What Is The No Negative Equity Guarantee?
A no negative equity guarantee is a safeguard for consumers taking out lifetime mortgages. This feature provide future protection for their beneficiaries which could result from their actions by taking out an equity release scheme. For example taking out a maximum roll-up lifetime mortgage at a young age could result in the balance n the future eventually matching and exceeding the value of the home.
Upon death of the homeowner or them moving into long term care, the no negative equity guarantee will kick in & will prevent the lender ever taking more from the beneficiaries, than the home is worth. This guarantee is free in the sense there is no fixed charge, however it is costed into the lenders interest rate & therefore paid this way.
All lenders have a certain loan-to-value ratios which have been actuarily calculated to take into account potential house price inflation compared to the funds released on a age basis. However, certain future criteria is still out of their control, one of which is house prices. Should house prices fall over the years, thus exposing the balance of the equity release, the no negative equity guarantee is likely to be involved.