The Little-Known Truths of Equity Release

It is no secret that the Equity Release market in the UK has a negative reputation. It is fair to say this reputation, at least historically, was well deserved and there are countless horror stories dating back decades about Equity Release.

Times have changed though, and the Equity Release industry has largely cleaned up its act with various safeguards now in place to protect borrowers. Equity Release is still a product you need to be cautious around though and you will need specialist advice before deciding if Equity Release is suitable.

This guide explores the perception of Equity Release, how much of it is a myth and how much is well-founded. Here are the little-known truths about Equity Release.

The Perception of Equity Release in the UK

In the eighties and nineties, the Equity Release market was largely unregulated, and providers could offer subpar products with impunity.

This is the foundation for the perception of Equity Release as it is known today. A product operated by ‘cowboys’ who will purposefully disinherit your next of kin and take as much money from you as possible.

Thankfully, the Equity Release market has changed drastically since the nineties and the product is now overwhelmingly reputable. It is now considered as one of the most safeguarded products on the market. Not only have the products available improved, but the ability to release equity from your property has proved invaluable to borrowers in recent times.

This ability for older borrowers to access equity in their homes to transform their standard of living, whilst still having permanent rights to reside in the property until death or movement to long-term care has been life-changing for many.

Is this Perception Justified?

Yes and no. The perception of Equity Release is wholly justified in the historical context. Frankly, some of the behaviour exhibited by unscrupulous Equity Release providers of yesteryear is shocking and deplorable.

In terms of how the industry behaved in the past, the reputation of Equity Release is without question deserved.

Today, the market is unrecognisable for the most part and there have been great efforts both from within the industry and external organisations to ensure customers are treated fairly.

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Equity Release Safeguards

There are three main components to the shift in attitudes from the Equity Release market.

  1. Equity Release providers who performed poorly in the past often found themselves in trouble from a legal and financial standpoint. Today, the Equity Release market is largely comprised of highly rated providers.
  2. The Equity Release Council was formed to self-regulate the market by imposing standards on their members. Over 90% of the Equity Release market now subscribes to the Equity Release Council.
  3. The Financial Conduct Authority has introduced more clarity over the years with updated changes to regulation dictating how Equity Release providers should operate.

These safeguards have by and large had a positive impact but there are still some companies and providers who operate outside of the Equity Release Council and sometimes these products can still be less than desirable. You should use an expert Equity Release broker, like Boon Brokers, to ensure that you proceed with a regulated provider.

The Equity Release Council

When searching for any Equity Release product you should ensure your adviser and provider are members of the Equity Release Council.

The Equity Release Council insists all members follow a set of rules when offering advice or products. These rules are:

  • No Negative Equity Guarantee – Ensuring that a borrower will never owe more than the property value when they take an Equity Release product. This ensures that beneficiaries are not left with debt once the property is sold
  • The ability to live in the mortgaged property until all borrowers die or require long term care
  • The right for borrowers to move home and transfer their Equity Release product to a new home (if it fits the provider’s criteria)
  • The ability to repay the Equity Release or make payments toward the total without fees or penalties
  • Lifetime mortgages will have fixed interest rates. If a product has a variable interest rate, the rate must be capped

Product providers must do their utmost to offer Equity Release that meets these standards. Consumers have the right to complain to the Equity Release Council if they feel a member provider falls short of the standards.

Boon Brokers is a proud member of the Equity Release Council and only advise products that meets the council’s strict standards for safeguarding consumers.

There is leeway with how these standards are implemented though. For example, if you have Equity Release on a property valued at £400,000, you may not be allowed to move to a new property worth half that value and transfer your Equity Release product. This is because the new property will not be valuable enough to carry over the product and could lose the Equity Release provider money.

The standards are designed to represent fairness to consumers but not detrimentally impact a provider’s ability to function as a business.

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Financial Conduct Authority and Equity Release

Over the years the Financial Conduct Authority has conducted a number of reviews of the Equity Release market.

Because of the historic problems with the industry, officials within the FCA felt it was important to get control of the market and prevent issues arising in future.

As a result, the FCA now have strict guidelines in place for Equity Release providers, stipulating all borrowers must have independent advice and at least two advice sessions before taking an Equity Release product.

If your Equity Release provider offers a product that fails to meet these guidelines or treats you unfairly, you have the ability to complain and escalate the complaint to the Financial Ombudsman Service.

While a positive move in the right direction, the regulation around Equity Release by the FCA has been criticised as being to lenient or open to manipulation. It is for this reason the industry took steps to self-regulate via the Equity Release Council.

Understanding Regulation and Equity Release

Presently, the Equity Release market is unrecognisable compared to how it operated in the past.

It is not perfect though and there will undoubtedly be improvements in regulation or self-regulation by the Equity Release Council in the future.

The majority of Equity Release providers want to dispel the negative connotation about Equity Release and put the past behind them, because ultimately it hampers their business growth going forward.

For consumers, it is advisable to be cautious with Equity Release in general because it is a significant financial decision. The horror stories from the old days are highly unlikely to occur today though, so in that respect, you should not be dissuaded from exploring Equity Release as an option if you need to free up money in later years.

Broker Fees are Not Mandatory

As mentioned, advice is absolutely necessary when obtaining an Equity Release product and there are a wide range of Equity Release advisers you can approach in the UK.

Some advisers deal solely in Equity Release and will not be able to advise you about suitable alternatives if another product such as a Retirement Interest Only mortgage is more appropriate.

You should ideally be speaking to a Whole of Market mortgage and Equity Release broker as they will have the entire breadth of the market to compare and advise you about.

Most Equity Release and mortgage brokers charge fees for their advice and services. Sometimes these are simple one-off advice fees and other times you may find several fees, like application fees and processing fees.

Brokers who charge fees must disclose their fee structure upfront before discussing your personal situation with you. They must also ensure you consent to accepting their service and any fees they charge.

Fortunately, there are a handful of reputable Whole of Market Mortgage and Equity Release brokers, like Boon Brokers, who offer their service without charging fees. By utilising a fee-free broker, you are obtaining the same level of service without any additional financial burden. This high service level is demonstrated by Boon Brokers’ 5-star Trust Pilot reviews.

Speak to an Equity Release Expert

Equity Release is a major financial decision that can significantly improve your life. You can free up funds to use as you wish, for legal means, without having to worry about mandatory mortgage payments or losing your home whilst you are able to reside in the property.

However, it also has the potential to cause issues in the future such as disinheriting your next of kin. It is vital you speak to an Equity Release expert and understand all the benefits and drawbacks of Equity Release before making your decision.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers is a fee free mortgage and Equity Release broker.

Contact Boon Brokers to discuss Equity Release and find out if it is a suitable product for you today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.