When I think of equity release, my mind jumps to the dulcet tones of an advert before a mid-afternoon ITV 3 crime drama - a calm voice advocating the freedom that can be unlocked by releasing the assets in a property. But try to start a conversation about equity release with the general public, as we did at our recent Retirement+ event, and you’ll soon see that there seem to be two default reactions. Either a lack of understanding as to what this process is or a wariness bordering on suspicion of the prospect.

This attitude towards equity release is further confounded when googling the term. Several red flags appear on the first page of the results. Paid-for adverts appear with companies encouraging equity release as a quick and easy way to access funds and encouraging readers to act today! Below these companies’ links are a plethora of cautionary tales of vulnerable people being exploited and towering interest rates which can accompany this option.

In the legal profession, we often advocate caution and approach matters with a risk-averse or at least risk-aware mindset. So, being mindful of the reputation that equity release schemes have built up and how this might impact our clients are at the forefront of our work. However, in the residential property team at Birkett Long, we see beyond the marketing jargon and the fearmongering and know that there is a middle ground; this isn’t an option that will suit everyone, and there are serious considerations for clients. However, with the right advice and support, equity release can be an excellent, life-enhancing option for retirement age clients.

What is equity release?

Equity release is an option for those over 55 years old. The borrower must be a homeowner to be eligible. For most people, their home is their most substantial asset and may feel like an untapped resource.

In short, an equity release does what it says on the tin. Homeowners can convert (or release) the value of their property into cash (or equity) without the need to sell or downsize their house. The most common form of equity release is a lifetime mortgage, in which the homeowner takes out a loan of some of their home’s value secured against the property. Another alternative is a home reversion plan, where a lump sum is paid for a portion of ownership of the property.

Often, lenders are reluctant to issue loans or mortgages to this age bracket, meaning that life’s unexpected costs - those big-ticket items or a once in a lifetime holiday saved up for retirement - can become unattainable or force people to sell their homes to access funds. Equity release provides a solution to this problem.

Why is equity release controversial?

Martin Lewis, the Money-Saving Expert, has previously spoken on social media about equity releases. Such posts are littered with responses from those whose family members took out equity releases in their lifetime. As a result, there was nothing or very little left in the estate to pass on to their intended beneficiaries when the time came. This is understandably an upsetting and infuriating situation for many, particularly when it comes as a surprise.

Many feel that their family members must have been ill-informed to take up this option and must have been exploited by lenders.

Equity release is not a cheap option; interest rates on lifetime mortgages far exceed those in residential mortgages. The loans and the accumulated interest are payable on the borrower’s death (or certain other triggering events), which often means a substantial amount, or the entirety of the estate ends up in the hands of the bank rather than the borrower’s family.

There are several other factors that can be impacted. The release of funds may affect any benefits an individual receives. It can complicate matters when considering care fees, should these be necessary later in life.

The dubious reputation of equity release is partially because these factors have historically not been completely explained or fully understood, whether by design or accident. That is why, when we in the residential property team are asked to act on equity release matters, we place emphasis on transparency, openness, and comprehensive advice. We strongly advise anyone considering this course of action to also seek exhaustive professional financial advice before instructing us. We will also encourage clients to consult with family members and even bring them to meet with us so all parties understand the long-term impact and short-term benefits of releasing equity, and there are no nasty surprises further down the line.

By providing such a service, those who can benefit from equity release can be sure it is the right option for them and start the process with confidence.

If you would like to learn more about this or any other residential property matters, please get in touch. I can be contacted on 0330 818 3344 or via email at philippa.redfern@birkettlong.co.uk