What is the no-negative-equity guarantee?

From the worry that you’ll lose your home, to the assumption that your interest rate will suddenly change over time, equity release is shrouded with misconceptions.

One of the most common equity release myths is that you might end up owing more than the value of your home. However, all products that meet the standards set out by the Equity Release Council are required to have a no-negative-equity guarantee.

In a recent survey, 71% of over-55s said that they didn’t understand what the no-negative-equity guarantee was. At Responsible Equity Release, we want to reassure homeowners and equip you with the correct information so that you can understand how modern equity release plans work and make an informed decision.

How is the amount I will owe calculated?

With a Lifetime Mortgage, the UK’s most popular equity release product, there is no requirement to make any payments during your lifetime. If you choose not to make any payments, interest will roll up. The amount borrowed, plus interest, will be paid back when you pass away or enter long-term care and your home is sold.

As interest is allowed to roll up, many people worry that they may end up owing more than their home is worth; for example, if the value of your property decreases significantly.

How does the no negative equity guarantee work?

In the unlikely event that your home’s value did decline, and the total amount owed exceeded this value, the no-negative-equity guarantee will mean that the remainder of your loan is written off and any excess will be absorbed by the lender. This means that you will never pass on Lifetime Mortgage debt to loved ones.

Can I make payments to control the amount I owe?

Although the no-negative-equity guarantee should reassure you that you will never pass on Lifetime Mortgage debt to loved ones, releasing equity will reduce the value of your estate and could affect your entitlement to means-tested benefits. Therefore, you may want to take further steps to control any planned inheritance.

With all new Lifetime Mortgages from Equity Release Council-approved lenders, you can make voluntary payments towards your loan. Making payments can help to control the impact of interest roll-up and increase the amount of equity that you may be able to leave to loved ones.

Next steps

At Responsible Equity Release, our friendly advisers can tell you more about how equity release works, including the no-negative-equity guarantee. They will provide you with transparent and personalised advice, including a personal illustration that demonstrates your cost of borrowing over time, and will help you to work out if you could afford to make payments to help mitigate this cost.

Use the free calculator on this page to receive an instant estimate of the amount you could borrow and to be put in touch with the friendly Information Team. Alternatively, you can speak to the Information Team directly on 0800 048 5384 to book your initial, no-obligation appointment with your local adviser today.