Equity-release products have a mixed reputation. These schemes, which let older homeowners tap the equity in their houses to meet living costs, come in a few different forms. Typically, a borrower gets a lump sum or an income from a provider, backed by a loan against their home. This loan, plus accumulated interest, is paid back when the borrower dies or goes into long-term care, using the proceeds from the property’s sale.
Unfortunately, equity-release products often have high interest rates or exit fees, meaning that they may offer poor value for money. Nevertheless, in principle they could help solve the pressing problem of funding retirement at a time when people are living longer while interest rates and annuity rates are falling. So it’s no surprise that they are growing in popularity: equity-release lending grew 21% in the first quarter of this year, according to the Equity Release Council, an industry association.
So the news that Nationwide, Britain’s second-largest mortgage lender, plans to enter the equity-release market could be an important step in taking these schemes into the mainstream. Nationwide is developing a “clear, simple, safe and secure way” to offer equity release, CEO Joe Garner told The Times. The product, which is still under development and does not have a launch date, will have “a decent fixed interest rate without access charges or penalties… and a no-negative-equity guarantee so that ultimately you never end up being repossessed”, according to Chris Rhodes, the group’s retail director.
Nationwide’s clout means that whatever it launches could shake up the market. In the meantime, if you are considering an equity-release product, be aware that any schemes that are offered by providers that are members of the Equity Release Council should at least carry a “no-negative-equity guarantee”.
This means that if the value of the loan is ultimately worth more than the resale value of the property, the homeowner or their estate will not be left in debt. And we’d urge anybody thinking about equity release to take independent advice, and to think carefully whether it might be better to free up cash by downsizing instead.