More than half of UK consumers (56%) believe equity release is risky due to serious misconceptions they hold about these products. According to new research from Key Retirement Solutions, specialist independent financial advisers for equity release and retirement planning, the top four reasons these consumers feel equity release is risky are:
| Why do you think equity release is risky? | UK | Men | Women | |
|---|---|---|---|---|
| 1 | You could face negative equity*. | 61% | 50% | 65% |
| 2 | You could lose your home. | 45% | 42% | 46% |
| 3 | The products are too complex. | 34% | 34% | 33% |
| 4 | The products are unregulated. | 15% | 21% | 13% |
Source: Consumers who think equity release is risky
The results of this research highlighted the serious disparity between consumers’ perception of equity release and the reality of these products.
Misconception One – You could face negative equity
The most common reason consumers felt equity release was risky was due to the threat of negative equity i.e. their house is worth less than the loan or mortgage secured against it. This is a highly unlikely to happen as it would take 22 years of 0% house price growth** for the average property used for equity release to fall into negative equity. In addition, equity release schemes supplied by SHIP*** members offer a “no negative equity” guarantee which promises consumers that they will never owe more than the value of their home.
Misconception Two – You could lose your home
Of those consumers who believed equity release was risky, 45% thought that it might lead to the loss of their home. This misconception has no basis in fact. Equity release products require no monthly repayments as the interest rolls up and is added to the loan amount. In addition, all SHIP providers guarantee consumers a right of tenure for life as well as the freedom to move home in the future without penalty.
Misconception Three – The products are too complex.
34% of respondents who saw equity release as risky believed this as they felt the product are too complex. Equity Release products can appear highly complicated if consumers research them without the help of a financial adviser. However, the majority of providers encourage potential customers to speak to an adviser who will guide them through every step of the decision making process and do their best to clarify all aspects of the products.
Misconception Four – The products are unregulated.
15% of these consumers listed lack of regulation as a reason to view equity release as risky. Lifetime mortgages, which account for 95% of this market, are currently regulated by the FSA and home reversion plans are in the process of becoming regulated.
Dean Mirfin, Business Development Director at Key Retirement Solutions comments;
“The lack of consumer understanding of equity release products illustrated by this survey is alarming. It is very worrying that people have perceptions of equity release that are incorrect. And even more worrying when you consider that it is these persistent myths that are responsible for people shying away from equity release when it could be the right solution for them.
“With rising concerns over a looming pension crisis, it is important that people are aware of all the options available to help them fund their retirement. With the high levels of equity held in property by the over 65s, there is tremendous scope for today’s retirees to use equity release to boost their disposable income. It is worrying that people may not consider this option due to persisting misconceptions.
“This research clearly shows that we have to work very hard to communicate with consumers to ensure that they understand the products and are aware of the rules and regulations in place to protect them. We think it is important to work against these misconceptions to make sure everyone can make an informed choice about their retirement planning.”
* = Negative equity occurs when the house is worth less than the loan or mortgage secured against it.
** = Data generated by SHIP using the cost of an average lifetime mortgage (using average loan value and average interest rate)
*** = Safe Home Income Plans – the industry body that represents over 90% of the equity release market
For a free and independent guide to equity release, or for more information call Key Retirement Solutions Free on 0800 064 7075.
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