New customer numbers (4,698) were 31% lower between January and March 2024 than during the same period in 2023.
David Burrowes, chair of the ERC, explained: 'Older homeowners are adopting a more cautious approach to borrowing as there are hopes of interest rate reductions in the near future.'
Regardless of what interest rates are doing, it makes sense to approach equity release with caution – it's a complex product that isn't right for everyone.
Here, we tackle five common myths about equity release.
If you take out an equity release product recommended by HUB Financial Solutions, Which? will earn a commission to help fund our not-for-profit mission1. You can’t make repayments with equity release
Equity release is a way for over-55s to borrow money by unlocking cash from the value of their home while continuing to live there.
Unlike ordinary mortgages, there is no obligation to make any interest repayments on a lifetime mortgage (the most popular type of equity release) – but that doesn't mean you don't have the option to do so.
However, you'll often have to factor in an early repayment charges.
Not making any repayments on your loan will mean you end up paying far more than you’ve borrowed, due to the compounding of interest.
For example, if you take out an initial lifetime mortgage worth £100,000 at a rate of 4.5%, the debt will be £125,180 after five years and £156,699 after 10 years. After 15 years, you’ll owe £196,156 – nearly double the original amount.
Find out more:2. Making early repayments always comes with a penalty
There will usually be a limit on how much can be repaid each year – typically this is 10% of the loan.
Since March 2022, lifetime mortgages that meet Equity Release Council standards must give customers the right to make voluntary, penalty-free partial repayments.
But deciding to fully repay your loan early will often trigger an early repayment charge – the amount depends on how long you’ve had the loan. For example, you might be charged 5% after five years or 3% after 10 years – so charges of £5,000 or £3,000 on a debt of £100,000. In some cases, early repayment charges can be as high as 25%.
3. You’ll need to take the money in one go
Spreading out the amount you borrow in this way will reduce the impact of compound interest, as you'll only be paying interest on the cash you've taken.
You might also benefit from future interest-rate cuts, as each withdrawal will be charged at the prevailing rate at the time. Of course, the opposite scenario is also possible.
4. You could end up owing more than your property is worth
When your property is sold – when you either downsize, go into permanent care or pass away – the proceeds are used to repay the money owed to the provider of your equity release plan. Any money left over is paid to you or your beneficiaries in accordance with your will.
This means that you, or your estate, will never owe more than the value of your property when it's sold.
5. You can't move house if you've taken out equity release
A lifetime mortgage can be transferred to a new property, subject to the lender agreeing that the new house is suitable.
Properties likely to be considered 'unsuitable' are those that would restrict the lender's ability to sell the property in the open market when your plan comes to an end – for example, homes within retirement complexes.
With a lifetime mortgage, even though your loan is secured against the property, it is still your property and therefore you can’t be evicted.
Making your decision
The good news is that you won’t have to weigh up all of the pros and cons yourself. Before you sign up for a lifetime mortgage, you'll need to obtain regulated advice from a qualified equity release adviser. This is a requirement of the Financial Conduct Authority.
It's better to have an adviser that isn't restricted to recommending products from just one or two firms.
Equity release brokers such as HUB Financial Solutions, Age Partnership and Key Later Life Finance can look across the whole of the market to find the product that meets your specific requirements.
Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665 and is an Introducer Appointed Representative (FRN 610689) of the following: 1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance, who are authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd. 2. LifeSearch Partners Limited (FRN656479), for the introduction of Pure Protection Contracts and Private Health Insurance, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts and Private Health Insurance Contracts. LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386. 4. HUB Financial Solutions, for the introduction of equity release advice, who are authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide advice and guidance on financial products for those who have retired or are approaching retirement (FCA Firm Reference Number: 455713). HUB Financial Solutions is registered in England and Wales to Enterprise House, Bancroft Road, Reigate, Surrey RH12 7RP, company number 05125701. We do not make, nor do we seek to make, any recommendations or personalised advice on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and, if you choose to, you can buy a product from our commercial partners. If you go ahead and buy a product using our link, we will receive a commission to help fund our not-for-profit mission and our campaigns work as a champion for the UK consumer. Please note that a link alone does not constitute an endorsement by Which?.
source https://www.which.co.uk/news/article/5-common-equity-release-myths-aihPd9U41ZRT