Going through the roof


    That safety net is important for many customers – and has been a major factor in enhancing the reputation of equity release and reducing risk.

    However, there is a debate within the industry that the cost of including a no-negative equity guarantee on plans increases the interest rate and that removing the guarantee would help cut rates and the costs for customers. The guarantee is an important reassurance for customers but does have costs attached.

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    Planning for the future should include thinking about what can change, and clearly a lot can over 15 years.

    Customers might want to move house; they might want to repay their equity release loan early and they might want to guarantee an inheritance to family members, to name just three issues.

    Just like residential mortgages, many equity release plans will come with early redemption charges (ERC). Customers repaying loans ahead of the term will face an ERC – they can be as much as 25 per cent of the original loan, and some plans will impose fixed terms of up to 10 years or linked to maximum ages.

    ERCs could be triggered if customers decide to move to a new area or to a smaller more manageable home.

    It is possible to move the loan – to port it in the equity release jargon – and all Equity Release Council plans enable customers to move the loan to a new house without any penalty.

    Some providers may not allow loans to be moved to sheltered accommodation and there might be restrictions on the types of houses providers will lend against.

    However, customers may need to repay part of the original loan if the loan-to-value changes at their new property. If the loan is based on a 40 per cent loan to value on a £300,000 house and a customer moves to a £150,000 house, the LTV will change.

    No one wants to think about becoming ill and needing long-term care, but it should be part of the decision-making process.

    Inheritance can be a major issue for some – people may want to leave money to relatives, and it is possible with many plans to ring-fence some of the property value and guarantee an inheritance, although that will reduce how much can be released.

    Equity release is ultimately not a complicated product, but the decision on whether to take out a plan can be complicated.

    Customers need to understand all the risks before taking out a plan and then balance that against their existing needs and any potential future needs. Without a crystal ball that will be a complex balancing act.