*Updated June 2024*
You may be wondering if equity release is safe.
Equity release has high levels of safeguarding in place and strict codes of conduct that providers and advisers must follow to protect consumers’ interests. These include:
- Financial Conduct Authority (FCA) regulation - all equity release providers are regulated by the FCA. The FCA ensures that equity release products have safeguards in place to protect homeowners.
- Equity Release Council (ERC) - founded in 1991, the ERC sets standards and rules for equity release schemes and those who give advice on them.
- In-built product features and options designed to protect you.
- You can only take out equity release through a suitably qualified financial advisor who has a duty to ensure that it's appropriate to you.
In this article, we explain the safeguards and regulations that ensure there are no hidden catches with equity release.
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. It has strict rules and guidelines on the sale of equity release schemes to ensure potential buyers fully understand:
Choosing a company authorised by the Financial Conduct Authority also gives you access to the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS).
The Financial Ombudsman Service operates independently, settling disputes between consumers and financial service providers.
The Financial Services Compensation Scheme compensates customers if the financial service provider cannot meet its obligations.
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
Who are the Equity Release Council (ERC)?
The Equity Release Council is the UK’s industry regulator for equity release. Working in association with the Government, the ERC sets the standards, protects consumers’ interests and raises awareness of lifetime mortgages and home reversion plans as a useful tool to help with later life planning.
The ERC represents nearly 200 member firms and over 500 individual members and the main ERC board is made up of industry leaders who serve for a maximum of 2 years. The current chair is David Burrowes. The vision and mission of the Equity Release Council 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. 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 – known as the no-negative equity guarantee
- 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 become a voluntary member 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 – those that contribute to the equity release process and support the Council’s principles e.g. Care advice service providers, arrangers and consultants
We are proud to be a member of the ERC.
Inbuilt features of equity release schemes for added peace of mind
Equity release includes a number of features and options designed to give you extra reassurance and protection.
With all equity release schemes, you're not required to make any monthly repayments. This removes the risk of going into arrears or having your home repossessed for non-payment.
Equity release lifetime mortgages come with features and options to help you manage your plan in a way that suits you, including:
- The option to repay the interest every month and/or make ad-hoc partial repayments to reduce the impact of compound interest, which can build up quickly.
- Fixed early repayment charges, so you know exactly what the costs would be should you choose to fully repay your lifetime mortgage early.
- The ability to pay off your lifetime mortgage within three years of your partner dying or moving into long-term care, without incurring a penalty.
- The option to protect a percentage of the equity in your home to leave as an inheritance.
- The freedom to downsize 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.
Getting equity release advice is a must
A further protection for consumers is that you must receive professional advice before taking out equity release. Equity release cannot be obtained directly from a provider. However, be aware that some advisers only recommend certain providers, which won’t give you the full picture.
So, how safe is equity release?
Before choosing equity release, 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 you commit 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 with market-leading providers, giving you information and advice.
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.