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Key points
Equity release can be a useful way of accessing some of the money tied up in your home, but it is also a significant long-term financial commitment.
The quality of the advice you receive matters just as much as the product itself.
A good equity release adviser should be able to explain your options clearly, discuss the possible disadvantages and alternatives, and demonstrate why any recommendation is suitable for your individual circumstances.
So, before deciding whether to proceed, here are 12 useful questions to put to your adviser.
1. What alternatives to equity release should I consider first?
This is one of the most important questions you can ask.
Equity release should not automatically be the first solution simply because you have money tied up in your property. Your adviser should explore whether there are other ways of achieving what you need.
Depending on your circumstances, alternatives could include:
- Downsizing to a smaller or less expensive property
- Using existing savings or investments
- Reviewing pensions or other assets
- Remortgaging an existing property
- Taking a conventional residential mortgage
- Considering a Retirement Interest Only (RIO) mortgage
- Receiving financial help from family
- Renting out part of your home
- Checking whether you qualify for benefits, grants or other financial assistance
- Reducing the amount you initially need to raise
Your adviser should be able to explain why equity release is being recommended instead of the alternatives available to you.
2. How wide is the range of products and lenders you advise on?
Not every adviser has access to the same range of lenders or products.
Some firms may consider products from a broad selection of providers, while others may work from a restricted panel.
Ask your adviser to explain exactly how their service works and what range of products they are able to recommend.
It is also worth asking whether they advise on other later-life borrowing options, such as Retirement Interest Only mortgages or conventional mortgages, where appropriate.
The objective should be to find the solution that suits your circumstances, rather than simply fitting you into an equity release product.
3. What will equity release actually cost me?
There is more to consider than the headline interest rate.
Depending on the lender and the adviser you use, costs can include:
- Adviser fees
- Lender arrangement or application fees
- Property valuation fees
- Solicitor’s fees
- Completion fees
- Interest charged on the amount borrowed
Some fees may be payable separately, while others may be added to the mortgage.
If fees are added to a lifetime mortgage, remember that interest may also be charged on those fees.
Ask your adviser for a clear breakdown of the total expected cost before you proceed.
4. Does the plan meet Equity Release Council standards?
If your adviser is recommending a lifetime mortgage, ask whether the particular product meets the Equity Release Council’s product standards.
Among the important protections associated with qualifying plans are:
- The right to remain in your home for life, or until you permanently move into long-term care, provided you comply with the terms of the agreement
- A fixed interest rate, or a variable rate with a fixed upper limit
- The ability to move home and transfer the mortgage where the new property meets the lender’s criteria
- A No Negative Equity Guarantee
- The ability to make certain repayments without a charge, subject to the lender’s criteria
The No Negative Equity Guarantee is particularly important. Subject to the relevant terms being met, it means that when the property is eventually sold, neither you nor your estate should have to repay more than the proceeds available from the property after reasonable selling costs.
Your adviser should be able to explain these protections in plain English rather than simply telling you that the product is “Council approved”.
5. Why are you recommending this particular plan to me?
An adviser should be able to give you a clear answer to this question.
The recommendation should take account of matters such as:
- Your age
- Property value
- Existing mortgage or debts
- Income and expenditure
- Current savings and investments
- The amount you need
- Why you need the money
- Your plans for the property
- Your attitude towards leaving an inheritance
- Your health and longer-term circumstances where relevant
- Whether you might move home in future
The FCA has previously highlighted the importance of personalised equity release advice rather than advisers relying on generic explanations.
You should understand not only which product is being recommended, but why it is considered appropriate for you.
6. Should I take all the money now?
Not necessarily.
Many lifetime mortgages can provide an initial lump sum together with a drawdown facility that allows further money to be accessed later.
If, for example, you need £30,000 now but believe you may need another £30,000 several years from now, there may be little benefit in borrowing the entire £60,000 immediately.
With many drawdown arrangements, interest is only charged once money has actually been released.
Taking only what you need can therefore considerably reduce the amount of interest accumulating over the lifetime of the mortgage.
Ask your adviser to demonstrate the difference between taking the money immediately and drawing it down gradually.
7. How quickly could the amount I owe increase?
Lifetime mortgage interest is an area you should understand properly before signing anything.
If you do not make interest payments, the interest is normally added to the mortgage. Future interest is then charged on both the original amount borrowed and the interest already accumulated.
This compounding effect means the outstanding balance can grow significantly over a long period.
Ask your adviser to show you illustrations of what the mortgage could look like after 5, 10, 15 or 20 years.
You should also ask whether the product allows you to make voluntary payments towards the interest or capital if you choose to do so.
8. Could releasing money affect my benefits?
Potentially, yes.
Receiving equity release funds may affect entitlement to some means-tested benefits or local authority support because money released and retained as savings can count as capital.
The rules vary depending on the benefit concerned.
For example, Pension Credit does not currently have a simple £16,000 upper savings limit. Instead, savings and investments above £10,000 can be treated as producing additional income when entitlement is calculated.
This is an area where assumptions can become expensive, so tell your adviser about any benefits you currently receive.
If necessary, they should recommend that you obtain specialist benefits advice before proceeding.
9. Could a Retirement Interest Only mortgage be an alternative?
A Retirement Interest Only mortgage, commonly known as a RIO mortgage, works differently from a typical lifetime mortgage.
With a RIO mortgage you usually make regular interest payments, meaning the amount originally borrowed does not increase through rolled-up interest in the same way.
The mortgage can generally continue until a specified later-life event, such as the last borrower dying, moving permanently into long-term care or selling the property, depending on the terms of the particular mortgage.
However, affordability is important because you need sufficient income to maintain the required payments.
Ask your adviser whether a RIO mortgage has been considered and, if not, why it is unsuitable for your circumstances.
10. What happens if I want to move home?
Plans change.
You might expect your current house to be your home for life, but circumstances can look very different in ten or fifteen years.
You may decide to:
- Move closer to family
- Buy a smaller property
- Move to a different part of the country
- Purchase a retirement property
- Move into sheltered accommodation
Ask your adviser what would happen to your lifetime mortgage in each of these situations.
Plans meeting Equity Release Council standards provide the opportunity to transfer a lifetime mortgage to another suitable property, but the new property must normally satisfy the lender’s lending criteria.
It is worth understanding those conditions before you need to rely on them.
11. What happens if somebody else needs to live with me?
This is easily overlooked.
Perhaps a family member, partner or carer may need to move into the property later in life.
Ask your adviser what implications this could have.
A lender may require an adult occupier who is not party to the mortgage to sign documentation acknowledging the lender’s rights over the property.
If you already expect somebody else may live with you now or in future, raise the issue before taking out the mortgage rather than discovering the implications afterwards.
12. What are the disadvantages in my particular circumstances?
Rather than asking whether equity release is “good” or “bad”, ask how the disadvantages apply specifically to you.
Possible considerations include:
- Reducing the value of the estate you leave behind
- Compound interest increasing the outstanding mortgage
- Affecting entitlement to means-tested benefits or financial support
- Early repayment charges if you decide to repay the mortgage
- Restrictions relating to your property
- Reducing the equity available for future needs
- Making a future house move more complicated
- Borrowing money now that you may not actually need until much later
There may also be disadvantages particular to your own financial or family circumstances.
A good adviser should be comfortable discussing these with you. If the entire conversation seems to focus on the benefits of equity release while barely mentioning the drawbacks, ask more questions.
Don’t be afraid to question the advice
Taking out an equity release plan can affect your finances for the rest of your life, so there is no such thing as asking too many questions.
Your adviser should be able to explain:
- What they recommend
- Why they recommend it
- What it will cost
- What alternatives have been considered
- What could go wrong
- What flexibility you will have later
Most importantly, you should not feel pressured into making a decision you do not fully understand.
Take your time, read the documentation carefully and ask for anything you do not understand to be explained again.
Equity release may be appropriate for some homeowners, but whether it is right for you will depend on your own financial position, objectives and plans for the future.
This article provides general information only and should not be regarded as personal financial advice. Equity release and later-life mortgages are regulated financial products and you should obtain appropriate professional advice before proceeding.
