Before you decide whether equity release is right for you, you’ll want to be prepared – part of that is asking yourself, and your financial adviser, the right questions. You’ll also need to consider all other options including unsecured borrowing. To help consumers choose, free2 has launched the Equity Release Advice Service, provided by expert, independent advisers with access to the whole of the market. It’s on offer alongside the Over 55s Unsecured Loan. Find out more here.
Asking the right questions about equity release
When thinking about equity release, there’s a lot to take in, and a great deal to weigh up and decide, even when you receive professional advice. Here, we’ve tried to put down some of the key questions you may wish to ask of yourself and/or put to your adviser when contemplating equity release.
1. Does your adviser cover all types of equity release?
When considering a financial adviser, check if they're limited to particular lenders’ products, whether interest-only, roll-up, or home reversion? Or do they offer advice from the whole UK equity release market? The more lenders your adviser has access to, the less you may need to “shop around”.
2. What are the projected costs?
There are various costs and fees associated with equity release, not all the following costs or fees will be applicable in every circumstance, but many of them will be. You will want to understand which apply to you.
The adviser’s fees
The FCA requires all equity release arrangements to be facilitated with financial advice, so you’ll need to check;
- Do they charge an initial consultation fee? – Not all advisers charge these
- What is their advice fee and is it only payable on completion of the loan?
The lender’s fees and costs
- A valuation fee – This is usually non-refundable
- An arrangement fee – Sometimes this is added to the loan amount and may accrue interest
- Regular or final interest payments – A lifetime mortgage will involve paying interest, whether through regular interest-only payments, or interest roll-up which falls due when the property is sold
The solicitor’s fees
- You’ll need a solicitor to carry out the conveyancing as equity release involves arranging a mortgage on your property
3. What criteria will my adviser follow?
An Independent Financial Adviser will get to fully understand your circumstances and ambitions, and give a clear explanation of their process. They will then go away and do their research, prepare their advice and clearly explain their reasoning behind their recommendation. As part of any equity release consultation, your adviser will have to consider other options of raising capital before equity release is recommended.
4. Do you have any alternatives to equity release?
Equity release is not right for everyone. Your adviser is likely to discuss other options for you to raise finance, such as:
- Downsizing: IE: Moving to a smaller and therefore cheaper property
- Remortgaging, or amending your existing mortgage, if you have one
- Selling assets, or collections
- Claiming any state benefits or applicable government grants
- Renting out a room to a lodger
- Doing a budget and reducing your expenditure
- Going back to work, or seeking more lucrative employment
- Using any pensions, such as a lump sum from a flexible drawdown
- Calling on other savings or investments
- Borrowing using an unsecured loan if you can afford the payments over a chosen term
5. Will you lose state benefits with an equity release plan?
Some benefits are intended for those who have low income and low levels of savings. Examples of means-tested benefits include Pension Credit and Council Tax Credit. Money received from equity release is not classed as income, but the upper savings limit is currently £16,000. If your savings rise above this threshold, you may lose entitlement.
6. How much can you borrow?
This will depend on your circumstances. Generally speaking, the more your house is worth and the older you are, the greater the equity you may be able to release. In the case of an interest-only lifetime mortgage, the amount you can borrow is assessed on your property value but also judged on your income and expenditure. You can use free2’s online calculator to receive an estimate.
7. What are the downsides to equity release?
The main drawback is that equity release will reduce the value of your estate – leaving less of a legacy that you’re able to pass on to your loved ones. There is also the potential loss of means-tested benefits to consider – these include Pension Credit and Council Tax Credit. It's always a good idea to discuss your plans with loved ones as equity release may impact on their own plans if an expected inheritance is reduced.
8. Does your suggested plan meet Equity Release Council standards?
The Equity Release Council stipulates that all their Lender members provide a No Negative Equity guarantee so that once your property is sold on your death or moving into care, neither you nor your estate will be liable for more than the value of your property. The Council also insists that interest rates for lifetime mortgages are either fixed for life or if variable rate, there must be an upper limit, or cap, set for the life of the loan.
9. What if I need more money in the future?
Something to consider when seeking advice in equity release, is whether you will need to move house or have access to additional funds in the future? You may choose to receive an initial advance at first and then take money later from a pre-arranged reserve facility. The reason for this is that you only pay interest on any money advanced, money in a reserve facility does not attract interest. This means you'll be paying less interest over time, potentially saving you and your estate £thousands.
Equity release isn’t right for everyone, and it’s important to ask the right questions, understand all the options and know what you’re entering into – after all, equity release is a one-off decision that you have to get right first time.
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.