Equity Release Horror Stories – What to Avoid

Are you curious about equity release and how it works? You’re not alone; over 7,000 people visit our website each month to gain insight into the world of equity release. We understand that the process may seem puzzling and maybe even a bit scary, which is why we’re here to help guide you through it with clear, simple advice.

In this article, we’ll explore:

• What exactly equity release is and how it works.
• How to get a sensible quote for your home.
• The good and bad sides of releasing equity.
• Real stories of people who faced problems with equity release.

We know that your home is important to you and that you may be worried about losing it. We’ll address those fears head-on, explaining how equity release schemes work and what risks they may pose. We’re here to help you make informed choices about your future.

Let’s dive in.

A detailed explanation of equity release schemes

There are two main ways of releasing equity in the UK, although one is much more popular than the other. 

The most common equity release plan is a lifetime mortgage. This is when you agree to release a percentage of equity in your home based on the current value of the property. This money is charged with a fixed interest rate that rolls up, meaning it accumulates and adds to the total money owed rather than being repaid each month. Even with standard interest charged at around £60,000, the total debt can double in a decade. However, some people make voluntary interest payments to keep their debt lower, and so they pass on more inheritance when they die. 

You can also find enhanced lifetime mortgages. These are designed to help people with a shorter life expectancy to access more of their home equity to pay for private care. 

The second way to take out equity as a senior is through a home reversion plan. Essentially, this is when the homeowner trades in a percentage of their home’s future sale proceeds for a much smaller amount of equity, but no interest is charged. For example, you may have a home worth £200,000 and take out 20% equity (£40,000) but have to give up 50% of the property’s eventual sale proceeds, which could be +/- £100,000.

Real equity release horror stories

Horror story #1

Avoid equity release like the plague. As power of attorney for my parents I have to manage two long term care packages whilst the equity release company strips away asset value at an alarming rate (£15,000 interest next year). After working for 30 years I have had to sell my own house to support my Mum. I have to maintain their house at great cost ‚Äì essentially I am working for the lender. It is a depressing nightmare.

[YouTube comment from an equity release video by Which?]

In this instance, it sounds as though the poster is unhappy at the severe cost of the equity release plan the homeowner has taken out, which is a common complaint. This has transpired into having to use his/her own money to help their parents in later life. 

Horror story #2

My parents used a SHIP registered equity release scheme (they are elderly) and, basically they had to sell about 75% of their property for around 33% of its value [‚Ķ] Now, every year, they have to put up with an inspection from the company who send a representative to go over the house and make a report. This year’s report contained a criticism that the bathroom was in need of updating (it has a coloured bathroom suite ‚Äì not the desirable white), so I think I can see where this is leading, they are probably expecting my parents to carry out a certain level of house maintenance/refurbishment at their own expense.

[Money Saving Expert Forum from Mrs_Money]

In this post, the poster is also complaining about the cost of equity release. But they are also unhappy with the inspections carried out by the company and the expected demands of property refurbishment. The ERC guards against unnecessary maintenance. 

Horror story #3

Roy, a retired accounts manager, says: ‚ÄòIt was a bolt from the blue, which has stung us horribly ‚Äî it’s a scandal. There was no explanation at the time of any kind of exit fee, or that it would cost a fortune.’ Roy and Jean, now both 83, had released cash from the equity in their home because they wanted to buy a boat to enjoy in their retirement. They bought a 29ft Rodman motor cruiser and christened it Rob Roy. In 2008, they sold the boat ‚Äî and, later that year, moved house, taking the equity-release loan with them. 

Then, in March last year, they decided to move into sheltered accommodation. It was then that they discovered they would have to pay £119,391 in debt plus the penalty fee of £16,430. Although the value of their property had increased to £249,000, they were left with just £113,179. 

Should I let equity release horror stories put me off?

You should not let equity release horror stories put you off considering a lifetime mortgage or other plan, but you should be aware of them and the pitfalls. The fact you already found this guide suggests you are being diligent about your research and taking the time to learn more. They are also another reason to only look for legitimate lenders that are members of the ERC. 

If you have any concerns, always raise them with your equity release adviser. Getting advice is mandatory as part of the process.

What are the drawbacks of equity release?

The overriding disadvantage of equity release is that it is expensive. Whether you opt for a lifetime mortgage or a home reversion scheme, the overall amount you pay back can be double or even all of the property value. This significantly affects the value of the inheritance you pass on. 

Some other cons of equity release are:

1. It’s hard to get out because of high early repayment fees
2. It can boost your savings and make you ineligible for some means-tested benefits
3. Your debt is increased by interest
4. Being an equity release prisoner might lead to a far worse nightmare because you won’t be able to arrange any wealth to leave as an inheritance to your family.
5. You might be subjected to early exit fees
6. You might not be able to leave your home as an inheritance
7. You have to pay set up fees
8. You won’t be able to take out another loan against your house

The benefits of releasing equity

The main benefits of equity release are:

1. Lump-sum of tax-free money.
2. Keep living in your own home.
3. Protect a part of your home’s value for your family.
4. There isn’t a monthly payment plan.
5. Repay if you want.
6. Include a cash reserve option.
7. Maintain full ownership of your home.
8. Get what you want out of life with the money you have.
9. Depending on the lender’s conditions, you may be able to move in the future.
10. Rates are fixed for life.
11. There is a cashback option available.
12. Pay off your regular mortgage

Can you lose your home with equity release?

When you have a plan from an ERC member, you can never be asked to leave your home or sell the property out of the blue. The only time you must sell is if you move into long-term care. However, there are a few reasons why you may be forced to sell the property and leave early. These are

1. You lied on your application to get the lifetime mortgage
2. You are not really living in the property (for at least six months)
3. You are letting the property fall into serious disrepair which could significantly devalue the property and make it hard for the lender to sell

Is equity release a scam?

Equity release products from companies that are regulated by the FCA and members of the ERC are not a scam – but they can still be expensive. Equity release is a totally legal scheme that can allow those over 55 access the wealth locked up in their properties as a tax-free lump payment or a recurring income when done properly with the right guidance and through a reputable company.

Some people think of them as a con due to how expensive they can become. But at the same time, the negative equity guarantee – when applicable – stops you from ever owing more than what your home sells for.

What is the truth about equity release?

The truth is that equity release can be an effective and sensible way to fund retirement, but that doesn’t mean it is for everyone. The decision usually comes down to inheritance and the beneficiaries in line to receive the estate. Do they need the money? Are they already wealthy and set up? Or are they reliant on inheriting the property in the future for their own financial stability?