Equity Release Advice

Published on: September 4, 2018

According to research conducted for FT Adviser, equity release advice is deemed unnecessary by the majority of those seeking it.

Moneyfacts studied a group of 300 consumers aged 55 or more, and found that 44% of those felt that they would be able to seek out the best equity release options without the help of a financial adviser, 29% didn’t trust financial advisers, and 8% thought that the cost of financial advice would be too high. Overall, it seems 81% of consumers would go it alone when looking to release equity from the value of their homes.

I’m not surprised that people feel the advice is unnecessary – the concept of ‘a mortgage you don’t pay back until you die’ is pretty simple. Similarly, the idea of selling your home for cash now and being allowed to remain living in it until you die isn’t exactly rocket science.

With lifetime mortgages you can opt out of making interest repayments during your lifetime. Naturally, the idea of not having to pay this extra ‘bill’ is appealing, so many individuals choose to ‘roll-up’ the interest payments so that they too, are repaid on death. However, the key consideration is that the interest is compounded and therefore the debt will double roughly every 12-15 years. I’m sure someone who borrowed £50,000 at age 60 wouldn’t expect to owe £200,000 if they live until age 85. Good financial advice would have identified the pitfalls and explained them clearly. Good financial planning would consider the benefit of making the interest repayments each month, or at least some of them.

The scary thing is that the vast majority of complaints regarding lifetime mortgages are made by the beneficiaries of the estate, who have suddenly lost their inheritance because of the huge debt that has accrued. Retrospectively, they can’t do anything about this and may feel upset, and understandably so, especially if they had no idea what was going on.

Equity release is becoming increasingly popular and as our retirement provision continues to dwindle, we expect that this trend will continue. As this becomes more and more of an appealing option – or necessary evil – we would urge consumers to seek quality financial advice to make sure they are completely happy and comfortable with the facts.

Corryn Wild, Dip CII

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