The equity release market is subject to regulations from the Financial Conduct Authority, meaning it must comply with strict rules and codes of conduct. The consumer protection that’s built into the market is substantial, whether you are looking for a lifetime mortgage or a home reversion scheme. In addition, reputable providers are members of the Equity Release Council (ERC), which is a trade body that represents providers and ensures they are employing protective measures like a no negative equity guarantee.
Releasing equity from your home is not a decision that should ever be taken lightly. Keep reading to learn about some of the myths around equity release and find out how to get personal advice for your circumstances.
Whatever you decide, you must understand that your estate (the inheritance you leave for your loved ones) will be reduced if you take out an equity release plan. Furthermore, your entitlement to means-tested state benefits could be impacted.
What safeguards are there with equity release?
As they are heavily regulated, equity release plans are safe for consumers because they offer various key protections. However, this was not always the case – in the past, the schemes were not regulated, so there used to be scope for providers to offer unfair deals.
What does it mean to be regulated?
Now that the Financial Conduct Authority (FCA) regulates the equity release market, it means that advisers, brokers and lenders cannot do business without first getting approval from the FCA. As an official conduct regulator for the UK, the FCA has very detailed, extremely strict codes of conduct which equity release providers are legally required to follow.
The Equity Release Council
The equity release industry is represented by a trade body called the Equity Release Council (ERC). All reputable providers are members of the ERC, and all members must adhere to an official Statement of Principles that defines the ERC’s purpose.
These principles include:
- Employing a no negative equity guarantee, meaning borrowers can never be put in a situation where they must pay back more than the value of their home. It also provides the freedom to transfer an equity release plan from one property to another without penalty, so long as the new property meets the lender’s requirements.
- Ensuring all borrowers receive independent legal and financial advice
- ‘Security of tenure’ – meaning borrowers can continue living in their home for the rest of their lives
- With lifetime mortgages, interest rates must be defined as fixed or variable. With variable interest, there has to be a predetermined maximum set that cannot be changed.
Think Plutus only works with providers who are members of the ERC, so you can rest assured the deals we find for you offer maximum consumer protection.
Equity release myths
Myth #1: It’s unregulated
While this was once true, the modern equity release market is fully regulated by the Financial Conduct Authority. This means all providers and advisers are subject to the strict rules and codes of conduct dictated by the FCA, ensuring the rights of consumers are protected at every turn.
Myth #2: My family will be left with debts
When you take out a lifetime mortgage to release equity, there is a ‘no negative equity guarantee’ in place. This means that, although the money released plus interested is a debt secured against your home, the amount repayable can never exceed the value of the house. The debt is repaid via the sale of the property once you either move into permanent residential care or pass away. If the amount owed is greater than the amount the house sells for, the outstanding debt is written off.
Myth #3: I won’t be able to leave an inheritance
Though, indeed, you won’t be able to leave your home to your beneficiaries, as the funds raised from selling the property are used to pay off the debt, you can still leave an inheritance. If the amount owed is less than the sale price, the remaining money will still go to your estate. There are even plans that guarantee an amount is left as an inheritance – just tell us you want this in your deal and we’ll find your best options.
Myth #4: I could be forced to move out of my own home
With a lifetime mortgage, you are still the legal owner of 100% of your home. With a home reversion scheme, part or all of your property is sold in exchange for a lump sum of cash, but you are still legally entitled to live there rent-free until you move into permanent residential care or pass away.
Myth #5: I’ll be tied to this house for the rest of my life
If you want to move home and take your plan with you, this can be done. The only condition is that the new property meets the criteria of your lender. You won’t be required to pay a penalty, but there will be certain costs to pay. All of this will be explained in detail before you begin the process of taking out an equity release plan. It’s a good idea to bring it up with your provider early on so that you know where you stand.
What’s the catch with equity release?
As interest rates have fallen and regulation has improved in recent years, releasing equity has become a more popular practise among homeowners. Nevertheless, as with most financial products, it will cost you money. If there is a ‘catch’, it is simply that you will be required to pay interest on the money you release. The amount you owe will grow year upon year, so the longer you live, the more it will cost you.
As your home is the security for the loan, the amount you release plus interest must be paid back to your lender through the sale of that home. This happens when you have to move into permanent residential care or you die.
Before you commit to releasing equity, you should develop a good understanding of how much it could end up costing you. This will enable you to make an informed decision regarding whether it’s the right option for you. Once you have an idea of the costs you can effectively weigh up the pros and cons of equity release for your circumstances. It can be a great way for some people to boost their retirement income or raise funds for other needs, but it is not right for everyone.
Things to consider when thinking about equity release
To help start your thinking process, here are the most important considerations that you need to think about when deciding whether to release equity:
- Eligibility – do you meet all the requirements?
- Your goals – what do you need the money for, and are there any alternative options?
- The plan – have you looked at all the types of plans that are offered by lenders?
- The costs – have you crunched the numbers and compared rates between providers?
- Your family – what do your loved ones think about releasing equity? Do they support the idea?
- Advice – have you received impartial advice from a reputable source?
- Time – have you given the decision enough time? Could you wait a bit longer to consider everything?
Seeking advice for equity release
When it comes to equity release products, getting expert advice is essential. Think Plutus is a trusted, reputable team of genuine experts who can answer all your questions and offer impartial advice based on experience and knowledge.
You should also take the time to discuss things with your nearest and dearest – no big financial decision should be made without their input. By taking out a lifetime mortgage, you will almost definitely reduce their inheritance, so this decision affects them too. Loved ones are such an important factor in this type of decision so Think Plutus will always encourage you to involve them.
Questions you should ask your equity release advisers
As releasing equity is such a big financial decision, you need to know that the adviser you choose is truly impartial and trustworthy. The input of your family and friends is important, but it is your adviser who will give you the best assessment of the options available to you. As such, you need to ask your adviser some key questions:
1. How much will equity release cost me?
It is imperative that you establish the costs you will incur before applying for equity release. This will help you compare different providers and avoid any nasty surprises down the line. Your adviser should inform you of set-up costs, legal fees, arrangement fees and, of course, their own fees.
Learn more here: How Much Does Equity Release Cost?
2. Are you a member of the Equity Release Council?
As we’ve explained, the ERC provides guidelines that ensure advisers and providers offer important safeguards to consumers. The Council only approves fully-qualified equity release advisers, so if they are members then you can rest assured the advice you are getting can be trusted.
3. What potential pitfalls are there with equity release?
A qualified equity release adviser can explain, in detail, the full range of advantages and potential disadvantages of any equity release plan. Pitfalls can include things like impacting your entitlement to state benefits and lowering the value of your estate.
4. Can you offer advice on all forms of equity release?
Generally speaking, there are two primary forms of equity release plans: lifetime mortgages and home reversion schemes. That said, the equity release market is constantly innovating and evolving, so you want to be sure your equity release provider is up-to-date on the very latest developments.
5. What is your advice process?
You want to be able to discuss your options without any pressure to proceed with one. Think Plutus will offer a free initial consultation, after which we will follow up with our findings and some recommendations tailored to your circumstances. This will help you make a decision with all the facts at your disposal.
6. What if equity release isn’t right for me?
As an FCA-regulated equity release adviser, Think Plutus are fully trained and qualified to discuss every option available to you. This includes opting for an alternative to equity release if we feel it wouldn’t be right for your circumstances. Always ask your adviser about alternatives such as delaying equity release for a while until your circumstances are more conducive to it.
7. Why should I choose you as my equity release adviser?
You need an adviser with expertise and experience in dealing with circumstances like yours. You need to feel confident they have your best interests in mind and that they will always be available to offer helpful, impartial advice throughout your journey of releasing equity.
Your next steps
If you feel you are ready to have a conversation with an adviser about equity, you can make an enquiry with Think Plutus today. Contact us and we will arrange a free consultation with one of our expert advisers. You will also find a wealth of information about everything to do with equity release on our website. For detailed, trustworthy equity release advice tailored to your situation, Think Plutus.