert view

According to the Financial Times, the amount of equity unlocked from people’s homes more than doubled over a recent two year period – rising from £514 million in the second quarter of 2016 to £1.08 billion in the final quarter of 2018. In 2018 as a whole, there was a record £3.94 billion of equity release lending, while in 2019 there was a slight decrease where the market lent £3.4 billion. This year, many industry commentators expect pent up demand for equity release to come through during the third and final financial quarters, and it will be interesting to see where the figures for 2020 end up.

Despite this apparent popularity, due in part to years of rising property prices and increased demands as a result of the sharp economic contraction following COVID-19, it seems equity release isn’t entirely understood, and many consumers are wary. Research carried out in September 2020* showed that consumers don’t fully understand how it works and they’re significantly concerned about the downsides.

A need for greater understanding

*The research, commissioned by us at free2, surveyed 750 consumers over the aged of 55, and it showed that;

  • 70% of respondents had major concerns about equity release products
  • Of those expressing concern, some 34% cited releasing the equity in their home as a top concern when trying to raise lump sums
  • 33% of the concerned respondents referred to the impact of equity release on their estate, potentially leaving little for their family to inherit
  • (33%) of those concerned stated the quality of the available advice was an issue for them

Further to this, even amongst those respondents surveyed who were eager to raise a cash lump sum using equity release, 63% of them thought that they lacked access to appropriate products that would allow them to do so comfortably. And fewer than 10% of respondents thought equity release was a suitable method for them to raise a lump sum amount.

Having said that, 28% of those looking to raise a lump sum using equity release did agree that they would consider alternative options – provided the options were available and so long as they didn’t have to secure the borrowing on their home.

What does this say to us at free2?

Equity release seems to be an inevitable choice for many people due to the lack of alternatives. People who don’t choose equity release may well be having to spend hard-earned savings to fund important plans in retirement. Others may be forced to use their flexible pension funds and suffer the tax penalty. And for those less well off, plans may have to be shelved altogether. It is also interesting to note there is a strong need for high quality, independent advice to make what is a ‘no-going-back’ decision.

It’s important to remember, and as the research shows, equity release is not right for everyone, and many borrowers may be put off by the idea of having to effectively take on a lifetime mortgage after having saved for so many years to pay it off in the first place.

The true cost of equity release

When looking at equity release, it’s important to consider more than just the annual percentage rate (APR). APRs for equity release almost always compare favourably to unsecured borrowing, but equity release typically involves a lifetime mortgage where the interest is either paid monthly for life, or it’s rolled up and added to the capital sum borrowed upon your passing, or moving into care. This can create a significant reduction in the final amount of your estate.

If you can afford to borrow and repay a loan over a short, fixed period, the net cost to your estate could be significantly lower. As once an unsecured loan is paid off, that portion of your income used to make the loan payments is yours to use once more. However, if minimising the impact on your monthly disposable income is a key concern, and more important to you than the impact on the future value of your estate, then equity release might prove to be the most viable option.

Taking an independent view

With so much caution and potential for misunderstanding about equity release and borrowing options over 55, we felt it was time to bring a new independent advice service to the market.

Our Equity Release Advice Service offers expert, impartial financial advice on equity release from fully qualified Independent Financial Advisers (IFAs) who have access to the whole of the equity release market.

Our ambition is to give customers clear and transparent access to the full market of equity release options alongside other borrowing alternatives, such as unsecured borrowing. Our Over 55s Unsecured Loan was launched in July and is unique in offering larger sums to borrow unsecured, for those with spare guaranteed pension income.

At free2 our straightforward proposition focuses on giving you greater choice and letting you decide whether to release your equity or keep your equity. You decide what option suits you best. To request a free initial consultation or use one of our calculators, visit: 

Loan Calculator 

Equity Release Calculator 

Seeking out advice

It’s clear that consumers over 55 want to have more options, and they are interested in and want to see and have access to greater choice than the market currently gives them.

To find out more about the Equity Release Advice Service, the pros and cons of equity release, and how equity release can compare to other alternatives, visit our Equality Release Advice Service page now.

Important Note

Free2 Limited (trading as free2) is an Appointed Representative of RS Consumer Finance Limited (RSCF) which is authorised and regulated by the Financial Conduct Authority (the FCA). free2 is a credit broker, not a lender, and will only offer loans from RSCF – an offer of credit is subject to status and affordability. Example Loan: 60-year-old non-smoker, £30,000 over 10 years with fixed monthly payments of £344.56, interest rate 6.73% and an APR of 6.97%. Terms & Conditions apply.

Customers wishing to use the free2 Equity Release Advice Service, once registered, will be introduced to partners Money and Advice Planning (MAP). The free2 Equity Release Advice Service provides a free initial consultation followed by an advisory meeting, for which a fee of £595 is charged on completion of a successful application.

This article was believed to be accurate at the time of writing and is intended to provide general information only to the reader – it does not constitute advice of any kind. Before making any decision about your savings, investments and your pension, you should consult an Independent Financial Adviser.

Sources

https://www.ft.com/content/2e33921c-5546-11e9-a3db-1fe89bedc16e

https://www.equityreleasecouncil.com/news/sector-leaders-comment-on-councils-q2-market-data/

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

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