Do I risk losing my home if I take out an equity release scheme?
Equity release is becoming a popular way to release cash from your property. But despite its growing popularity, there are still a lot of myths that I regularly debunk for my customers when they come to me for advice.
The most common concern is “do I risk losing my home if I take out an equity release scheme?”.
The short answer to this question is no. If your policy provider is registered with the Equity Release Council (ERC), then you are protected by a set of non-negotiable standards. Generally, as long as you continue to look after the property, don’t sub-let it to anyone and inform your lender if anyone moves in with you, your property remains your home.
Three of these non-negotiable standards relevant to highlight here are:
- You have the right to remain in your property.
- You have the right to move from your property.
- No negative equity guarantee
These standards apply to both types of equity release schemes
The most popular type of policy is a lifetime mortgage. This policy allows you to borrow money against the equity you have in your property, and you retain ownership.
The other type of equity release policy is a home reversion plan. I don’t offer professional advice on this type of policy, but this is where you sell a percentage of your property in exchange for cash. You no longer own 100% of the property.
Your rights to remain in and move from your property apply to both types of policy, but what you’re able to do with your property differs slightly:
Can I extend or renovate my home?
Yes, renovations are a popular reason to take out an equity release scheme. But this only applies if you take out a lifetime mortgage because you have full ownership of your property. Assuming the changes you make to your home don’t cause any damage or breach the conditions of your policy, then you’re free to make the changes you need.
Can I sell my property?
Selling your property is possible with either type of equity release policy. It is more common to do this when you have a lifetime mortgage and own the property outright. It is possible to sell your property with a home reversion policy, but you won’t receive the market value (NB, I don’t offer home reversion advice as part of my services).
The main consideration when you sell a property is what you choose to do with the loan. Most policies allow you to port (transfer) your existing scheme to your new home. Alternatively, you can repay the current loan and take out a new one. We’ll cover the pros and cons of this in a separate blog.
Can I sell my property?
Selling your property is possible with either type of equity release policy. It is more common to do this when you have a lifetime mortgage and own the property outright. It is possible to sell your property with a home reversion policy, but you won’t receive the market value (NB, I don’t offer home reversion advice as part of my services).
The main consideration when you sell a property is what you choose to do with the loan. Most policies allow you to port (transfer) your existing scheme to your new home. Alternatively, you can repay the current loan and take out a new one. We’ll cover the pros and cons of this in a separate blog.
Could my home ever be repossessed?
Irrespective of the type of policy you take out, your policy provider can rarely take ownership of your property while you are still alive, or before you choose to permanently move into care.
You are entering into a contract though, which often stipulates your property must be in good condition, your main residence and meet a minimum value. If you do anything to jeopardise this (e.g. renting it out, damaging the property etc) your provider could consider it to be a breach of contract. However, even under these unlikely circumstances, repossession is a rare outcome. It does, of course, pay to stay mindful of the actions that could cause issues.
Will I ever owe more than my home is worth?
No one wants to leave their loved ones with a debt that can’t be covered. If your policy meets the ERC’s standards then this can be avoided. With the “no negative equity” guarantee, your estate will never have to pay back more than the value of the outstanding loan.
How our team can help you with Equity Release
I set up Downton Mortgages & Financial Services to give people confidence in their financial decisions. We do that by making your policy options clear and easy to understand. There are no silly questions, and we are on hand to help every step of the way from research through to application.
I’m one of only a handful of mortgage brokers in the Bishop’s Stortford area who is registered with the Equity Release Council. When you work with us for equity release (lifetime mortgage) you can have maximum assurance that you are getting gold standard advice.
Other blogs we’ve written on the topic of equity release
- 5 things to do when you’re considering equity release
- How equity release can help you ride the cost-of-living crisis
- What do you need from a lifetime mortgage?
- 5 reasons you should work with a mortgage broker who’s registered with the Equity Release Council
Other resources you might find helpful
The information contained within was correct at the time of publication but is subject to change (December 2024).
Please note for all mortgage products, terms and conditions apply. This information is a summary only. You will receive full documentation upon application which sets out the terms, conditions and limitations of lending provided.
A Lifetime Mortgage will reduce the value of your estate and may affect your entitlement to means-tested benefits and tax status. The impact of not servicing monthly interest payments on a Lifetime Mortgage is that the outstanding debt can grow rapidly, thus reducing the value of your estate.
For example, if the interest rate was 7% a year, a £50,000 loan would double to £100,000 after 10 years assuming no repayments are made.
This is an example for illustrative purposes only and personalised advice and recommendations should be sought from a qualified professional.
You are strongly advised to register a lasting power of attorney. This will allow your affairs to be managed by somebody else if your mental abilities significantly decline.
Your home may be repossessed if you do not keep up repayments on your mortgage.