This page was last updated on 1 October 2021.
If I Take Out Equity Release, Could I Lose My Home In 2021?
Equity release is an increasingly popular way for people over the age of 55 to release equity that is tied up in their homes. With the option to withdraw a large lump sum which is also tax-free, equity release presents a viable opportunity to top up a couple’s pension, clear outstanding debts, pay for home improvements or gift money to children. Source: Lending Expert
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One key consideration is whether using the equity release process will mean giving up your home and if you will lose this during your lifetime or when you die or go into care.
The answer is a simple ‘no.’ It is unlikely that you will lose your home from not taking out an equity release mortgage and in fact, the Equity Release Council has rules in place especially to prevent this.
However, in certain extraordinary circumstances, your home could be repossessed and this would usually be due to the property not being maintained, the borrower providing false information or leaving the property unoccupied for an extended period.
Here is a video regarding equity release.
How Does The Equity Release Council Protect You From Losing Your Home?
Each equity release provider must be registered with The Equity Release Council and this is the regulatory body that puts different measures in place in order to ensure that you can maintain ownership of your property.
For example, when taking out a lifetime mortgage, the Equity Release Council confirms that your house will always be yours, including having the right to sell it whenever you want or need, benefit from increase in value and continuing to live in the property until death or entering long-term care.
Additionally, a key clause known as the ‘no negative equity guarantee’ ensures that your family will not be left with debt once you enter long-term care or upon death. So no matter what the outstanding debt is, you will only own the value of the house – which may be collected or sold off by the lender to recover their costs.
You can usually tell if a company is approved by the council as they will have the badge displayed on their website and if they have any accompanying documentation – but you can also request this information directly on the Equity Release Council’s website.
What Happens To Your Property When You Die?
Once you and your partner die or go into long-term care, this is where the equity release provider comes in to collect on their full repayments.
Depending on the type of equity release plan, the property could be sold off on the open market and the lender will recover their debts and any money left over will go to the estate and beneficiaries.
In other cases, the property may still remain in the family and under their ownership – but the lender will still need to be paid. You usually have up to 12 months to clear the outstanding debt, so this could be financed through remortgaging, a second charge loan, renting out the property to tenants or through other savings and inheritance.
With a home reversion plan, this involves physically selling off a stake of your property or the full amount, so the equity release provider simply takes over your property once you die or go into long-term care.
How Could Your Home Be Repossessed by an Equity Release Company?
It is unlikely that you could lose your home from equity release, but here are some cases in which your home could be repossessed and you could lose your home.
- False Information – when applying for equity release, if you gave any false information (such as the wrong age, income amount or address), there could be a claim from the lender to repossess your home. However, this is only in the case that they have granted you a large lump sum initially.
- Property Left Unoccupied – if your property has been left unoccupied for more than six consecutive months, and you have not been taken into care, the home is at risk of repossession.
- Your House is Not Maintained – if you do not correctly maintain your property and, subsequently, the house declines in value, this could be due cause for repossession as the lender would need to recuperate the funds they lent to you.
- If the Loan is Not Repaid – upon taking out equity release, lenders offer a 12-month period in which the loan needs to be repaid once the borrower has died. This repayment usually comes from the estate, additional savings or the sale or renting of the property. However, if the other options are not viable, it is possible that the property could be repossessed as a fallback.
Before choosing equity release, make sure to check the fine print of your agreement as terms and conditions will vary between lenders and products.
If you adhere to the guidelines, there is no reason why your home should be repossessed.
In the unlikely event that the property is repossessed, this will not change the fact that you can live in your home for the rest of your life.
Top Tips for Equity Release
Before jumping into a decision, consider the options available. There are more than 100 types of equity release products available, from lump-sum options to lifetime mortgages, interest-serviced, drawdown and home reversion. Make sure to compare the different options available to find the best type of equity release for your needs.
Only Borrow What You Need
The longer the period of borrowing and the more that you borrow, the more interest you will be charged on your equity release. Although you may want to try and maximise the amount of funds you are able to enjoy in the short-term, this will result in the repayment of a greater amount of interest in the future. Before exploring equity release, make sure you know exactly how much you actually need.
Read the Terms & Conditions
Equity release will vary between equity release providers and the type of equity release product. Make sure you have clear the terms of your agreement and the options that are available to you such as early repayment or putting money aside for inheritance.
Check Your State Benefits
Many pensioners depend on state benefits such as government pension which is based on an assessment of income. If you receive a large lump sum from equity release, it has the potential to affect your state benefits. Always check beforehand how your equity release plan might impact these benefits.
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