*Updated June 2024*
You may be wondering if equity release is safe.
In that case, it's reassuring to know that equity release has high levels of safeguarding in place to protect consumer's interests as well as strict codes of conduct that all providers and advisers must follow. These include:
- Regulation by the Financial Conduct Authority (FCA)) - all equity release providers are regulated by the FCA. The FCA also ensures that the equity release products providers offer have all the right safeguards in place to protect homeowners.
- Standards and rules set by the Equity Release Council (ERC) – these standards and rules apply both to equity release products and to those who give advice on them.
- In-built safety features – equity release products also have built-in features and options designed specifically to protect consumers’ interests.
- Access through qualified advisors – it’s only possible to take out an equity release product through a suitably qualified financial advisor who has a duty to ensure that it's appropriate for you.
In this article, we explain the safeguards and regulations that ensure there are no hidden catches with equity release.
How is equity release regulated?
Equity release is fully regulated by the Financial Conduct Authority (FCA), the independent body responsible for regulating financial services in the UK. The FCA has strict rules and guidelines on the sale of equity release products to ensure that all potential buyers fully understand:
Choosing a company authorised by the FCA also gives you access to the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS), which are there to help.
The FOS operates independently, settling disputes between consumers and financial service providers.
If the financial service provider cannot meet its obligations, the FSCS is there to compensate the consumer.
You can check whether a company is authorised by the FCA on the Financial Conduct Authority register.
More information on the topics raised in this article
What is the role of the Equity Release Council (ERC)?
The Equity Release Council is the UK’s industry regulator for equity release. In association with the Government, the ERC sets the standards, protects consumers’ interests and raises awareness of lifetime mortgages and home reversion plans as useful tools to help with later life planning.
The ERC is a voluntary membership organisation, currently representing nearly 200 member firms and over 500 individual members. Its main board is made up of industry leaders who each serve for a maximum of 2 years.
The Council’s vision and mission is to 'continue to be the recognised voice of authority and the trusted consumer guardian on behalf of our members. We aim to achieve this through universal and transparent representation, progressive and dynamic stewardship and wholehearted commitment to safeguarding.'
Equity Release Council standards
The Equity Release Council sets the standards that advisers and product providers must abide by. ERC members must:
- Act in good faith and promote public confidence
- Exercise due care and diligence, upholding the standards set by professional bodies
- Always act in the best interests of the customer, treating them fairly at all times
Equity Release Council rules
The Equity Release Council’s rules guarantee homeowners that:
- You and your family will never owe more than the value of your home – this is known as the no-negative equity guarantee. So, even if your house is sold for less than you owe, you will not need to pay back the difference
- Interest rates on lifetime mortgages must be fixed or, if variable, there must be a cap which is fixed for the life of the loan
- You have the right to remain in your property for life or until you move into long-term care
- You have the right to move to another property, as long as it’s acceptable to your loan provider
Equity Release Council members
The following individuals and organisations can choose to become members of the Equity Release Council:
- Providers of lifetime mortgages and home reversion plans
- Financial advisers responsible for advising homeowners on equity release and later life planning
- Solicitors responsible for providing independent legal advice to homeowners taking out equity release
- Associates that contribute to the equity release process and support the Council’s principles, e.g. care advice service providers, arrangers and consultants
At Simply Equity Release, we are proud to be a member of the ERC.
What are the in-built safety features of equity release schemes?
Equity release includes a number of features and options designed to give you extra reassurance and protection.
Lifetime mortgages do not require you to make any monthly repayments. This removes the risk of going into arrears or of having your home repossessed for non-payment. So, you can be sure that your home is yours for life.
Equity release lifetime mortgages also come with additional options to help you manage your plan in a way that suits you. These include:
- Interest payment options - with a lifetime mortgage, there will be interest to pay on the amount you have borrowed.However, you have the option to repay that interest every month and/or to make ad-hoc partial repayments. This can reduce the impact of compound interest, which can build up quickly, significantly increasing the eventual repayment amount. There are no interest payments to be made with a home reversion plan as that isn’t a loan.
- Fixed early repayment charges - so you know exactly what the costs would be should you choose to fully repay your lifetime mortgage early.
- No-penalty pay-offs - the opportunity to pay off your lifetime mortgage within three years of your partner dying or moving into long-term care, without incurring a penalty.
- Inheritance options - the option to protect a percentage of the equity in your home to leave as an inheritance.
- The freedom to downsize – so you can move to a new home and pay off the mortgage once your plan has been in place for at least five years, without incurring a penalty.
Tips on how to safely take out equity release
Here are our expert Ashley Shepherd's tips on how to safely take out equity release:
- Speak to a fully-qualified financial adviser to ensure you fully understand the risks, benefits, and long-term implications of equity release before deciding if it’s right for you.
- Choose a trusted and regulated provider that’s a member of the Equity Release Council so you’re protected by their safeguards.
- onsider your long-term finances and how releasing equity may affect your eligibility for state benefits or how much inheritance you can leave to loved ones.
- Explore alternative options first, such as downsizing, using savings, or other financial products that may be more suitable for your circumstances.
- Don’t underestimate the effect of compound interest – consider a lifetime mortgage that allows you to draw down cash as and when you need it rather than all at once and gives you the option to periodically repay some or all of the monthly interest.
Why do I need a qualified equity release advisor?
As another layer of protection, you must receive professional advice before taking out any equity release product. Equity release cannot be obtained directly from a provider. However, you should be aware that some advisers only recommend certain providers, which won’t give you the full picture.
How to choose an equity release adviser
To help ensure you receive fully independent advice, it’s worth double checking your adviser is:
- Authorised by the Financial Conduct Authority
- A member of the Equity Release Council
- Truly independent of any particular provider or providers
- Able to research equity release plans from across a wide range of providers to find the right plan for you
- Able to talk you through the alternatives to equity release, so you can consider all your options before committing to anything
This is why we have chosen to work with Age Partnership, the multi-award-winning equity release specialist. Their advisers can compare providers and plans from a wide range of market-leaders, giving you comprehensive information and advice.
So, how safe is equity release?
With the combination of FCA regulation and ERC oversight, equity release can be considered a safe option. However, it’s still a big decision. You should therefore choose an advisor who is fully independent and committed to going through all the options, risks, and considerations with you before making any decisions.
This article was written by our expert author Ashley Shepherd, Managing Director and founder of Simply Equity Release, the specialist later life planning website. With more than 30 years' experience in financial services, Ashley is a recognised name in the equity release industry.