Whether you already have an existing equity release, or you are thinking about taking out a plan, it is essential that you are in safe hands. You may be concerned about how secure you are should your equity release company go bust?
Equity release is regulated by the FCA and you are protected by the FSCS if the company ceases trading. Plans meeting the Equity Release Council standards offer additional protections, including the right to reside in your home until death. If the lender becomes liquidated, the plan will continue on its original terms.
With strong protections in place, you can rest assured you and your home are safe. However, what if you want to make changes to your plan in the future? Let's explore some scenarios and what your options are.
In this guide, you will learn:
In the instance that your lender fails, and is unable to continue trading, their existing plans will be sold onto another lender. The new lender will be contracted to maintain the original lender's plans precisely as they were set up.
You, as the client, are protected, with clauses written into the original contract. The terms of that contract must be maintained when the plan is transferred to the new lender.
This means that any interest rate must remain the same as agreed in your original contract.
It is worth checking your equity release contract though to ensure that, should your lender go bust, there is nothing that states that the new lender can change them.
Please note: If you have a reserve facility in place, it may be that further drawdowns are not achievable.
Most reserve facilities are not guaranteed, and further drawdowns may be prohibited should your lender cease lending. However, there are other options open to you, which we explore further later in this guide.
There are several layers to your protections, should your equity release lender cease trading.
The Financial Services Compensation Scheme (FSCS)
The FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it.
Plans meeting the Equity Release Council standards benefit from:
- For lifetime mortgages, interest rates must be fixed or, if they are variable, there must be a "cap" (upper limit) which is fixed 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.
- 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.
The lender will most likely have taken insurance products out to protect both you and them in the event of market changes, and stopping trading.
To achieve the highest levels of protection, you should ensure that your equity release plan meets the Equity Release Council standards.
Your equity release offer will clearly outline the Equity Release Council standards. It also forms part of the advice that you receive from both your financial advisor and your equity release solicitor.
Ensuring that my clients stay safe is the most important part of my service. I will only recommend an equity release plan which meets the Equity Release Council standards.
If you are at all concerned whether you are fully protected, please get in touch with us, and we will gladly assist you in finding out.
Once a new lender has taken over your equity release, the plan will continue to run in its present state, until the end of its term. The natural term end is when you pass away or go into long term care.
When you receive your annual statement from the new lender, the information will be the same, but the letterhead will bear the logo of the new lender who will manage your plan.
Should you decide that you wish to apply for more money, you may well find that you are unable to obtain further funds on your existing plan.
In this situation, your advisor will be able to look at other lender options for you.
Suppose you move your equity release to be with a new lender. In that case, it will be a requirement that you pay off your existing equity release as part of the process.
Therefore, the new plan will need to clear your current equity release balance, plus provide you with additional funds, on top of any setup fees.
This can be a great time to benefit from the latest interest rates and plan features in the market. You could consider a new equity release plan with a reserve facility for easier access to further funds in the future too.
Should your advisor's business fail for any reason, it will not directly affect any existing equity release that you have in place. Your contract is direct with the lender, and your plan will continue to run with them until the end of its term when you pass away or go into long term care.
It will mean, however, that your advisor will not be available to advise you on any equity release requirements you may have in the future. In this situation, you will be able to get help from a new equity release advisor. Even if you were to call the lender direct, they would require that you speak with a broker to receive advice on the options available to you.
Once you find a new advisor, they will require information about your plan from your current lender. They will need to ask for your authority to contact your existing lender. Your new advisor will ask you to sign a letter of authority, which will allow your advisor to liaise with your lender to gather information on your behalf.
After you give authority to your new equity release advisor, they can provide you with any additional advice that you need.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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