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Giving you the full details on equity release horror stories, and the best alternatives if you need to turn your property into quick cash...

In our lives, there’s always a time when we could all do with a bit of extra money. Whether that’s because we want to go on a holiday or do a good bit of shopping, there’s always a moment we all think ‘if I just had a bit of extra cash…’

Equity release makes this dream a reality, allowing individuals to ‘release’ some of the equity invested into their home, without the need to sell or move out.

But is it as simple as it seems?

Six out of ten homeowners aged over 55 say they would never consider equity release, according to new research. ‘Why?’ I hear you ask.

Well because although equity release sounds like a good idea in principle, there are actually many equity release horror stories, which will leave you wondering what the alternatives are when you need some quick cash…

Ready to see what equity release is all about and how bad these equity release horror stories are?

What is equity release?

Equity release is a broad term which refers to a way of releasing cash invested in your home, without having to sell and move out.

There are two different options when it comes to equity release, and these are:

Lifetime house repayments

A lifetime mortgage is the most common form of equity release in the UK. This allows individuals to take out a house repayments secured on the property, whilst still retaining ownership of their home, providing that the property serves as the main residence.

When the individual dies or moves into long-term residential care, the house sells in probate and the money made will go towards the house repayments payment.

Those who take a lifetime mortgage have the option of making payments on the house repayments or allowing interest payments to be collected as part of the debt.

Home reversion

This allows individuals to sell part of their house to a reversion provider, allowing them to still live in the property. The reversion provider will either give a lump sum or periodic payments for the part of the property which has been sold.

The homeowner can continue living in the property, without having to pay rent on the part of the home they sold. However, they must continue to maintain and insure that part of the house.

There is also the option of utilising a tactic called ‘ring-fencing’. In this situation, homeowners can secure part of the property for inheritance, whilst selling the rest of the property.

Who qualifies for equity release?

Not everybody is eligible for equity release, as there are certain conditions which must be met in order to qualify, and these are as follows:

  • For a lifetime mortgage, you will need to be at least 55 years old

  • For a home reversion plan, you will need to be at least 65 years old

  • You must own the property in the UK, as your main residence

  • Your property must be in a reasonable condition and over a certain value, with there being some restrictions on the type of property accepted

  • If you have a mortgage or secured loan on your home, you may still be able to get equity release, but it will depend on the value of your home and the amount outstanding. You will have to pay off any outstanding amount at the same time as taking equity release

  • Equity release may not be suitable if you have dependents living with you and any dependents should take separate legal advice. If any dependent want to continue living with you in the property, they will likely have to sign a contract to say they understand that they don’t have the right to continue living there if you die or go into long-term residential care

Needing quick cash for your property?

Pitfalls of equity release

Sadly, although equity release sounds like a great idea to get your hands on some cash quickly, it does come with several long-term implications. It’s important you take into account the dangers of equity release before deciding to commit.

Ready to read about the pitfalls of equity release? Well, look no further…

  • Equity release reduces the value of your estate and therefore the amount that will go to the people named in your will. By your estate we mean everything you own, including money, property, investments and possessions

  • A home reversion plan will mean a reversion company owns all or a share of your home

  • Going through equity release may reduce your entitlement to benefits, either now or in the future

  • If you have care in your home funded fully or partially by the local council, they may start to charge your or ask you to pay more.

Equity release horror stories

Alongside the pitfalls of equity release, there are also lots of common equity release horror stories. We have them detailed here for you, alongside a ‘real life’ example of an equity release horror story, which you will definitely want to read before deciding if equity release is right for you…

Negative equity

One of the common equity release horror stories is when the interest charged on the equity release surpasses the value of the property, meaning the borrower is left owing A LOT more than the property is worth.

Compound interest

With equity release, the interest paid is compound interest, meaning the amount of interest racks up quicker, as you’re paying interest on interest. This means, by the time it comes to paying back the loan, it has ballooned significantly (which you will see further down in the ‘real life’ example of an equity release horror story…)

Early repayment charges

Another one of the common equity release horror stories, is equity release lenders placing high early repayment fees to discourage borrowers from using them as a short-term lending facility.

As a result of this, it becomes extremely hard for borrowers to pay off the loan, with the fees being extremely high, meaning they become an ‘equity release prisoner’.

However, this also means that you will be stuck in your equity release scheme for years, meaning more interest is accumulated, causing an ever-increasing debt to repay.

No inheritance for family

The final one of our equity release horror stories, is as a result of being an equity release prisoner you won’t be able to ring-fence any equity, and therefore means you won’t have any equity to leave for your family through inheritance.

Equity release horror stories: real world example

You might have read the above equity release horror stories and thought ‘well it’s all just theory, this doesn’t actually happen, does it?’

Yes, sadly it does. To show you equity release gone wrong, we’re going to talk you through exactly what happened to this elderly couple.

In this example of just one of many equity release horror stories, an elderly couple had originally borrowed £42,900 in 2003 and over the course of 12 years the amount had grown to £119,391 due to compound interest charges.

The couple has released cash through equity release, as they wanted to buy a boat to enjoy retirement. In 2003, they saw a financial advisor and borrowed £42,900 as an equity release loan from insurer Aviva, at 7.1% interest.

As a result of compound interest, the couple's debt had grown to £119,391 plus they had to pay an early repayment fine of £16,430, leaving them using their savings and borrowing money from their children, in order to be able to afford to pay this debt off.

Equity release doesn't sound such a good idea now, does it...

Don't be one of those equity release horror stories

We can help with a quick cash sale alternative.

Can I sell my house if I have equity release?

Most equity release schemes allow you to move your equity release loan over to a new property if you want to sell your house, providing your lender has approved the property first.

If you’re looking to downsize or move to a property which is a lot cheaper than your current property, then the lender may decide they’re not willing to lend as much and then you will have to repay some of the debt early, which will trigger an early repayment charge.

There are certain types of property which an equity release lender won’t accept. For example, if a property can’t easily be sold on the open market it’s unlikely your equity release provider will accept it, meaning you’re unable to move.

Is there a better alternative to equity release?

A better alternative to equity release, when you need cash fast, would be to sell your house quickly. When it comes to selling your house fast, you have two main options; sell your house through auction or to sell to a quick house sale company.

At auction you get serious buyers who will likely have their finances in place. After the hammer comes down on a sale, contracts are exchanged, and the buyer has between 20 to 28 days to complete. However, the buyer is still able to pull out and forfeit their deposit.

With a fast house sale company, all you have to say is ‘sell my house quickly’ and they will give you a cash offer, with some able to complete in as little as 7 days! These companies also don’t pull out of sales, unlike at auction.

Also, at both auction and quick house sale companies you will only be selling to serious buyers and won’t have any time wasters, meaning you’ll be able to get your house sold and equity released ASAP.

However at auction, you have to pay a commission of the sold price to the auctioneer, and you will also have to pay for advertising and marketing costs, as well as room hire. You will also have to cover all your own legal fees, meaning the amount of equity you get from your property may be limited.

At a quick house sale company, you don’t have to pay anything, you’re effectively selling your house ‘for free’. Yes, you don’t even have to pay your legal fees, you just get an offer, accept it and then get the cash in your bank, FAST.

Although through auction you will have serious buyers bidding, part of the process will be that your property needs to have a few open days, making the process take longer than you may have wanted.

But with a fast house sale company, the offer isn’t subject to a survey and if a house viewing needs to be arranged, it will only be one quick viewing, making the process as quick as possible.

Also, unlike at auction, with a quick house sale company, they’re only focused on your property and there aren’t several other properties available to compete with yours. A quick house sale company also doesn’t take any commission, maximising the equity you will get from your property.

A quick house sale company sounds like something you're interested in? Well, look no further...

Here at The Property Buying Company, we will buy your property from you for CASH. We’re able to move your sale quickly, with our average completion time between 2-3 weeks. We cover all the costs, even your legal fees, and we buy ANY property, no matter the condition!

Why not get you on your way to getting cash for your house ASAP, without the risk of becoming another one of those equity release horror stories, by giving us a call or completing our online form to get your no-obligation cash offer, which we could have in your bank in as little as 7 days!

Tom Condon

Tom Condon, one of our content writers, has fascinating expertise in sustainability in the property industry. Tom thoroughly understands the market and has experience in both residential and commercial property. He enjoys attending conferences and staying current with the most recent property trends.