Equity release: handle with care

Make sure you are getting the right equity release product and are choosing from all the available options.

948_MW_P24_Per-Fin

Age UK prefers its own provider

The charity, Age UK, does all sorts of good work. It provides a wealth of information and advice, and generallytries to make life better for the elderly.But apparently it also makes moneyby directing you to an equity-releaseadvice service, Hub Financial, which is weighted towards products offered by Hub's own parent company, Just, saysThe Daily Telegraph.

Note that when people are sent to the advice service, they go through Age UK's commercial arm, Age Co. This was formed in the wake of criticism from the Charity Commission in 2016, which pointed out that the charity was channelling people towards an energy tariff that wasn't the cheapest option in the market; it emerged that it had formed a partnership with provider E.ON. While this separation seems right and necessary, it's doubtful whether many people would draw the distinction between a charity and a commercialbody whose websites have verysimilar branding.

As far as the equity-release arrangement is concerned, when someone takes out an equity-release loan (borrows money against their property), Age Co gets up to 0.75% of the value of that loan. Although Hub discloses that it only compares deals from five companies, "the way its advice process is structured means that in most cases a customer will be offered a deal by just one panel member Just", says Adam Williams in The Daily Telegraph. "Hub's staff follow a methodology that prompts them to offer Just for the most common consumer needs."

The story, while also casting Age UK in a rather unfortunate light, underlines the importance of making sure that you get the right equity-release product for you. As we've discussed in MoneyWeek many times over the past decade, equity release used to have a terrible reputation for ripping people off, and not without reason. Many people took out loans where the interest payments were rolled up to be paid off at the end. If the loan ended up being worth more than the value of the property associated with it, people's heirs found themselves saddled with massive debts to repay.

Thankfully, the industry has cleaned up its act in recent years, largely because it is now regulated by the Financial Conduct Authority. And it has become increasingly popular. Equity-release loans worth a record £935m were taken out in the first three months of this year, up 8% on 2018, according to the Equity Release Council. If you're considering equity release, make sure you're as well-informed as possible before signing up. You will have to take financial advice on the decision, and must use a specialist broker when choosing a product. Ensure you factor in the combined cost of this advice, legal services and the required property valuation. Depending on the type of plan, expect to pay between £1,500 and £3,000 in arrangement fees, warns the Money Advice Service.

Watch out for plans that include hefty exit fees, which fall due if you want to pay back the loan early. If you think you might move in future, you will probably want a product that allows you to "port" your loan to another property. You should also consider potential complications, such as whether the money you receive will affect your benefit entitlements. Finally, note that reputable providers will offer a no-negative equity guarantee, which means you or your estate should never have to pay back more than the value of your property.

If you’d like to find out how much equity you could release from your home, or to find out more about equity release in general, visit our partners UK Experts Online, for a free report.

Recommended

When should you upgrade your smartphone?
Personal finance

When should you upgrade your smartphone?

How do you know when it’s time to replace an old mobile phone?
21 Sep 2021
What you should do if your energy provider goes bust
Personal finance

What you should do if your energy provider goes bust

At least four energy firms have gone under in recent days as the price of gas and electricity soars. Saloni Sardana looks at what to do if your energy…
20 Sep 2021
China’s property woes are coming to a head – so what happens now?
China stockmarkets

China’s property woes are coming to a head – so what happens now?

Chinese property giant Evergrande is in big trouble. And with no bailout plan yet, markets are getting nervy. John Stepek looks at how things might go…
20 Sep 2021
Evergrande: China’s epic property bubble hisses air
Chinese economy

Evergrande: China’s epic property bubble hisses air

Evergrande, once the world’s most valuable real-estate group, is now the world's most indebted as China's epic property bubble starts to deflate.
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021