Yes, equity release is secure for homeowners to take advantage of. In fact, 37,000 homeowners over the age of 55 did so in 2019 alone. It is no wonder why: equity release can be an easy, efficient way to have a source of income if you are looking to supplement your current income, or if you are in (or approaching) your retirement years.
The equity release sector is completely regulated by the Financial Conduct Authority (FCA) as well as the Equity Release Council. This is important for reasons we will go into further detail on in the next section.
The FCA has recently become the official watchdog for regulating the equity release sector. As a homeowner who may be interested in releasing equity in your property (and you are over 55) this is important for you.
This is because the FCA has implemented a set of strict standards that the equity release sector must abide by. It means that all equity release brokers, lenders, and advisors have to adhere to specific FCA authorisations and gain permission before being able to give finance or offer advice on equity deals.
That means as a customer, you can be assured that an equity release company has undergone rigorous checks and balances before being able to provide a service.
Companies that fail to follow FCA guidelines face expensive consequences. For example, equity release lenders or brokers could risk a heavy fine for not abiding by rules, or in the worst-case scenario, they may have to shut down completely.
It isn’t only the FCA that regulates the equity release industry, but also the Equity Release Council too.
This council was created in order to provide additional protection to consumers.
There are certain guidelines implemented by the Council that brokers or lenders must adhere to, these include:
This means that equity release lenders must ensure borrowers are never put in a situation where they have to make repayments that are greater than their property’s value. Any interest paid on an equity release agreement will never be more than the property’s value.
The same ruling applies even if the property ends up dramatically depreciating in value, and selling the home does not cover the remaining debt. In this case, the equity release provider would be required to write this off.
The Equity Release Council stipulates that consumers must receive financial advice as part of the process of getting equity release. This is to ensure that every customer ends up getting the best possible product in their individual circumstances.
Another guideline equity release brokers or lenders must abide by is that all consumers who use equity release products must be able to remain in their homes until they die or need long-term care. A customer must never be made homeless as a result of taking out an equity release product.
This is one of the biggest possible worries for homeowners, especially when you reach retirement years. However, there is no need to fear.
If you decide to downsize or change homes, there is no need to worry about your equity release agreement. These are flexible and portable, meaning the plan continues even if you move. However, remember that the terms may be slightly adjusted. However, the main thing is, is that you are not prevented from moving if you want to.
Another fear relating to equity release is often the issue of inheritance, and whether or not it impinges on your ability to leave one to your loved ones. However, it is still possible to leave one with a lifetime mortgage.
Keep in mind that it may not necessarily be the case with a home reversion plan (another kind of equity release product) as you are selling a percentage of your property.
It is possible with certain equity release products to specify to a lender that you want to put money aside for inheritance purposes.
You also have the option of using the lump sum amount you receive when taking out equity release to provide to your family before you die too.
Many equity release firms have staff who have previously worked as mortgage advisors or have been extensively trained to provide equity release advice. That means you can benefit form the expertise of someone who knows the sector extremely well.