With equity release typically being a lifelong commitment, you may be worried about choosing the wrong company and the potential of being scammed. So how do you know which companies are best and which ones you should avoid?
You should avoid any equity release company that is not regulated by the Financial Conduct Authority (FCA). The FCA protects consumers against misselling and unfair deals. You should also avoid equity release plans that do not meet the Equity Release Councils standards, as they provide you with additional safeguards.
Although almost all equity release companies are safe and respectable, there are some things you should keep an eye out for.
How to know if you should avoid your equity release company?
I will always recommend avoiding any company not regulated by the Financial Conduct Authority (FCA).
You can find out if the FCA regulates a firm by checking their register here.
The FCA are the regulator for equity release and many other financial products in the UK. They aim to protect consumers from misselling and unfair deals.
The FCA state: "Financial markets need to be honest, fair and effective, so consumers get a fair deal. Our role is to ensure markets work well for individuals, businesses and for the economy as a whole. We do this by:"
- Regulating the conduct of around 51,000 businesses
- Prudentially supervising 49,000 firms
- Setting specific standards for around 18,000 firms
I also suggest you avoid companies that are not members of the Equity Release Council.
You can find out if a company is a member of the Equity Release Council by checking its register here.
Some solicitors and advisory firms will not be members of the Equity Release Council but recommend their approved products. This is the most important aspect, as you will still get all of the safeguards the Equity Release Council provides.
Who are the Equity Release Council and what do they do?
The Equity Release Council is a body which ensures its members act with integrity and transparency in offering equity release products and services to consumers. They set standards and principles for equity release companies to meet.
The Equity Release Council State: "Through these standards, members can guarantee their customers that they offer products and services which conform to the best practices of the sector, ensuring customers are fully informed and properly protected."
Here at Money Release, we only recommend Equity Release Council-approved products, and the FCA regulates us. Our FCA number is 679004, and you can check our authorisation on the register here.
Which equity release lenders should you avoid?
There are fewer lenders in the equity release market than in the regular mortgage market, so it is easier to know which ones you should avoid.
You should avoid any lender that does not offer plans that meet the Equity Release Council's product standards.
Equity Release Council provider members:
- Pure Retirement
- Canada Life
- Just Retirement
- One Family
- Liverpool Victoria (LV=)
- Scottish Widows
- Legal & General
- Standard Life
- Retirement Bridge Group
- Responsible Lending
By applying to lenders who are members of the Equity Release Council, you will be protected by their product standards.
The Equity Release Council product standards:
- For lifetime mortgages the rate must be fixed for each release or, if variable, the rate must be capped for the life of the loan.
- You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract.
- You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan.
- The product must have a “no negative equity guarantee”. This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
- All customers taking out new plans which meet the Equity Release Council standards must have the right to make penalty free payments, subject to lending criteria.
Finally, when considering equity release lenders to avoid, I often recommend avoiding lenders charging upfront fees.
Important! Lenders can refuse your application after you have paid, leaving you out of pocket with nothing in return.
Upfront costs levied by the lender will be for one of two reasons:
- Application fee
- Valuation fee
Fortunately, almost all lenders offer products with a free valuation and no upfront application costs! However, there may be some instances where upfront fees are unavoidable.
Which equity release advisors should you avoid?
The Financial Conduct Authority (FCA) regulates all legally compliant equity release advisors. Therefore, avoid any equity release advisor not listed on the FCA register. You can check the status of a firm on the FCA register here.
Once you have established that your advisor is FCA regulated, there are additional steps I recommend that you take to when choosing your advisor:
- Take as much time as you need - If you ever feel pressured by your equity release advisor, I suggest you walk away and find another. Advisors are often paid commission on the successful business they submit. However, this should never be a driving force for the advisor to pressure a consumer into applying.
- Involve family - If you have family members you want to sit with during your appointment, your advisor should fully accept and support it.
- Thoroughly discuss alternatives - If there is a more suitable route than equity release, your advisor should recommend it.
- Have at least two meetings - The first is for them to get to know you and answer any questions you may have. And the second is to present their findings and recommend a product. If the advisor attempts to complete this all in one meeting, they may not have taken the time to thoroughly research the most suitable product for you. The Equity Release Council's best practice guidelines expect the advice process to be conducted over separate appointments.
- Avoid paying your advisor upfront - Most advisors charge on completion (when you receive your money); however, others charge on application or when the lender issues a mortgage offer.
We only charge you our fixed advice fee of £840 if you receive your money. We refer to this as no-completion, no-fee.
Which equity release solicitors should you avoid?
As part of your equity release application, it is a requirement that you receive independent legal advice. You should avoid any solicitors firm not regulated by the Financial Conduct Authority.
Your solicitor works for you. No advisor, lender, or other parties can force you to use any particular solicitor. It is your free choice which solicitor you use.
As it is your free choice of solicitor, I recommend you use a well-known equity release specialist solicitor. You can find one on the Equity Release Council's website here.
We work closely with Barton Law, one of the leading equity release specialist solicitor firms in the UK. They charge a fee of £840 inclusive of VAT for their equity release legal advice, which includes a home visit from a solicitor.
Avoid upfront costs: Importantly, like Money Release, you only pay your legal advice fee to Barton Law on completion.
However, there are instances where you cannot avoid other upfront legal charges. For example, removing an ex-partner from the title deeds or purchasing a new home.
Which types of equity release should you avoid?
There are two types of equity release currently offered.
- Lifetime Mortgages
- Home Reversion
Generally, I suggest avoiding home reversion plans. They do have their place in the market, usually when a lifetime mortgage cannot be offered based on the property itself. But they can be very costly.
Home reversions involve selling part or all of your home to a reversion provider. You will become a tenant within the property and receive a cash lump sum.
If leaving an inheritance is important for you, home reversion plans might not be suitable.
This is just one reason why the most common type of equity release is a lifetime mortgage - making up over 99.5% of the market.
Lifetime mortgages are similar to regular mortgages. You release a lump sum of cash which attracts interest. You do not need to make any monthly payments unless you wish, and there is no fixed term - the plan will run for as long as you need it.
Typically, the property is sold when you pass away or move into long-term care. The amount you initially borrowed and any interest charged is repaid from the sale proceeds.
Lifetime mortgages offer far more flexibility, and with historically low-interest rates, they are the preferred path for many now.
You can read our guide here to know exactly how these plans work.
Should I avoid variable interest rates for equity release?
I typically avoid recommending equity release plans with variable interest rates.
Equity release plans with variable interest rates may be lower than lifetime fixed interest rates. However, with variable-rate equity release plans, you are vulnerable to interest rate increases over time.
You may remember interest rates from the 90's and before being over 10%. While we have gotten used to lower interest rates, variable-rate equity release plans will be more expensive if we see higher rates return.
Equity release plans with fixed for-life interest rates start from just 5.65% MER.
Should I avoid equity release if I want to repay it early?
If you repay your equity release early, you might incur an Early Repayment Charge (ERC). However, this does not automatically mean you should avoid equity release.
The structures of ERCs vary from plan to plan, and some scenarios are exempt from incurring an ERC, depending on your plan.
Lenders may offer you two primary protections if you want to repay your equity release early.
- Downsizing protection
- Significant Life Event exemption
Let's take a look at both.
Most plans with downsizing protection offer the following: If you decide to move home (commonly after five years of having the mortgage), you can repay the balance in full without incurring an Early Repayment Charge if the new property does not meet lending criteria.
However, some equity release plans offer downsizing protection, regardless of whether or not the new property meets lending criteria.
If you have plans to repay when moving in the coming years, it is best to avoid products that do not offer downsizing protection.
Significant Life Event Exemption
If you are taking an equity release plan in joint names, it is likely that you will permanently vacate the property at different times.
When the first borrower passes away or moves into a care home, the survivor can repay the balance without incurring an Early Repayment Charge with equity release plans that have the significant life event exemption.
No one knows how they will feel when their loved one passes away, but many prefer to move home.
I suggest avoiding plans that do not offer this exemption if you are borrowing jointly.
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