No negative equity guarantee is associated with equity release and lifetime mortgages. 

However, according to a recent survey,¹ 71%  of the 1001 homeowners aged over 55 interviewed did not know what it meant.

Whether you fit into that category or want to know more, we are here to support you.

Our experienced research team has put together the facts conveniently in one place to give you answers.

Read here what it means to be protected against negative equity on your lifetime mortgage.

What Is the No Negative Equity Guarantee in Equity Release?

The No Negative Equity Guarantee (NNEG) in equity release is a crucial protective covenant.

It ensures that regardless of how the housing market fluctuates, you will never owe more than the value of your home.

As lending experts, we understand the importance of this financial instrument in safeguarding your legacy and your loved ones from any potential housing market downturns or unexpected debt.

NNEG is a unique feature of equity release schemes, offered by members of the Equity Release Council.

It provides an added layer of security which essentially operates as a financial safety net.

Regardless of how much equity you've released or the accumulated interest, your debt will never exceed your property's worth.

This way, we ensure that a debt-free inheritance is left behind, demonstrating our understanding of and commitment to your financial well-being.

Learn More: What are Equity Release Schemes?

What Is Negative Equity?

Negative equity happens when your house is worth less than the value of your outstanding mortgage, meaning that if you sell your house, you will still owe money on your mortgage. 

In the 1990s, many UK mortgage holders experienced negative equity, with their mortgages worth more than the value of their properties due to falling property prices at the time.² 

The Role of Equity Release Council in Upholding the No Negative Equity Guarantee

All lifetime mortgage products sold by members of the Equity Council (ERC)³ must include a no negative equity guarantee.

The ERC is the trade body established to protect consumer rights by setting standards for the industry.

All ERC members pledge to adhere to these standards, so it is important to choose a lifetime mortgage provider that is a member.

How Does the No Negative Equity Guarantee Work in Practice?

The no negative equity guarantee assures you that even if your property value drops below the value of your lifetime mortgage, the difference between the sale of the property and the outstanding mortgage will be wiped off. 

An Example of How it Works

If your property is worth £400,000 at the time of taking out a lifetime mortgage of £300,000, and over the years, the interest adds up to an outstanding debt of £350,000.

Even if property prices should drop and your home would, for example, now only be worth £325,000, the difference of £25,000 between your outstanding loan and the value of your property would be written off. 

*The figures in this example are only for illustrative purposes.

Peace of Mind

A no negative equity guarantee gives you the peace of mind that the value of your outstanding lifetime mortgage would be capped at the value of your home.

Even if house prices should decline, causing the value of your property to drop, you or your beneficiaries would never owe more than the selling price of your house. 

What Protection Does a No Negative Equity Guarantee Provide to Homeowners?

The no negative equity guarantee protects lifetime mortgage holders against unforeseen debt.

Key features include: 

• It guarantees that you or your beneficiaries would never owe more on your lifetime mortgage than what your home is worth, even if property prices should fall dramatically. 
• Providing peace of mind to you and your heirs, knowing that you will not leave any debt behind on your lifetime mortgage.
• The no negative equity guarantee forms part of all lifetime mortgage products provided by members of the Equity Release Council.

Can You Lose Your Home Despite the No Negative Equity Guarantee?

No, if you have taken out a lifetime mortgage approved by the ERC, you will have a no negative equity guarantee. 

Then, even if your property falls into negative equity, you will not lose your house because the lender would absorb the outstanding debt. 

Common Questions

Conclusion

It is essential to check if your lifetime mortgage provider provides a no negative equity guarantee. 

Ensuring you are covered against negative equity guarantees that you or your beneficiaries will not be saddled with unnecessary debt if the sale price of your house is worth less than your outstanding mortgage.

It is crucial to seek professional financial advice to ensure your lender offers a no negative equity guarantee.