What Martin Lewis said about equity release

Equity release is a way for homeowners aged 55 or over to access tax-free cash from their home’s value. It helps people meet their needs in later life to allow for a better retirement, is regulated by the Financial Conduct Authority and comes with a range of protections. 

On last week’s episode of ITV’s Martin Lewis Money Show Live, the topic of equity release was discussed. And in this article, we’ll go through what Martin Lewis said on the matter as well as how Key Partnerships can support you and your clients through their equity release journey. 

What is equity release and how does it work?

“The system of equity release has got better over recent years,” Martin Lewis said. “There’s more flexibility in what you can do and it has improved.”

Negative perceptions of equity release are often based on how it used to be. But times have changed. Today, the most common form of equity release is a lifetime mortgage. A lifetime mortgage is a loan secured against a home - similar to a standard residential mortgage. 

But unlike a regular mortgage, with a lifetime mortgage, there’s the option to make no monthly repayments. The plan owner is also guaranteed to retain full ownership of their property and can stay in their home for as long as they wish.

However, as Martin Lewis pointed out, like the residential mortgage market, equity release interest rates have increased recently. And if your client is considering it as a financial solution, it’s important they understand the effect the interest could have on their total cost of borrowing.  

How does equity release interest work?

A lifetime mortgage is subject to compound or roll-up interest. Unlike most residential mortgages where interest is charged on the principal sum, with a lifetime mortgage, interest is charged to the principal, plus interest. That means, if left untouched, the total cost of borrowing can rise quickly.

“Interest rates are currently 5.5% - 7%, and that compounds very quickly if you’re not repaying,” Lewis said.

According to Key Group market data, the average equity release interest rate is currently 6.59%. That’s almost double what it was 12 months ago.1

In financial terms for your clients, this rise in interest rates means it now takes a little under 11 years for their equity release debt to double when they choose not to make repayments. If they’d taken out their plan a year ago, it would’ve taken almost 21.5 years for that to be the case.

But it’s not outside your clients’ control to help manage their total cost of borrowing.

“Equity release is not cheap if you’re not making repayments,” Lewis added. “But there are some ways to mitigate that. If you’re able to make repayments - many plans allow you to do so now - make repayments to reduce the interest.” 

At Key Partnerships, we offer and advise on lifetime mortgages that meet Equity Release Council standards. These come with the option to make penalty-free ad-hoc or regular repayments to help customers reduce their total cost of borrowing.

These plans also feature the no negative equity guarantee, which ensures your client can never owe more than their home’s worth or pass on any equity release related debt to their estate. 

Why shouldn’t my client just downsize?

If your client is considering equity release, it’s a decision they should think about carefully. There are, of course, other ways to boost later life finances that may suit their needs better. One option Martin Lewis highlighted was downsizing. 

“First thing, think about downsizing,” he said. “Could you sell your property and move somewhere smaller?”

While downsizing is a viable option for some, it’s not for everyone and it doesn’t always solve the problem. According to research, less than 1 in 5 downsizers move to a property that’s both cheaper and has fewer bedrooms.2

Meanwhile, almost the same number - around 1 in 6 - of over-55s who move property end up in a home that’s more expensive with more bedrooms.2

And it’s not just the financial aspect to consider. Leaving the home you love can also be tough emotionally. Your client may have close ties with their local community, family and friends nearby or have fond memories of their property they don’t want to leave behind. 

So while downsizing will be the right option for some, it won’t be for others. And by taking advantage of their home’s value through equity release, your client may still be able to achieve their later life goals while staying in their property. 

“You must get professional advice”

“You must first get professional advice from a qualified equity release adviser before you do anything,” Martin Lewis said. “This is a big decision, don’t take it lightly. Go through a comparison with people who do this for a living.”

At Key Partnerships, we understand the importance of specialist equity release advice.

After you make a referral, one of our fully-qualified advisers will take the time to understand your client’s needs before making a recommendation that’s right for their circumstances. That includes considering their other later life finance options, for example, downsizing.

And if we don’t think equity release is the most suitable option for them, we’ll always be honest and tell them.

If we do, however, and your client wishes to proceed, choosing Key Partnerships as your equity release referral partner could help add a valuable income stream to your business. In fact, in 2022, our average referral fee paid on each completed case was £2,252.

We also provide you with access to tools and educational support to enhance client conversations and opportunities and dedicated face-to-face and telephone support to help you develop your knowledge of the equity release market and the opportunities available.

Register now to start referring today

Is equity release right for my clients? 

Depending on their personal circumstances, equity release might be the right option for your clients, and it might not. 

“Releasing equity on your property needs to be done when you need the funds,” Martin Lewis said. “If you don’t need the funds, don’t do it.”

But considering whether it’s right for your clients also includes determining what’s best for any dependents they may have. 

“Equity release is much easier for those who don’t have dependents they want to leave stuff to,” Lewis added. “If you have dependents, thinking about exactly how to do it is really important.”

At Key Partnerships, we always encourage our customers to include their loved ones in their advice journey and any decision they make.

We have literature available for family members or friends to help answer questions and your clients’ loved ones are always welcome to join them in their advice appointments if they wish. As are you.

That way everyone has a clear understanding of what benefits your client may gain from releasing equity from their property as well as what impact it could have. 

What can my clients use equity release for? 

The tax-free cash your clients unlock through equity release can be used in several ways. 

In 2022, more than half of Key’s customers took out a lifetime mortgage to repay one or more forms of existing debt. That includes an existing mortgage or unsecured debt, such as credit cards or loans.3  

In the same period, over a third of customers used at least some of their tax-free cash to make home improvements, such as installing a wet room, making their property more energy efficient or landscaping the garden to reduce maintenance.3

And 1 in 5 customers took out equity release to provide financial support for someone other than themselves. That includes gifting an early inheritance to their children to help with a house deposit, repay debts or contribute to their wedding fund.3

Find out how much tax-free cash your client could release from their home in just a few minutes. Use our free equity release calculator here. 

How Key Partnerships can help

We provide a robust referral process to help you broaden your advice proposition without compliance responsibility. 

Key Partnerships work with specialist equity release advisers from The Equity Release Experts. Our whole-of-market advisers have their fingers on the pulse to help find clients a solution to meet their needs.

Alongside supporting your clients, for every case that completes, you could also add a valuable income stream to your business. In 2022, the average Key Partnerships referral fee paid on each completed case was £2,252.
1Key Group Data
2NHBC Foundation
3Key’s Market Monitor Full Year 2022

You can watch Season 12 Episode 14 of The Martin Lewis Money Show Live here. This article is in no way endorsed by Martin Lewis or ITV.