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Taking out an equity release plan is a major financial commitment, so it’s important to feel confident that it’s a safe option before signing up.
There are two main types of equity release products – lifetime mortgages and home reversion plans. They work differently, but both enable you to unlock some of the wealth tied up in your home. Depending on which plan you choose, this can either be taken as a lump sum, or regular income, or a combination of both. The money you’ve released is usually repaid when you die or move into care and your property is sold and may be used, for example, to pay off debts with higher interest rates, or simply to increase your income stream. Find out more in our article Equity release – what is it and how does it work?
Here, we look at what protections are in place for consumers considering taking out an equity release plan, and where to seek further guidance.
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Are you considering releasing equity from your home? Speaking to an experienced adviser can help you to understand your options.
If you think you’d benefit from expert advice, you can book a free consultation with an adviser at HUB Financial Solutions. A qualified, FCA-regulated equity release adviser you can trust will listen to your needs and talk you through your options. HUB Financial Solutions is rated ‘Excellent’ on Trustpilot.
Please note that equity release will reduce the value of your estate. So if it’s not right for you, the adviser will help you understand some alternatives.
Is the equity release market regulated?
Yes, it is regulated. One of the biggest misconceptions about equity release is that it’s unregulated, and therefore unsafe. In fact, there are significant consumer protections in place, and the equity release market is covered by the Financial Services Compensation Scheme (FSCS), which offers consumers protection if something goes wrong with the financial services and products they’ve taken out.
Equity release providers must be authorised by either the Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA) and pay the FSCS an annual fee for its services. This means that if you take out an equity release product, the lender will have paid the FSCS to essentially insure your money. You can find out more about how the FSCS works in our guide Are my savings safe?
What other safeguards are in place?
Provided you use an equity release provider that’s a member of the Equity Release Council (the trade body for the equity release sector), you’ll benefit from a number of additional safeguards. It’s essential to use an equity release provider who has signed up to this and follows the Council’s code of conduct.
These safeguards include members having to provide customers with a ‘no negative equity’ guarantee. This means that if you’re selling your home to settle the debt, you’ll never have to repay more than the net proceeds of the sale. There may be periods when you owe more than the value of the property before it’s sold, but the guarantee gives you this safeguard if it’s going to be sold. A provider can never force you to leave your home either.
The Equity Release Council’s product standards suggest that for lifetime mortgages the rate must be fixed for each release, or if it is variable, that the rate should be capped for the term of the loan. You can find more information and search for providers that are members of the Council on its website here.
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Are you considering releasing equity from your home? Speaking to an experienced adviser can help you to understand your options.
If you think you’d benefit from expert advice, you can book a free consultation with an adviser at HUB Financial Solutions. A qualified, FCA-regulated equity release adviser you can trust will listen to your needs and talk you through your options. HUB Financial Solutions is rated ‘Excellent’ on Trustpilot.
Please note that equity release will reduce the value of your estate. So if it’s not right for you, the adviser will help you understand some alternatives.
What are the pitfalls of equity release?
Even though taking out an equity release plan is safe, it’s important to remember that there are downsides that must be considered before deciding whether it’s the right option for you.
For example, if you release equity from your home, this will reduce the amount of inheritance you’ll be able to leave your loved ones. The costs of equity release can also rack up over the years, as you will pay interest on the money you release, and then interest on that amount, meaning the total you owe can roll up into a significant sum by the time it needs to be repaid, either when you die, or when you move into long-term care and the property is sold. For example, interest rolling up at 3% would see the amount you owe double after 24 years. You can see what the total cost of borrowing might be for you by using our Lifetime mortgage calculator.
Some of the other potential downsides include limiting your options to move home or downsize in the future. You may face charges if you do, or restrictions on the type of property you can move to, for example, although some plans are portable. Any means-tested benefits you receive could also be affected by you releasing equity from your property. You can learn more about this in our guide How lump sum payments and savings can affect your benefits. Find out more about other risks involved in equity release in our article Equity release – what are the risks?
Before you consider releasing equity, you’ll need to check that you meet the eligibility requirements. For example, you will need to be aged over 55 to take out an equity release plan, and not all types of property will qualify. Read more in our article Am I eligible for equity release?
You should also think about what you need the money for, and whether there might be alternative options that could be more suitable. There are some useful questions you can ask yourself to help decide if it’s the right option in our article Equity release: 8 questions to ask yourself if you’re considering equity release.
If you hope to use the money released to pay for care costs, it’s important to note that this only really works if it’s to pay for a spouse’s residential care, or if single, your care at home. A move into permanent care is a trigger for repayment of the loan, so you’d need to settle the debt in this scenario rather than use the money for care. Find out more in our guide Will I have to sell my home to pay care fees?
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