Top Tips To Choose The Right Equity Release Plan

By Author: Financeadvisors
Total Articles: 18
Comment this article

Choosing an equity release plan is one of the most significant financial decisions you'll make in later life. With around 70,000 people in the UK using equity release annually, it's clear this financial solution helps many homeowners aged 55 and over access the wealth tied up in their properties.
However, not all equity release plans are created equal. The right plan for your neighbour might not suit your circumstances. Making an informed choice requires careful consideration of your financial goals, family situation, and long-term needs.
Understand Your Financial Goals
Before exploring equity release options, clearly define what you want to achieve. Are you looking to fund home improvements, help family with house deposits, consolidate debts, or create an emergency fund? Your specific objectives will influence which type of plan works best.
Some plans offer lump sum payments ideal for one-off expenses like holidays or home ...
... renovations. Others provide regular monthly payments, perfect for supplementing your pension income. Understanding your goals helps narrow down suitable options from the start.
Compare Interest Rates and Compound Effects
Interest rates significantly impact the total amount you'll eventually owe. Even small differences in rates compound over time, potentially affecting the inheritance you leave behind.
Look beyond headline rates. Some providers offer fixed rates, while others use variable rates that can change over time. Consider how long you expect to remain in your home and how rate changes might affect your overall financial position.
Check Provider Credentials and Regulation
Only work with Financial Conduct Authority (FCA) regulated providers and advisers. This regulation ensures you receive appropriate advice and have access to the Financial Ombudsman Service if things go wrong.
Look for providers who are members of the Equity Release Council. This trade body sets strict standards, including the no negative equity guarantee, which ensures you'll never owe more than your home's value.
Evaluate Flexibility Features
Modern equity release plans often include helpful flexibility features. Some allow partial repayments, which can reduce the total amount owed over time. Others permit penalty-free early repayment in specific circumstances.
Consider whether you might want to move house in future. Portable plans allow you to transfer your equity release to a new property, subject to the lender's approval and the new property meeting their criteria.
Assess the Impact on Benefits and Tax
Equity release proceeds are typically tax-free, but the extra capital might affect means-tested benefits like Pension Credit or Council Tax Support. If you currently receive these benefits, factor in potential changes to your overall financial position.
The money you release becomes part of your assets, which could impact benefit calculations. Seek advice on how equity release might affect your specific benefit entitlements before proceeding.
Consider Family Discussions
Equity release affects your estate and the inheritance you leave behind. While it's your decision, discussing your plans with family members can prevent misunderstandings later.
Some adult children worry about reduced inheritance, while others prefer their parents enjoy financial freedom during their lifetime. Open conversations help everyone understand your reasoning and the plan's implications.
Get Professional Independent Advice
Equity release is complex, and independent financial advice is mandatory under FCA rules. A qualified adviser will assess your circumstances, explain different options, and ensure you understand all implications.
Don't rely solely on information from product providers. Independent advisers have access to the whole market and can compare plans from multiple providers to find the most suitable option for your needs.
Making Your Decision
Choosing the right equity release plan requires balancing your immediate financial needs with long-term implications. Take time to understand different options, ask questions, and ensure you're comfortable with your decision.
Remember, you typically have a 14-day cooling-off period after completing your plan, giving you time to change your mind if needed. Use this time wisely to review all documentation and ensure you're satisfied with your choice.