Martin Lewis has many great tips and tricks to save money, but what are his opinions on equity release?
Martin Lewis states equity release can be a good financial product if you require the funds and are not concerned about the impact on leaving an inheritance. However, he says equity release can be expensive and to always consider downsizing first, as he believes it is the easiest way to release equity from your home.
Martin Lewis has many thoughts on equity release, some are important to listen to, and others need further clarification. Let's take a look.
Does Martin Lewis recommend equity release?
Martin Lewis neither recommends nor disregards equity release as a good option. Mainly this is because he is not a qualified equity release advisor, so he cannot give specific advice to individuals.
He is correct in stating that equity release is not suitable for everyone, and getting independent financial advice is crucial.
His main concern is the impact the equity release can have on your estate, reducing the amount of inheritance left to your beneficiaries. He stated:
"If you've got nobody you want to leave the money to, this is actually a rather easy, good way to do it".
For most people, this is the most important thing to consider when taking equity release; however, I am happy to see he also says:
"If you've got dependents you want to leave your property to, it's going to eat away at that, but actually your lifestyle is really important".
Many people put their children's inheritance before their own needs during retirement, but it is essential that you live comfortably at a minimum. Although equity release can be expensive, there are ways to ensure minimal impact, such as making payments towards the plan.
Martin Lewis equity release tips
Let's look at five of the most common tips Martin Lewis mentions in his interviews and on his website, moneysavingexpert.com.
1. "If you need money, take it as late as possible and as little as possible." - Martin Lewis
Martin Lewis is referring to the fact that the earlier you take equity release, and the more money you take, the more expensive it is. This is because lifetime mortgages, the most common type of equity release, are designed to run for the rest of your life.
Therefore, releasing £100,000 when you are 55 will cost you more than taking £50,000 when you are 60. This is for two main reasons.
- Interest is charged on the whole loan amount, starting from the day you release the funds - taking more money means you are being charged more interest.
- The plan will run for longer - you will be charged interest until the balance is repaid (typically when you pass away or move into long-term care)
Even if you borrow the same amount, as an older borrower, you may be able to achieve a lower interest rate.
Releasing 20% of a property value at age 55 may attract an interest rate of 7.11% (AER). In contrast, at age 75, it may be 5.80% (AER).
Use our calculator below to find the headline interest rates and maximum release available.
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2. "Make sure its part of the Equity Release Council because that gives you that no negative equity guarantee." - Martin Lewis
I agree this is very important, and here at Money Release, we only recommend equity release council approved plans.
They provide extra protections for you and guidelines that companies must follow. Most notably, they provide the "no negative equity guarantee", which means you cannot owe more than what your property is worth.
This is essential so you do not pass a debt onto your children/beneficiaries, which they must pay for from their own pockets.
But, it is an unlikely scenario, as it is in the lender's best interest if you never fall into negative equity. Historically, property prices have risen over the long term, which is why we rarely see a negative equity situation. Let's see why.
As you can see, while the equity release interest is compounding in nature, so is any growth on the property.
3. "Get advice, go to a mortgage broker or an equity release qualified independent financial advisor." - Martin Lewis
This is essential and, in fact, a financial conduct authority (FCA) requirement. You must receive specialist financial advice before getting an equity release (from an approved company)
All Money Release advisors are fully qualified in mortgage and equity release advice. Call us on 0207 158 0881 for a free, no-obligation appointment with one of our advisors.
You must also receive specialist legal advice from a solicitor firm. It is your free choice as to whom you use; however, if you are undecided, we can help point you in the direction of a market-leading firm.
We can recommend a solicitor to you!
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4. "First evaluate whether downsizing your property could be an option." - Martin Lewis
I also agree with this point. With every equity release consultation, we will discuss the alternatives to equity release to ensure there is no better route.
For many, downsizing is a very realistic option. It can be an excellent way to release the money tied up in your home without using a financial product where interest is involved.
Martin Lewis also said, "The earlier you do it [downsize], the better."
However, he misses several times to mention one crucial thing - your property value. In recent years, we have seen an average property price increase of 3% annually. While remaining in a higher-value home, the growth may be the same percentage, but in monetary terms, it is higher.
3% property increase of £200,000 = £6,000
3% property increase of £350,000 = £10,500
Therefore, even while you are being charged interest, your property price could negate some or all of the mortgage increase.
And it doesn't stop there. Remember that any annual growth to property prices will be compounding, meaning that each year the growth is also applied to previous years growth!
Apart from benefiting from future house price growth, its also important to consider why equity release can be more suitable than moving, including:
- No moving costs
- Staying in your familiar family home
- Avoiding the stress of moving
- Remaining in your local area with family and friends
Your Money Release advisor will be able to compare both options for you, ensuring you get the best outcome to achieve your needs and goals.
5. "Borrow as little as you need now, and wait as long as you can to do it again." - Martin Lewis
When Martin Lewis states this, he refers to a type of equity release known as a drawdown lifetime mortgage.
It allows you to take an initial lump sum and place a pre-agreed amount into a reserve facility. You can withdraw from the reserve as and when needed, typically in minimum amounts of £2,000.
It is usually a more cost-effective way to borrow funds when you do not plan to spend them in the near future, as the lender does not charge interest until you withdraw the monies.
Our basic rule is as follows:
- Up to 2 years - Initial lump sum
- 2 to 10 years - Place funds in reserve
- 10+ years - Reavaluation nearer the time
Importantly, each time you withdraw from the reserve facility, you will have a new fixed interest rate associated with that amount. You can think of it as a sub-account.
Does Martin Lewis offer equity release advice?
Martin Lewis does not offer equity release advice. The information he gives is limited and, on occasion, needs to be corrected.
Instead, he will recommend that you speak with a mortgage broker. However, many brokers either do not offer equity release advice or deal with it frequently.
Therefore, we always recommend you speak with an equity release specialist company, such as ourselves.
We offer whole of market advice, at a competitive fixed fee of £840.
Our fee is only paid on completion, never before. If you are refused equity release or decide to withdraw your application, you will not owe us anything.
Whole of market advice offers you unrestricted access to the equity release market. In contrast, some firms provide limited access, known as tied advice.
If you want the best deal on the market, you will likely need whole of market advice.
What does Martin Lewis get wrong about equity release?
Although most of Martin Lewis' advice surrounding equity release is good, I would like to clarify some points.
Firstly, in a couple of interviews, he said, "You are not repaying it month by month; you can choose to do that with some drawdown lifetime mortgages."
He is correct in saying that, typically, most people do not make payments towards the plan. However, the option to do so is not limited to the drawdown lifetime mortgage product we have looked at before.
All lifetime mortgages nowadays allow you to make payments towards the plan without incurring an Early Repayment Charge. Typically, this is a 10% allowance per year, but some offer up to as much as 40%.
Secondly, he also stated that the other type of equity release is a "Home reversion scheme which you have to be 65 to get"
This is false, as you can access Home Reversion plans at age 60.
A Home Reversion involves selling all or part of your home to a reversion company. You receive a lump sum of tax-free cash, but you lose ownership of your property.
The amount you receive will also be less than the percentage you sell - you sell it at lower than market value.
Home reversion plans are very unpopular nowadays, making up less than 0.5% of the equity release market. This is primarily due to house price increases and flexibility offered by lifetime mortgages.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor tax advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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