Is Equity Release Safe?
The equity release market is tightly regulated with safeguards in place to ensure customers are protected.
Under the careful watch of the Financial Conduct Authority (FCA) and the Equity Release Council (ERC), customers can be reassured that plan providers, the advisers and brokers who sell them and the plans themselves all adhere to the FCA and ERC’s rules and standards.
Let’s take a closer look at how these safeguards work to protect you.
How is equity release regulated?
In the UK, equity release is regulated by the Financial Conduct Authority and overseen by the Equity Release Council.
In a recent Over50choices survey, 77% of over 55s were uncertain as to whether the market was regulated or not. In addition, almost 80% were unsure whether you could get into negative equity with a lifetime mortgage, which is impossible as long as you choose company that is a member of the ERC.
So, it is important to explain how these two bodies work and look at the controls that are put in place to protect you:
The Financial Conduct Authority
The FCA is the UK’s regulatory body responsible for the financial services industry. It plays a crucial role in protecting consumers by ensuring firms operate in a fair, transparent and responsible manner.
Only FCA authorised equity release advisers, lenders and brokers are allowed to operate in the UK.
The Equity Release Council
The ERC is a voluntary trade body responsible for ensuring its members act with integrity and transparency. Their standards and principles ensure the products and services provided offer high quality and are safe and reliable.
Membership is voluntary however the majority of leading UK companies are ERC members. To find or check whether a company or individual is an ERC member, go to the find a member service on the Equity Release Council’s website.
How safe is equity release – what are the safeguards?
The ERC’s code of conduct is in place to ensure equity release plans are safe and customers are protected financially. These rules stipulate that:
- Interest rates must be fixed or if variable, there must be an upper limit or cap that is fixed for the lifetime of the loan
- You must be able to stay in the property for life or until you move into care, just so long as you abide by the terms and conditions of your lifetime loan
- You have the right to move to another property as long as your provider is happy that the new property offers continued security on your equity loan.
- The lifetime mortgage must come with a ‘No negative equity’ guarantee which means that when the property is sold and solicitors and agents fees have been taken into account, if the amount left is not enough to pay the outstanding loan, neither you or your estate will be liable to pay any more.
In addition to these product standards, for your security the Council also provides strict rules and guidance on the sales process. To ensure you understand everything, they stipulate that you can only take out a loan if you receive professional financial advice and independent legal advice.
So, to be certain that your lifetime mortgage meets these standards, you need to ensure the company you choose is a member of the Equity Release Council.
Is there a catch with equity release?
Like any financial product, there are downsides to equity release, so it isn’t the right solution for all over 55s looking for ways to improve their finances. The main catch which makes equity release different to other mortgages is that the loan is only repaid once you die or move into long-term care.
A benefit of this is that there are no monthly repayments to make. However the fact that the money is repaid from the sale of your property means it will impact your families’ inheritance, which could be a catch too far for some.
For more information on the pros and cons of equity release, take a look at our helpful guide.
Frequently asked questions about the safety of equity release
Could I lose my home with equity release?
The risk of losing your home is low as there are no repayments to make, so no chance of you falling into arrears and your house being repossessed as with standard residential mortgages.
However, you will need to comply with the terms and conditions of your contract with the lender, for example by maintaining your property and keeping it from falling into disrepair.
Are there companies I should avoid?
All companies that are FCA authorised and members of the ERC have to abide by the rules and safeguards put in place to keep customers safe.
For more information on how to avoid any horror stories, read our article on equity release companies to avoid.
What happens if my lender goes bust?
In the unfortunate event that your lender ceases trading, your plan will be transferred to another company. Everything should remain the same with your new provider, including your interest rate however it is worth checking the detail in your terms and conditions before going ahead.
How do I release equity from my home safely?
To release equity from your home safely, seek advice from a specialist adviser, talk to your family and make sure your chosen company is FCA authorised and a member of the ERC.
It can also help to use a solicitor who has experience with lifetime mortgages. In addition to speeding up the process they will be able to highlight any catches you should be aware of.
Next steps
While lifetime mortgages can provide a valuable source of income in retirement, understanding their intricacies is important. Potential borrowers should carefully consider the long-term impact on their finances, inheritance plans, and overall lifestyle.
Seeking guidance from a qualified financial adviser is strongly recommended to ensure that all personal circumstances are thoroughly evaluated and addressed.
We work in association with Age Partnership, an equity release specialist who compare lifetime mortgage interest rates and products with a selection of the UK’s leading providers. They provide initial advice for free and without obligation. Through their relationships, they have secured preferential lifetime mortgage rates that you may not be able to get elsewhere.