Gaynor Smith, Associate Solicitor at Birketts LLP, shares some technical considerations when dealing with equity release combined with transfers of equity.
Tactical Transfers: When equity release meets transfers of equity
While equity release and transfers of equity often go hand in hand to ensure the property’s legal title meets lending requirements, this comes with additional considerations. Transfers of equity alone can be complex but combined with the additional requirements of equity release lending, several technical issues can arise that legal advisers must navigate on behalf of their clients.
Compliance
Ensuring compliance with legal and regulatory requirements is key. Equity release products are regulated by the Financial Conduct Authority (FCA), which goes to great lengths to ensure consumer protection. In addition, legal advisers who are members of the Equity Release Council agree to comply with a set of overarching principles necessary to protect required consumer outcomes.
Property Valuation
The value of the property is directly linked to the amount that can be released through equity release products. This can also directly influence how the transfer of equity is conducted, particularly where consideration is involved in the transfer. Valuations are conducted by qualified surveyors approved by the equity release provider, and any discrepancies can directly impact the amount that can be released.
Existing mortgages
Where the property in question has an existing mortgage or any other form of lien, these must be addressed before equity can be released. In practice, this is often a juggling act of the legal advisers, who must deal with these matters simultaneously to ensure the borrower has the money to redeem any existing mortgage while also protecting the incoming lender at all times. For any experienced property lawyer who specialises in equity release, this is a standard process. However, it adds an extra layer of complexity to be navigated.
Wider impact
Often borrowers will focus on what they want to do with the funds being borrowed rather than the wider impact the borrowing has on estate planning. Ensuring borrowers consider the wider impact is covered by the requirements of legal advisers. However, complex estate planning structures can often require additional considerations beyond those encountered in a standard transaction. It is the advising lawyer’s responsibility to arrange any additional legal advice as necessary and to ensure the borrower fully understands the impact of entering into equity release before the matter can complete.
Borrowers are required to obtain extensive advice from a financial adviser before instructing their legal adviser and will usually be fully aware of equity release plans available, whether they are suitable for their needs and have obtained guidance on the long-term financial implications prior to instructing a legal adviser. In this instance, the advising lawyer acts as a safety net to check and certify to the lender that these considerations have been undertaken.
The Equity Release Council safeguards consumers by ensuring they receive transparent information and independent legal advice before proceeding with any equity release agreement. In turn, legal advisers who are members of the Equity Release Council are required to adhere to the standards and principles set by the Council to ensure consumer protection.
While equity release will not be suitable for everyone, for some it can make a huge difference in their lives during their retirement years. The key is that the borrower needs to understand the full financial and practical implications. As transfers of equity are often a condition of this type of lending, it is for the appointed legal adviser to navigate the technical considerations to facilitate completion.
The views of contributors are not necessarily those of the Council.
