If you’re considering releasing equity from your home, you should avoid equity release companies that are not regulated by the Financial Conduct Authority. You should also avoid companies who are not members of the Equity Release Council as their rules provide additional protection, ensuring you never get into negative equity.
Being clear about the rules and guidelines these two organisations have in place will help you understand which providers are trustworthy and which equity release companies you should avoid.
What is equity release and how does it work?
Equity release is a type of mortgage that lets you access the money that is tied up in your home. By securing a loan against your property, you can release tax free cash without having to make monthly repayments.
Instead, both the loan and the interest are paid once you have died or moved into long term care and your property is sold.
What is an equity release company?
An equity release company is a mortgage lender that will let you borrow money in return for a percentage of your property value. Lenders are typically specialist financial service providers, banks or building societies.
The equity release company lends you a percentage of your property value which accrues interest. Once you have died or moved into long-term care, your property is sold and the company is repaid.
Which equity release companies should I avoid?
The equity release companies to avoid are ones that are not authorised by the Financial Conduct Authority (FCA) or members of the Equity Release Council (ERC). These two regulatory bodies ensure providers adhere to their rules and safeguards, created to offer customers protection.
Choosing an equity release company that is both FCA authorised and a member of the ERC will ensure you:
Avoid paying more than the value of your property - the EHC’s no negative equity guarantee ensures that no matter how much your loan grows, you will never pay more than the value of the property.
Avoid interest rates that aren’t capped of fixed – the EHC stipulate that interest rates for equity release must be fixed or variable but with a capped upper limit.
Avoid losing your property – another EHC requirement that ensures you have the right to remain in your home for life or until you move into long term care.
Avoid being tied to the property – the EHC state equity release customers must have flexibility to move home, as long as the lender approves of the property you intend to move to.
Depending on your requirements, it can also help to avoid equity release companies that have very early of high repayment charges or equity release companies who are happy to lend you a large amount without talking through your personal circumstances.
Releasing equity isn’t the right choice for everyone, so the best equity release companies will assess your situation thoroughly, help you consider the alternatives and most importantly tell you if they think equity release is the right or wrong decision for you.
Chosen wisely with the help of specialist impartial advice, equity release could boost your income, making life that bit easier financially. Just remember these top 5 tips:
