How Equity Release Can Benefit Homeowners

Equity release has evolved significantly in recent years, becoming an increasingly popular financial solution for homeowners over 55 who want to unlock the value tied up in their property without needing to sell or relocate.

Although traditionally considered a last resort for older homeowners, the perception of equity release has shifted, and it is now recognised as a viable and strategic financial tool for those looking to supplement retirement income, support family members financially, or manage major expenses.

With an ageing population and the growing financial demands that come with retirement, equity release offers a practical solution for many, allowing homeowners to access the equity in their homes while continuing to live in them. This demand has prompted an influx of providers and a variety of equity release options, creating a need for well-qualified advisers to guide clients through their choices. Here, we delve into what equity release entails, how it works, and how you can qualify to become an equity release adviser and support clients through these significant financial decisions.

What is equity release?

Equity release is a financial product that enables homeowners, typically over the age of 55, to access a portion of the wealth tied up in their property without selling their home. This can be particularly beneficial for retirees or older homeowners who may be asset-rich but cash-poor, allowing them to unlock funds while continuing to live in and retain ownership of their property.

There are two primary types of equity release products available on the market:

• Lifetime Mortgages: The most common form of equity release, lifetime mortgages allow homeowners to take out a loan against the value of their home, with the loan repaid from the sale of the property upon their death or transition into long-term care. These mortgages often include options for fixed interest rates and no required monthly payments, making them appealing to homeowners who prefer minimal financial commitments in retirement.
  
• Home Reversion Plans: In this model, homeowners sell a share or all of their property to a lender in exchange for a lump sum or regular payments while continuing to live in the property rent-free. The lender then recoups its share when the property is sold, typically after the homeowner passes away or moves into long-term care.

Equity release can serve various purposes, from funding lifestyle choices to covering essential expenses, making it a flexible solution for modern retirees.

Is equity release a popular choice? 

Equity release remains a popular option for homeowners in the UK, however the amount of people making this choice does fluctuate year-on-year. As of Q3 2023, the market facilitated £716 million in lending through new and returning customers – a slight increase over the previous quarter. That being said, according to the Equity Release Council, the number of active customers using equity release products between July and September 2023 was down 33% year-over-year. This trend aligns with the broader economic context where elevated interest rates have slowed the market from its prior rapid expansion?

Interestingly, with the first wave of interest-only mortgages maturing, equity release has become an important (and often used) tool for homeowners aged 65 and over, enabling them to pay off outstanding mortgage balances without moving or facing large remortgage expenses. This shift has supported greater acceptance of equity release, positioning it as a practical choice for older homeowners managing their financial stability in later life?.

How does equity release work?

Equity release products function by enabling homeowners to access the equity built up in their property over time, either through a lump-sum payment, regular monthly payments, or a combination of both. The way this process typically works is as follows: 

• Application process: The equity release process begins with a consultation with a qualified adviser who will assess the homeowner’s eligibility, financial goals, and suitability for equity release products. The adviser will also explain the impact of equity release on inheritance and advise on any alternative solutions.

• Agreement terms: Once a suitable product is selected, the homeowner enters into an agreement with the provider. This agreement typically includes information on the loan amount, interest rates, and repayment terms. Most equity release products offer a no-negative-equity guarantee, ensuring homeowners won’t owe more than the value of their property when it’s sold.

• Repayment and interest: For lifetime mortgages, repayment typically occurs when the homeowner sells the property, moves into long-term care, or passes away. Interest compounds over the life of the loan, which can affect the amount of inheritance left to family members. However, some products allow for optional interest repayments to reduce the overall cost.

• Impact on inheritance: Equity release affects the inheritance passed on to beneficiaries. For this reason, clients need a clear understanding of how these products impact their estate. Qualified advisers can help homeowners weigh the benefits of accessing cash now against the future value of the property.

How to get an equity release qualification?

If you’re interested in joining the growing sector of equity release advising, the Certificate in Regulated Equity Release (CeRER) qualification is essential. Designed specifically to provide advisers with the regulatory knowledge, skills, and confidence needed to guide clients through the complexities of equity release, this FCA-approved certification prepares you to address clients’ specific needs and goals. This qualification is especially beneficial for financial advisers, mortgage advisers, or other finance professionals who want to expand their services to include equity release guidance.

The CeRER course covers vital areas such as equity release product structures, legal requirements, financial planning, and inheritance impact considerations. This ensures that advisers are equipped with the knowledge to provide ethical, reliable, and comprehensive advice.

The qualification typically involves a one-day course followed by an examination, with successful completion enabling participants to offer regulated equity release advice. If you are already CeMAP (Certificate in Mortgage Advice and Practice) qualified, the CeRER provides an opportunity to build on your existing expertise and broaden your service offerings.

To find out more about this one day training course, please do get in touch with our friendly student support team on 0808 208 0002 for further details.