What is equity release?
Equity release is a way of releasing the wealth tied up in your property without having to sell it and move to another home. You can either borrow against the value of your home or sell all or part of it in exchange for a lump sum or a regular monthly income. Some plans give you the option to “draw down” further equity (cash) at a later date, based on your requirements.
Equity release is designed to help older customers who either own their property outright, or have relatively small mortgages left to pay. They may decide to “release equity” in their property - that is, take out a loan or sell part of the value of the property – knowing that they will not actually pay that money back to the lender (or reversion provider, in the case of a home reversion plan). The loan or reversion sum will be repaid at a future date, when the property is sold.
What types of equity release are there?
There are two main types of equity release: Lifetime Mortgages and Home Reversion plans. Both types of plan are regulated by the Financial Conduct Authority (FCA). By using an equity release product, a home owner can draw a lump sum or regular smaller sums from the value of their home, while continuing to live in it.
A Lifetime Mortgage is a type of mortgage where you can choose to extract your funds in a single lump sum or in smaller amounts over time up to the maximum limit agreed with the plan provider. You can also elect to retain some of the value of your property as an inheritance for your family, meaning that you can benefit from releasing equity while ensuring you have something to pass on to your children.
You retain full ownership of your home and interest on the loan can be fixed or rolled up. The loan and the rolled up interest is repaid by your estate when you either die or move into permanent long term care. If you are part of a couple, the repayment is not made until the last remaining person living in the home either dies or moves into permanent long term care. In other words, both you and your partner are free to live in your home for the rest of your lives. With some plans you can make monthly interest repayments in part, or in full. That way, you can maintain the debt to the initial amount of the loan before interest. If you choose to make interest repayments, you still have the option to move to a roll up arrangement at a later date if you wish. There are even some lenders who can offer you the option to pay some capital throughout the plan but always discuss details with your plan provider.
How much can be released is dependent on your age and the value of your property. Some providers may be able to offer larger sums to those with certain past or present medical conditions. Some providers may offer larger sums to those with certain past or present medical conditions, or even ‘lifestyle factors’ such as smoking habit.
Home Reversion Plan
A Home Reversion Plan also allows you to access all or part of the value of your property while retaining the right to remain in it, rent free. With Home Reversion, the provider will purchase all or a part percentage of your house. You know precisely what portion of your property you have parted with and, equally, what has been ring-fenced for later use, possibly to leave in a Will. The percentage you retain in your property will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
Again, depending on your age and medical conditions, you may be able to access more funds. You will be provided with a tax free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your property rent-free for the rest of your life. There is no day to day interference and no restrictions in treating the house exactly as before; as a private home to live in freely.
If I take out an equity release scheme, do I risk losing my house?
No. The amount of money you borrow against the value of your home, plus any rolled-up interest, can never go above the value of the property - when it is sold at the end of your plan - due to the No Negative Equity Guarantee safeguard upheld by Equity Release Council members. You will continue benefitting from the rises in property value in the years to come.
With a lifetime mortgage, you will continue owning your home and with a home reversion plan, you would have to convey the deeds to the scheme provider - totally or up to an agreed percentage. Based on that, the scheme provider will own this part of your property. However, in both cases you will own a lifetime lease guaranteeing you the right to stay in your home until death or when you move into long-term care.
The main risk for borrowers who have traditional mortgages is that they find themselves unable to make their regular repayments – and if they get too far into debt the lender may decide to go to court to get an order to repossess the property. The lender will then sell the property to recoup as much as possible of the money which it had lent to the borrower. With most equity release schemes however, you the borrower are not required to make any regular repayments to the lender, so the question of not being able to afford to repay the loan simply does not apply.
It is rare for a lender to take possession under an equity release plan but as with every contract, failing to comply with the terms and conditions of an equity release plan, could mean that the house might be repossessed. For example, failing to keep the property in a good state of repair, and renting it out/ subletting a part of it are reasons why a contract could be considered breached on behalf of a borrower. We should emphasise that even if a contract is breached on the behalf of a customer, a lender would first give the borrower warning about what the borrower needed to put right.
It is true that instances of repossessions under equity release schemes have happened in previous decades when the product was unregulated. Nowadays, equity release is one of the most regulated financial products in the UK and both the regulator and the industry itself work to ensure, as much as possible, that there are no negative customer experiences. The industry aims to protect the good work that has taken place since then with regards to standards and its long-term reputation. In fact, the Equity Release Council is an organisation created exactly on this premise: to ensure your total peace of mind through their safety guarantees (please see FAQ on product standards).
What information and support will you receive to explain how equity release works and decide if it is right for you?
Equity release is regulated by the Financial Conduct Authority (FCA). If you would like to look at taking out an equity release plan, your first step will be to receive advice from a professionally qualified and regulated adviser. He or she will help you to understand your circumstances, explain the pros and cons of taking out equity release. If you both decide that equity release is suitable for you, the adviser will then recommend a suitable product.
We would highly recommend that you choose an adviser who is a member of the Equity Release Council, who has committed to uphold the high standards we expect of them. Our adviser members are required to cover a number of important issues with you to help you reach a decision. Those issues are set out in a ‘Checklist’ which you can view here.
Based on these discussions, your adviser will recommend a product for you. Our rules require him or her to give you a written suitability report which explains why he or she believes that equity release is suitable for you and why the particular product being recommended suits your individual circumstances.
Your adviser is also required, according to the Mortgage Rules laid down by the FCA, to give you a Key Facts Illustration (KFI) before you make a formal application for a lifetime mortgage. The KFI sets out the details of the plan which you are considering applying for, and includes details of the costs and risks associated with it. If you are considering more than one option, you must be given a separate KFI for each plan so you can compare and contrast the costs and details associated with each.
(If you wish to or are recommended to take out a home reversion plan, instead of a ‘KFI’ you must be given a ‘home reversion plan illustration’ which will set out the key facts about the proposed reversion plan, and how it will work.)
If equity release is recommended for you and you decide to go ahead, your adviser will help you to complete an application. If the plan provider accepts your application, you will then receive a formal offer from them which your adviser will explain to you.
These documents set out the full details of the product you are taking out, including the risks involved and a section titled ‘What will you owe and when?’. This includes a table showing how interest will be applied to the loan, so you can see how the total cost grows over time if you have opted for a rolled-up interest lifetime mortgage.
These documents also explain that if you decide to repay your loan early, you may be required to pay the provider an ‘early repayment charge’. The explanation will set out whether a charge will apply to your plan, how the charge is calculated and, although the provider will not be able to anticipate the exact amount that may apply at some future date, it must state, in cash terms, the maximum amount that you might be expected to pay.
Exploring equity release through one of our members also guarantees you independent legal advice from a solicitor of your choice before you confirm your final decision. The solicitor will meet with you face to face and also normally prepare a written report, which sets out the risks and rewards of equity release, together with your contractual obligations with regard to the product offer you have received from the provider. The solicitor is required to verify that you understand the terms of the contract and whether or not you would like to proceed.
Use our online member directory to find an Equity Release Council member in your area who can help with any enquiries.
What are the product standards set by the Equity Release Council?
Equity release product standards are set out below:
• For lifetime mortgages, interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan.
• You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract.
• You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan.
• The product must have a “no negative equity guarantee”. This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
Our members are only allowed to tell you that a product meets these standards if it meets all of them. If you are offered or are considering a product that does not meet all of the standards, the product literature must explain which standards are not met, and give an illustration of the types of risk that this might pose for you.
Is equity release regulated?
Advisers and providers of both types of plans are regulated by the Financial Conduct Authority (FCA). Additionally, the Equity Release Council – as the trade body, representing over 350 members of equity release professionals, works to raise high standards and ensure that customers receive the best possible advice and service. Members have voluntarily signed up to additional rules of principle, as testament to their commitment to this ethos.
What is a no negative equity guarantee?
Products which fully meet the Equity Release Council’s Product Standards are required to feature a “no negative equity guarantee”. Put simply, this guarantee means that you, or more specifically, your estate will never owe more than the property is worth when it is sold.
Under your equity release plan, you have the right to live in your home until you need to move into a smaller property (whereby the plan may be transferrable), or move into permanent care, or until death. Your property will be sold and the sale proceeds will be used to repay the money owed to the provider of your plan. Any money left over, at the end of your plan, will be paid to you or your beneficiaries, in accordance with your Will. In the unlikely event that the value of your house has decreased significantly, it is possible that it might not be worth enough to cover the amount which you owe. The “no negative equity guarantee” means that if this turns out to be the case, the remainder of the loan would be written off.
What is the standard process for taking out an equity release plan?
Once you have decided that you want to know more about equity release, you should set up a meeting with a financial adviser or you may contact them for an informal telephone conversation. Your adviser will review your personal circumstances to check if an equity release plan is the most suitable option for you, taking into account other sources of funding that you may have including any state benefit entitlements. This is a specialist area of advice. For that matter, you should always source an adviser who holds the necessary qualifications and permissions to give this advice and who is a member of the Equity Release Council to ensure you receive all the relevant information and guidance and you are protected by the additional safeguards offered by The Council's members. You can find a list of specialist advisers who are members of The Equity Release Council in the “adviser” section of the member directory on our website (www.equityreleasecouncil.com/member-directory/). You have the choice of both telephone and face-to-face advice services.
Once your adviser has assessed your circumstances, they will provide you with some recommendations and a personal Key Facts Illustration and the Initial Disclosure Document. This summarises all the important details and costs involved in taking out your plan. You may wish to involve your family and discuss your plans and this information. Advisers who are members of the Equity Release Council fully support and encourage the involvement of family members throughout the process if you so wish.
If you are happy with the proposed product then you will need to complete an application form. Your adviser will help you do this and then send the form, together with any fees payable up front, to the provider.
You will also need to appoint a solicitor to carry out the necessary legal work to complete your contract with the equity release provider. It is advisable to make sure that the solicitor you choose is familiar with equity release products and has experience in advising clients on the details of equity release plans and the associated property conveyancing, as this will keep the costs to a minimum and ensure a smooth process. You can find a list of specialist solicitors who are members of the Equity Release Council in the “solicitor” section of the member directory on our website (www.equityreleasecouncil.com/member-directory/).
The plan provider will need to have a valuation of your home and will instruct a RICS-qualified surveyor to visit your property in order to assess its value. A copy of the surveyor’s report will be sent to you and/or to your solicitor.
Once the survey is complete and the amount you can borrow has been confirmed, you and your solicitor will receive an Offer Letter. Your solicitor will usually prepare a written report explaining the obligations and benefits of going ahead with the plan. Our (The Equity Release Council's) rules require that you should have at least one face-to-face meeting, either with a solicitor from the firm which prepared the written report for you, or with another qualified solicitor acting on behalf of the firm which prepared the report. The purpose of this meeting is to make sure that you have the opportunity to ask as many questions as you need so that you are confident you understand the details of the contract you are proposing to sign. The solicitor will also make sure that you understand the nature of the legal contract which you are committing yourself to, and confirm that you are not being pressurised to sign something that you don’t understand or don’t want to sign up to. The solicitor will also check that where you are entering into the contract with a spouse or partner, you both agree to do so. When you are ready, you and your solicitor will sign the acceptance form and an Equity Release Council Solicitor’s Certificate which confirms that all key points have been discussed.
Your provider will then carry out some legal checks in relation to the title of your property. Once this is completed, the money will be released to your solicitor who will arrange for it to be transferred to you.
Is there a minimum value for properties on which equity release is available?
Yes: providers will generally not accept properties which are valued at less than £70,000.
How much can I borrow?
The provider will instruct a surveyor to give a professional valuation of your property that would define the amount that could be released. How much can be released is also dependent on your age and that of your partner (if you are making a joint application) and the value of your property. Some providers may offer larger sums to those with certain past or present medical conditions, or even ‘lifestyle factors’, ie smoking habit.
What impact will it have on my family?
Taking out an equity release plan could leave your family with little or nothing to inherit from your property. You need to be comfortable with this possible outcome, and may wish to discuss it with them before committing yourself. You may also want to consider including your family in any discussions you have with your financial adviser or your solicitor.
You may be considering to release equity from your home to help younger family members get on to the property ladder or pay for school or university fees etc. If this is the case, you need to consider the implications of releasing the equity now, as it will not be available later on should you need it for other purposes.
You can also get information from individual Equity Release Council members or from other qualified advisory firms.
How do I go about setting up an equity release plan?
You should always seek professional advice. It is important to explore all the options that could meet your financial needs before choosing an equity release plan. Doing some research will also help when you come to speak to an adviser. Please see FAQ below on the standard process for taking out an equity release plan.
You can find information from the Financial Conduct Authority which issues a useful guide – A Guide to Unlocking the Wealth in Your Home.
You can also get information from individual Equity Release Council members or from other qualified advisory firms.
What is the cost of setting up an equity release plan?
Under the terms of your Lifetime Mortgage, the rate of interest that will be charged on your loan will either be fixed, or it will be variable, in which case there will be a “cap” (upper limit) on the amount that can be charged at any time. If the rate is fixed, it will be fixed each time you withdraw funds from your plan. Over time, therefore, you could have several amounts of money which you have released at different times, and each would be subject to a different fixed rate of interest, which would then be added to the total amount which you have borrowed. You will not have to pay back any of this money until your plan comes to an end and your property is sold or you choose to repay the loan. At the time you take out the plan you may however be asked to pay a number of other fees to cover the costs of setting up the plan. They will include fees payable to:
- The Provider which is financing your plan. These may be described as “application” or “administration” fees;
- Your Adviser, who will carry out detailed research into the options and recommend the most suitable plan from the range available, followed with a written report containing recommendations and a personalised Key Facts Illustration (KFI). Should you wish to proceed, your adviser will arrange all of the required paperwork with the provider and handle things through to eventual completion and release of the funds;
- Your Solicitor, for giving you independent advice on the plan to help you understand how it will work, and for carrying out the necessary conveyancing (legal) work; and
- The surveyor (valuer) who will inspect your property in order to give the provider an independent estimate of its value at the time you take out the plan.
Some firms may not charge fees in all of these categories and others may structure their plans so that they offer cash-backs in order to balance the cost for you. You will need to research the market thoroughly to ensure that you find an option which suits you. The level of fees may also vary between firms, clients will always incur own solicitor costs, but some adviser firms don’t charge any fee and neither do some providers. Typically, however, you can expect to pay approximately £2,000 – 3,000 in total depending on the amount released and the plan being arranged.
Where can I find a qualified Independent Financial Adviser?
The Equity Release Council membership includes qualified Financial Advisers and you can find their contact details on the Equity Release Council members’ directory (http://www.equityreleasecouncil.com/member-directory/).
My adviser assures me he is qualified in equity release: what should I be looking for?
Giving advice on equity release products (lifetime mortgages or home reversions) is a “regulated activity” - which means that those who give such advice must be authorised and regulated by the Financial Conduct Authority (FCA) and abide by its rules. The FCA requires all equity release advisers to have an appropriate professional qualification and it sets out a list of approved qualifications in the “Training & Competence” chapter of its Handbook of rules. You can find the full list of approved qualification here but the main ones to look out for are:
- CeRER (Certificate in Regulated Equity Release) – awarded by the Institute of Financial Services (IFS) (relevant webpage is here).
- CER (Certificate in Equity Release) – awarded by the Chartered Insurance Institute (CII) (relevant webpage is here).
- ERMAPC (Equity Release Mortgage Advice & Practice Certificate) – awarded by the Chartered Institute of Bankers in Scotland. The ERMAPC was discontinued a few years ago but may still be held by some advisers. The CIOBS’s general qualification for mortgages is its Mortgage Advice & Practice Certificate (relevant webpage is here).
Can I release equity from my home if I have not yet paid off my mortgage?
If you still have an outstanding mortgage on your property you will need to pay it off in full, either by using some of the proceeds from the equity you release or from other funds. Once that is done, the rest of the money you release can be spent as you wish.
How long will it take to access the funds?
Timescales will vary from provider to provider. However, it usually takes 8-12 weeks from the day your application is received by the provider to the day your money is received by your solicitor.
How old do I need to be?
To qualify for a Lifetime Mortgage you need to be aged 55 and over. If you are taking out the plan with your partner, then the age of the youngest borrower must be at least 55. For a Home Reversion Plan you must be a minimum of 60 years old.
If I take out an equity release plan, will I be able to move to another property?
Yes: equity release plans which comply with our full product standards give you the right to move to a “suitable alternative property”. This means a property which your provider would accept if it were setting up a plan for a new customer. There are some properties which providers would not be able to accept – and this is usually because there would be restrictions on their ability to sell the property in the open market when your plan comes to an end. So, for instance, homes which are built in retirement complexes are not generally acceptable, because the provider would not be able to sell them in the open market.
There may be other restrictions on the types of property that will be acceptable to providers – such as the type of construction. See question on “Why are some types of property not acceptable to equity release providers?”
What happens if I live with someone else?
If you are married, in a civil partnership or living with someone else as a partner and you are both eligible by age, you can take out a joint equity release plan. Your spouse or partner will then have the right to live in the property for as long as they wish, should you die or move into long term care. If you have a friend or tenant living in your home the provider will want to make sure that they have no rights to continue to live there when you die or move out, as that is the point at which the loan made to you will have to be repaid, through the selling of the property.
What happens to my partner if I die?
If your plan is in joint names, then your partner will be able to continue living in the property under the same terms. If it is in your name only, then unless the mortgage can be repaid in full the property will have to be sold and your partner will have to find somewhere else to live. It is normally a requirement that where the borrower clearly has a spouse or partner, the plan is written in joint names from the outset to make sure that both individuals have the right to remain in the property until they die or move out.
If you marry after you have taken out a plan, or if someone comes to live with you as your partner, then you must tell your provider. It may not be possible to add your new spouse or partner to your plan, in which case they will not necessarily have the right to continue living in the property if you die or move into long term care.
When I die, if my property is worth less than I borrowed, can my family still inherit it?
Your family will not automatically inherit the property following your death, since your equity release provider will be entitled to recover as much as possible of the amount they had lent you (known as a 1st charge), and this often means that the property will have to be sold. If your family wished to keep the property, they would have to discuss with your equity release provider whether it might be possible for them to pay off the remaining debt.
How might house prices increase during the life of my equity release plan?
It’s difficult to predict how house prices rise and fall – and although there are frequent reports in the press about national figures, there may be big variations according to where you live. Set out below is an example based on a cautious house price growth figure of 4% and an interest rate of 6.39% on the equity release loan. The example is based on a plan where all the equity is released together and interest begins to grow from day 1.
Year of loan
Equity left (£)
Equity left (%)
After 5 years
After 10 years
So at the beginning of the plan, the customer would have owned just under three-quarters of the value of the property (74%). After 5 years s/he would own a bit less than that (71%) and after 10 years s/he would own just over two-thirds of the value of the property (68%). If the customer were to die after 10 years and the house were sold, s/he would be able to leave approximately £242,324 as an inheritance. That is of course less than the house was worth when the plan was originally taken out – but the customer will have had the benefit of the £65,000 loan in the meantime – interest-free.
What happens if I want to repay the loan early?
If you repay a Lifetime Mortgage early you may have to pay an Early Repayment Charge. These charges can be quite expensive – but before you took your plan out you will have been given information about the maximum you might have to pay in the event that you decided to repay some or your entire loan early.
Most equity release plans are intended to be long-term options. You should make sure that you tell your adviser when you take out your plan if you think there might be circumstances in which you might want to repay your loan early. The products available vary – some have no early repayment charges, some apply the charge to a specific number of years after the plan was taken out, and others apply the charge throughout the life of the plan. You will need to take into account the cost of the plan you are considering along with the possible cost of an Early Repayment Charge – your adviser will help you decide which option is best for you, given your circumstances.
If you have a Home Reversion Plan and want to pay off the loan early, you may have to sell your share of the property to pay off the outstanding amount which you owe your provider. You may find that this leaves you with too little money to buy another property. However, the Equity Release Council’s rules require members to allow customers to move to a suitable alternative property, so if you are able to find another suitable and affordable property, this might be the best option for you.
What are “Early Repayment Charges” and why do they apply to my equity release plan?
An “early repayment charge” is a charge which your product provider may require if you repay some or the entire amount which you have borrowed before a date or event which is specified in your contract. For equity release plans (lifetime mortgages) there is no fixed “term” or date by which you are expected to repay your loan - it remains in place until death, or if you need to sell the property or move into long-term care. The rate of interest which you pay your provider will not change during the life of your contract. In addition, please note that your estate will not be charged an Early Repayment Charge if you move into long term care.
However, if you repay your loan early, this may have an impact on your provider’s calculations and specifically, on how much it actually costs your provider to end your contract. The lending process for your provider means they will have to work out how they are going to be able to afford to lend you the amount you need and they will have to make some assumptions about how long it will be before you or your estate repay the money borrowed. In the meantime, your provider will be paying interest on money which they have borrowed in order to be able to lend to you. If you repay earlier than expected and given that your provider has already entered a lending agreement themselves to be able to lend to you, then they will have to secure the interest to ‘cover’ for the remaining time that they had assumed your loan would last and for which they have paid interest. This is why providers usually require you to pay an “early repayment charge”.
Before you commit yourself to taking out a lifetime mortgage, you will be given a “lifetime mortgage Illustration.” Section 13 of that illustration is headed “what happens if you do not want this mortgage anymore?” It explains whether an early repayment charge may apply to your plan and, if so, the basis on which the charge is calculated. It must also show the maximum amount (in cash) that you could be liable to pay.
Why are the interest rates on equity release loans higher than on standard mortgages?
In recent years, interest rates have been at historically low levels. However, people sometimes ask why interest rates on equity release products appear to be higher than standard mortgages. Equity release loans and reversions are different from the mortgages which people take out to buy their homes - and different factors need to be taken into account when the providers work out how much they need to charge.
With a standard mortgage, you are making regular payments to the lender – typically every month. A standard mortgage is always for a fixed period of time which is quite different from LTMs. With an “interest-only” mortgage you are only repaying interest on the loan which you took out – and at some point you will have to repay the lender the full amount of the capital (the original loan) borrowed. With a “repayment” or “capital repayment” mortgage, you are repaying a small amount of the actual loan (capital) each time, combined with interest on the whole loan. Your aim is – eventually – to repay all the money which you borrowed by the end of the period of your mortgage (e.g. 10years), so that you end up owning your property outright.
Equity release is designed to help older customers who either already own their property outright, or have relatively small mortgages left to pay. They may decide to “release equity” in their property - that is, take out a loan or sell part of the value of the property – knowing that they will not actually pay that money back to the lender (or reversion provider, in the case of a home reversion plan). The loan or reversion sum will be repaid at a future date, when the property is sold. That means that the provider’s money is potentially tied up for an unknown number of years, during which time the provider will not be receiving any payments from you (unlike with a standard mortgage, where the provider will be receiving regular monthly payments). Additionally, the protections that are in place to manage the contract – i.e. security of tenure, and no negative equity guarantee cost the provider firm (lender) significant funds to set up and maintain. So the cost to the provider of making the equity loan, or buying part of the equity in your property, is more expensive than it is for a standard mortgage lender – and that’s why the interest rate is also higher.
Why does the amount owed on an equity release plan increase so quickly?
The interest on an equity release loan is rolled up every year, that is, the amount of interest charged is added to the amount of the loan, and the interest for the following year is worked out on the sum of the original loan plus the interest which was charged during that year. So although the interest rate will remain the same each year, it will be calculated on a larger amount each time.
Let’s take a simple example, where the original loan is for £50,000 and the interest rate is 6%:
Interest at 6%
While it may look as if the total owed is growing rather fast, it is quite likely that the value of the property will also be growing – so you will still own “equity” in the property. Your share of the equity may not be the same as when you took your equity release loan out – however it will not be significantly lower. (See question: “How might house prices increase during the life of my equity release plan” for an illustration of how your share of the equity in your property might be affected by house price increases).
What happens if a regulated company goes into liquidation and we have a lifetime mortgage with them?
All equity release providers are regulated by the Financial Conduct Authority (FCA): in the event of a company becoming insolvent the FCA would ensure that another company assumed responsibility for the failed company’s customers. There should be no change to the terms and conditions of your original contract and your plan can continue as normal.
What are gilts and bonds?
Gilts or bonds are issued by the UK Government and by private companies. Buying a gilt or bond means that you lend money to the issuers for a fixed time period in return for a fixed interest rate. Gilts are considered the safest bond category as it is unlikely that the UK Government will default. Equity release interest rates are substantially lower than they were a few years ago, from over 7% to nearly 5%. Contrary to standard mortgages this was not driven by the cuts to Bank Rate. The dropping rates arise because lenders - generally insurance companies - raise the amounts they lend through diverse resources. Equity release provider rates depend on the principal returns on government bonds. These gilt "yields" have dropped since the Bank of England (BoE) started printing £375bn of "quantitative easing", to fuel the economy during the 2008 recession. For that matter, insurance companies were able to drop equity release rates.
Why are some types of property not acceptable to equity release providers?
The equity release provider is accepting your property as security for its loan: this means that the provider needs to be satisfied that your property can be re-sold on the open market – either when you or your executors come to sell it or, in exceptional circumstances, if the provider has to take possession of it (because you have failed to comply with an obligation set out in your contract) and sell it.
Many lenders/providers ask questions in their application forms about your property’s age and how it is built (brick walls/roof slates or tiles and so on). This is because some types of construction have in the past suffered structural defects. This doesn’t mean that they are not safe to live in – but it has led some lenders and providers to decide not to accept them for mortgage/equity release purposes, because they are concerned that if there are problems in the future which need to be put right, this may affect the property’s value and its attractiveness to a future buyer.
Properties which are unlikely to be acceptable to equity release providers include:
- Studio or basement flats
- Flats of maisonettes in a local authority or housing authority block of more than four storeys
- Retirement properties
- Static/mobile homes
- Guest houses/B&Bs
Can I get equity release on a static/mobile home?
No: most providers will not accept static or mobile homes as suitable security – either for a standard mortgage or an equity release loan.
How do I make a complaint about my equity release plan?
All members of the Equity Release Council aim to provide consistently high standards of service to their customers. However, things can go wrong from time to time. If you have a complaint about your equity release plan – or you wish to make a complaint on behalf of a member of your family who has or had such a plan – then your first port of call should be the firm that advised or provided you with the plan, be that the adviser, the solicitor, surveyor or the product provider (lender).
Complaints about providers or advisers
All our provider and adviser members are authorised and regulated by the Financial Conduct Authority (FCA). This means that they must comply with the FCA’s rules on how to deal with customers’ complaints. The Financial Conduct Authority accepts a “complaint” to be applicable to:
“Any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, a person about the provision of, or failure to provide, a financial service or a redress determination* which:*compensation decision
(a) alleges that the complainant has the potential of, or the actual suffering of financial loss, material distress or material inconvenience; and
(b) relating to an activity of that respondent, or of any other respondent with whom that respondent has some connection in marketing or providing financial services or products, which comes under the jurisdiction of the Financial Ombudsman Service.”
Under the FCA’s rules, the first thing the firm must do is acknowledge your complaint and investigate it fully. It must then send you a “final response” within 8 weeks of receiving your complaint. That final response must:
- Tell you that the firm accepts your complaint and explain what action it is now going to take to redress it; or
- Tell you that the firm does not accept your complaint but is prepared to offer you some redress; or
- Tell you that the firm does not accept your complaint and explain why. It must also explain to you that you now have the right to take your complaint further, to the Financial Ombudsman Service (see below for more details) and send you a leaflet explaining how you can do this.
- If the firm has not been able to come to a decision about your complaint within the 8-week timescale, the final response must explain why this is the case and tell you when the firm does expect to be in a position to give you its decision. It must also tell you that you may now go direct to the Financial Ombudsman Service without waiting any longer, and must include the leaflet explaining how you can do this.
The Financial Ombudsman Service (FOS)
The Financial Ombudsman Service will investigate your complaint at no cost to you. Investigations are generally carried out by correspondence, though you may be contacted by telephone if that is the easiest way of clarifying details. Very occasionally, the Ombudsman may ask to hold a “hearing” – that is, a meeting where you and the firm you are complaining about are present. However, this is very rare. The main purpose of the Ombudsman service is that it helps to resolve complaints in a fair and impartial manner, without your having to go to Court and face the formal legal procedures (and costs) entailed. If, when you receive the Ombudsman’s decision on your complaint, you are not happy with the outcome, you are still free to pursue the matter further via legal processes. However, you would have to pay the costs of doing so.
You can find out more about the Financial Ombudsman here: - http://www.financial-ombudsman.org.uk/
In addition to complying with the FCA’s rules on complaints, our members seek to offer you a high level of service by complying with Statement of Principles. They are also required to abide by our internal Rules & Guidance. The FOS is aware of these documents and will likely take them into account when deciding how to resolve any complaint which you may refer to. However, if you feel that a member has failed to uphold our principle standards, you may want to contact us. You can:
- Write to the Chairman of the Standards Board, Equity Release Council, 3rd Floor, North West Wing, Aldwych, London WC2B 4PJ; or
- Email email@example.com or
- Phone us on 0844 669 7085
Complaints about solicitors
If you have a complaint about the Solicitor who gave you independent legal advice on your plan, you should raise it with the person handling your case. If this does not resolve the issue, you should write to the firm’s Managing Partner. This will ensure that your complaint is formally dealt with under the firm’s complaints handling procedure. The Managing Partner will send you a written copy of that procedure, explaining the steps that will be taken to investigate your complaint and the timescales within which you can expect to receive a response. You may be invited to a meeting to discuss your complaint. When the firm has completed its investigation, the Managing Partner will write advising you of the firm’s decision. If your complaint has been upheld, the Managing Partner may make some suggestions as to how to resolve the issue (such as reducing or waiving some costs). If your complaint has not been upheld, and you remain dissatisfied, the Managing Partner should advise you that you are entitled to raise a formal complaint with the Legal Ombudsman and explain how you may do this. The Legal Ombudsman will only consider complaints from the public where the firm’s own complaints handling procedure has been invoked and exhausted.
The contact details for the Legal Ombudsman are as follows:
The Legal Ombudsman
PO Box 6806
Telephone: 0300 555 0333
Complaints about Surveyors
The Royal Institution of Chartered Surveyors (RICS) requires all surveying practices to have in place a complaints handling procedure which complies with the RICS’s rules. Your surveyor must provide you with a written copy of this procedure if you ask for it. If you have a complaint about the surveyor who surveyed your property in connection with your equity release plan, you should in the first instance raise your complaint with that individual. If you remain unhappy, you should write to the Managing Director, Chief Operating Officer or the Senior Partner of the surveying practice, setting out the details of your complaint. If you make a verbal complaint (ie., over the telephone) then you will be asked to put it in writing. Once the firm has received your complaint in writing, you should receive a written acknowledgement within 5 working days, 10 working days after the firm has received your written complaint, the person dealing with it should write to you informing you of the outcome of the firm’s investigation and what actions are being proposed. If you are dissatisfied with any aspect of the handling of the complaint you can refer it back for a separate review. The firm will write to you within 14 working days to notify you of the conclusions of this separate review. If the complaint has still not been resolved to your satisfaction then there are two possible courses of action:
First, if the firm concerned subscribes to the service offered by the Ombudsman Services: Property, you may refer your complaint there. The Ombudsman will respond to you within 28 days to advise you what decision has been taken in respect of your complaint. If you decide to accept this outcome, it will be binding on the surveying practice concerned. If you decide not to accept the Ombudsman’s decision, you remain free to pursue your complaint through court.
Please see below the contact details for the Ombudsman Services: Property.
Ombudsman Services: Property
PO Box 1021
Telephone: 0330 440 1635
You can find out if the firm subscribes to the service by checking the list which appears on the Ombudsman’s website at: http://www.ombudsman-services.org/memberlists.property/
Second, if the firm does not subscribe to this service, you can ask the RICS to appoint an independent adjudicator to investigate the complaint for you. The RICS’s contact details are as follows:
The Royal Institution of Chartered Surveyors
12 Great George Street (Parliament Square)
London SW1P 3AD
Tel: 020 7695 1670
Is equity release right for me?
Equity release plans are not right for everyone and it is important that you fully consider your options and receive independent financial advice before making a decision. It is also important that, if you do decide to use an equity release product, you choose one that meets your needs.
Remember that taking an equity release plan is generally a long term option. However, there are flexible plans available that may fit your varying needs and some will allow you to repay in the future without any penalties. A financial adviser can help you to choose the plan that is right for you.
What are the alternatives to equity release?
Before taking out an equity release plan, you should check what the alternatives are. You could visit moneyadviceservice.org.uk/debt for advice on debt. For instance, you may have other investments, savings or assets to draw on, or you may wish to continue some form of paid work. You could downsize to a smaller property or one of lower value – perhaps by moving to a different part of the UK where house prices are cheaper.
Downsizing is likely to give you maximum value from your home, but you may decide that you do not want to leave your home or move away from family and friends and you should consider the cost of moving. You may also want to think about renting a room in your home, or taking a loan from family and/ or friends.
Ultimately you will need to weigh up all the alternatives and, along with help and advice from your financial adviser, decide whether any of these alternatives meet your requirements.
Could this type of scheme help me reduce any inheritance tax?
The use of an equity release scheme will reduce the value of your estate. You should speak to your financial adviser if you are considering using equity release for this purpose.
What is a Lasting Power of Attorney (LPA)?
A Lasting Power of Attorney (LPA) is a legal document enabling you to appoint one or more people to assist you in making decisions or to make decisions on your behalf. LPAs were introduced in October 2007 and replaced Enduring Powers of Attorney (EPA). EPAs made prior to October 2007 remain valid, however the content here relates to LPAs only. The information which follows derives from government websites and concerns England and Wales only.
There are two types of LPA:
(1). Health and welfare LPA: gives an attorney power to make decisions relating to matters such as; your daily routine (e.g washing, dressing, eating); medical care; moving into care and life-sustaining treatment. A health and welfare LPA can only be used when you are unable to make decisions for yourself.
(2). Property and financial affairs LPA: gives an attorney power to make decisions relating to money and property including matters such as; managing a bank or building society account; paying bills; collecting benefits or a pension and selling your home.
Giving someone else this authority may be very important because you could at some point in the future find yourself in a position where you are unable to make decisions and run your affairs. This could happen if, for example, you were injured in an accident or suffered physical or mental illness. The Office of the Public Guardian (OPG) can help you in deciding whether an LPA is appropriate for you. The OPG is in place to protect people in England and Wales who may not have mental capacity to make their own decisions relating to their health and finance. Contact details are available via the following website https://www.gov.uk/power-of-attorney/overview
An LPA must be registered with the Office of the Public Guardian (OPG) before it can be used. It is possible to end an LPA even if it has been registered provided you still have mental capacity at the time.
Attorneys appointed under an LPA must act in the best interests of the individual. This is particularly important as an attorney may be dealing with financial matters including spending money and/or making decisions about your property and assets.
Please note this is a short overview of Lasting Powers of Attorney in England Wales. There are a number of information sources available via the internet and you may also decide to seek legal advice. Processes in Scotland and Northern Ireland are different and information can be obtained via the following hyperlinks http://www.publicguardian-scotland.gov.uk/power-of-attorney and http://www.nidirect.gov.uk/managing-your-affairs-and-enduring-power-of-attorney.
Changes to Assessed Income Periods after 2016: what does this mean if I take out an equity release scheme?
Currently, if you are aged over 65 and are in receipt of Pension Credit, your entitlement is assessed at the start of an Assessed Income Period (AIP) which may run for a period of up to 5 years. During your AIP, you do not need to report any changes in income, savings or pensions which might impact on your entitlement to receive Pension Credit. If you are aged over 75, your AIP will remain in place until your household circumstances change, for example, if you move into a care home.
The Pensions Act 2014 introduced changes to abolish AIPs from April 2016. This means that, after your current AIP finishes, you will need to report changes to income or capital as soon as they take place. If you take out an equity release plan, this could affect your entitlement to Pension Credit, unless equity release is taken out for an approved purpose such as essential home repairs.
The exact circumstances in which it would be considered acceptable to take equity release without impacting your entitlement to benefits, would ultimately be a matter for the Department for Work & Pensions (DWP) to decide.
AIPS after 2016 – in a Nutshell
- From 6 April 2016, no new AIPs will be set.
- If you already have an AIP that is due to end between 6 April 2016 and 31 March 2019, it will end – either on the original date on your Pension Credit Award letter, or earlier if your household circumstances change.
- If you already have an AIP that is due to end on or after 1 April 2019, it will end early and will not be renewed.
- If you currently receive Pension Credit, the DWP will write to you telling you the new end date 6 months in advance. You can also find the new end date on the DWP website.
The Council is keen to ensure that if you are proposing to enter into an equity release plan, you fully understand that this may have an impact on any Pension Credit to which you are entitled and that you avoid taking a decision which may result in your losing out financially. All equity release plans are sold with full financial advice, and your adviser will take this issue into account. The Council also requires your equity release provider to make sure that you receive independent legal advice on the implications and potential consequences of taking out an equity release plan, to help you make a fully informed decision.
Can equity release be a target for fraudsters?
Can equity release be a target for fraudsters?
As with any matter involving large sums of money there is a potential risk of fraud. With equity release, it is not so much lenders as borrowers who may be at risk – and this means that advisers and providers may need to ask different sorts of questions in order to protect their customers and their investment
Fraudulent activity can take many forms: here are some examples which you as a consumer should be mindful of:
- Coercion: an unscrupulous person – who, sadly, may be a trusted friend or even a family member – may see an opportunity to get some money for themselves by persuading someone with an equity release plan to release funds and give the money to them.
- Fraudulent application: may be made by someone close to a customer – a friend, family member or possibly even a carer – by forging application papers and signatures.
- “Romance” scams: where the customer is contacted by someone who appears very attractive to them – both physically and in terms of their compatibility. The fraudsters will send photos and clever messages and will quickly develop a relationship with their victims, in many cases promising companionship and love. They will then play on their victim’s belief in their existence and generosity –and start asking for money. In most cases – they don’t exist at all.
- Investment scams: where the fraudsters target people who they know own their own properties and may therefore be persuaded to borrow money from any source including an equity release plan – and then “invest” the cash released in an investment “plan” proposed by the fraudster, who will promise excellent returns on the investment. Needless to say, the fraudster generally disappears with the cash, never to be seen again. The general rule with this type of scam is that if it sounds too good to be true – it almost certainly is. Our rules specifically require equity release advisers to explain to customers that it is inadvisable that the funds released are reinvested in any medium or long-term investments.
Our members work hard to reduce the risk that a customer may be being targeted fraudulently. Advisers need to understand their customers’ needs, objectives and future plans when advising them on a suitable equity release product – and if they think something doesn’t stack up – and that the customer may be at risk – they will ask more questions.
We also require all customers to be given independent legal advice when they are about to enter into their equity release contract. A solicitor will meet the customer face-to-face – and verify that the customer understands what they are being asked to sign up to and that there are no obvious signs of them being put under pressure by someone else.
If I take out an equity release loan, can the provider change the conditions at a later date?
An equity release loan is long-term contract and there are some aspects which a provider (lender) may need to review from time to time. Your adviser should explain to you when you take out an equity release plan that circumstances which apply at the time you take the plan out may not necessarily be the same some years down the line, and that you need to be aware of this. There are three specific areas which lenders may need to keep under review: they are portability, ability to make further withdrawals and the ability to make capital repayments. Looking at each one in turn:
- Portability: it is an Equity Release Council rule that you must be allowed to transfer (“port”) your plan to another property, should you wish to move. But you will need to make sure that your provider is satisfied that the property you wish to move to will represent adequate security for your loan. Providers need to keep their lending criteria under regular review – which means that a property which might have been acceptable at one point in time may not always be acceptable. So it’s important that you discuss the acceptability if any alternative property with your provider before committing yourself to buying it. If you don’t do this, you might find that your options are limited, and you could end up having to repay your loan, which could result in your having to pay substantial Early Repayment Charges.
- Cash Withdrawals/Further Advances: some providers allow further advances, or cash withdrawals under a flexible ‘drawdown’ Lifetime Mortgage at their discretion. This means that future access to further cash sums is not absolutely certain. If your provider declines a request for further cash sums, and you wish to switch to a different provider in order to obtain more money, you will have to repay your original loan. As mentioned above, this could result in your having to pay substantial Early Repayment Charges.
- Capital Repayments: the option for customers to make ad-hoc capital repayments is fast becoming a popular feature of certain rolled-up interest Lifetime Mortgages. It’s up to each provider to decide whether it is able to accept such payments and, if so, how often and how large each payment might be. If you think you might wish to make capital repayments during the life of your equity release plan, you should discuss this with your adviser. In particular, you may wish to find out more about –
- whether your provider reserves the right to cancel the option of making capital repayments;
- whether your provider might restrict access to any Drawdown Cash Reserve for a stated period following receipt of a capital repayment; and
- how any capital repayment would be applied to your loan account if it has several constituent parts (i.e. an initial loan with further cash withdrawals, which may all have different interest rates).
What happens if I have an equity release plan, and need to move into long-term care?
Your equity release plan is designed to enable you to stay living in your home until you either die, or become unable to continue living there. If you need to move into long-term care, and don’t have a spouse or partner who is still entitled to live in the property, it will be sold and the amount you borrowed, plus interest, will be paid back to your equity release provider. In these circumstances you will not have to pay any Early Repayment Charges, which can sometimes be payable if you decide to re-arrange your plan with another provider. Your equity release contract will explain how much time will be allowed for you or those acting on your behalf to sell your property. The time allowed is typically between 6 months and 1 year.
You might find that you wish to move in with a member of your family, as an alternative to going to live in a nursing home. Obviously this will depend on what sort of support and care you might need at that stage, and what options are open to you. You should check carefully how your proposed equity release provider would respond in this situation as some will only allow you to move in with a relative if your medical needs require this. Others may not be so specific. If you think it might become a relevant issue at some point in the future, make sure you ask the question and get a clear answer.
If the property is being sold after your death, your beneficiaries/executors of your Will will be in charge of selling the property on the open market – that is, via an Estate Agent, so that it is sold for what is known as its “market value.”
If you are still alive when the property is sold, you may have appointed an Attorney to handle your affairs, in which case he or she can arrange the sale. If not, most equity release providers include a very specific Power of Attorney in their contract terms and conditions, which allows them to take over a sale if progress is not being made by the borrower or his/her personal representatives (who may also be executors if the borrower has died). This power is completely standard in ALL residential mortgages and is not peculiar to equity release: in effect it makes sure that the provider/lender is able to sell your property and recover the debt owed to it.
You or your estate will be responsible for paying all the costs of the sale, including solicitors’ fees. Some providers may also charge an administration fee for removing their charge against the property, which is registered at the Land Registry.