Is Equity Release safe?

Over 325,000 Brits are expected to search for information about "Equity Release" in 2023, as they consider retirement options. However, many people are also concerned about the safety of equity release. In this insight, we tackle the question, is Equity Release Safe?

Key Takeaways

• All methods of Equity release are regulated by the FCA.
• Advisers must pass a series of units on Equity Release as well as ongoing competency checks to maintain high standards of advice.
• Advisers who sign up to the Equity Release Council agree to their code of conduct which promotes treating customers fairly.
• Equity Release products are much more flexible than they used. Clients can downsize and payback their Equity loan if this wish.

Is Equity Release Safe?

Yes. Equity release is safe. It is regulated by the FCA and the Equity Release Council help to maintain high standards of practice in the industry. Equity release is flexible and you can pay it back if you want to.

Equity release, a financial option that allows homeowners to access the equity in their homes, was first introduced in the 1960s. Despite being around for several decades, it was not until the 2000s that it began to gain momentum due to bad publicity in the 80s. However, with the introduction of councils and increased flexibility, the popularity of lifetime mortgages and home reversion plans have been steadily growing year on year, improving the reputation of equity release.

Is Equity Release Regulated?

In 2007, the FSA regulated both lifetime mortgages and home reversion schemes. When the FSA was replaced by the FCA in 2012, the regulation of equity release continued. The FCA is responsible for establishing the standards and conduct rules that equity release providers and advisors must adhere to when arranging equity release. If you're interested in learning more about the FCA's role in regulating equity release, you can find the FCA handbook for equity release on their website. FCA handbook for Equity Release.

Are Equity Release Advisers Qualified?

To ensure you receive high-quality advice on equity release, it's crucial to find an adviser who is regulated by the FCA, a member of the equity release council, and qualified to give advice with CERER certification. Not all mortgage advisers can offer advice on equity release, so it's important to do your research.

Although finding an equity release broker can be challenging due to the limited number of professionals in this field, there are services available such as Sunny Avenue and the Equity Release council that can help you find the right adviser for your needs. Many advisers offer flexible methods of advice and will travel for face-to-face meetings.

It's important to take the time to find a qualified and experienced adviser who can help you navigate the risks and opportunities of equity release, and provide tailored recommendations based on your specific circumstances.

What Makes Equity Release Safe?

The Depth of The Qualification for Advisers 

Cerer is the certificate in Equity Release. It is a separate exam from CeMap (Certificate in Mortgage advice & practice). The exam is provided by the London institute of Banking & Finance. The exam covers the following:

• The impact of equity release on clients future options
• Regulatory explanations of Equity release products such as lifetime mortgages and home reversion plans
• Suitability and affordability of equity release schemes
• Advantages and disadvantages of equity release schemes and their alternatives
• How to assess the risks to clients who take equity release schemes
• When risks may arise amongst clients taking equity release
• The rules relating to state benefits and tax that equity release may impact.

The exam is comprehensive, including 2 units: 'The fundamentals of Equity release' and 'Equity Release solutions'.
An equity release broker must already be holding CeMap or an equivalent Mortgage advice exam to be able to advise on equity release.

These exams set a high standard that equity release advisers are truly qualified in their field. It is also required that advisers meet ongoing competency standards, with annual training and exams to ensure high standards are upheld. 

Equity Release flexibility

Equity release products have seen enhanced flexibility as the market has progressed. This flexibility offers security in knowing that terms are fixed and you will not end up in a financial position you didn't expect to be in. This flexibility provides further assurance that equity release is safe and includes features such as:

• Fixed Interest rates for the full term. You will always know upfront what interest you will pay.
• Fixed early repayment charges. You will easily be able to calculate what charges you will pay should you repay early.
• No monthly repayments. The ability to delay all repayment until it can be paid from your estate.
• Downsizing protection. Downsizing protection allows you to repay the equity release loan back in full, without penalty, if you choose to downsize after 5 years.
• Ad-hoc repayments. Flexibility over overpaying to help reduce the overall borrowing amount.
• No negative equity guarantees. A No negative equity guarantee within a lifetime mortgage prevents you ever owing more than the value of your home.

The Equity Release Council

The equity release council is the trade body for equity release. The council exists to promote high industry standards and conduct for advising on equity release products. The equity release council focusses on safeguarding clients, educating them so they can be confident in the opportunities that equity release can bring to them in later life.

To become a member of the equity release council you must pass a standards exam, covering application of advice and product knowledge.

The advisers sign a declaration that states they will follow the conduct rules set by the council. These rules ensure a full and fair service is provided to clients seeking equity release advice. For example, advisers who are members of the equity release council must provide clients with all of their available options. If clients could be better off by downsizing their property than utilising an equity release product.

The equity release council is not limited to advisers, but solicitors, associates, and affiliates can all become members to help uphold standards across the industry.

What Are The Pitfalls of Equity Release?

When deciding on whether equity release is safe and right for you it's important to consider some of the pitfalls:

• Equity release will reduce the inheritance that you can leave to your family.
• Interest is compounded so the balance outstanding can increase over time. However, this can be combatted with a no-negative equity guarantee. A no-negative equity guarantee ensures your family will never have to pay more than the property sale proceeds.
• There may be alternative options available that may be more suitable, especially for younger borrowers.
• Equity release is a confusing product. It's important that you fully understand the terms of what you are entering into before committing. This includes understanding the impact of not making repayments.
• There are up-front fees for arranging equity release. It is mandatory that an equity release broker explains upfront the terms of the charges for arranging equity release and advising upon equity release. 

Seeking Advice on Equity Release

When considering equity release, it's important to weigh up the pros and cons of equity release. Seeking advice from an expert is crucial in making an informed decision. An advised service provides bespoke recommendations tailored to your specific needs. Advisers typically conduct a thorough fact-finding process to understand your circumstances and recommend a relevant and appropriate solution.

Equity release is a safe option as it's heavily regulated. The equity release council is responsible for maintaining industry conduct and ongoing competence training, while the FCA sets the standards and conduct rules for equity release providers and advisers. The barriers to entry for advisers are high, ensuring high standards are maintained.

However, it's crucial to understand the risks involved with equity release. Finding a qualified adviser who is a member of the Equity Release Council and regulated by the FCA is key. Take the time to explore all your options and find an adviser who can help you make an informed decision.

If you're unsure where to start with Equity Release advice, complete the Sunny Fact Find. The answers you provide help us to find the best-suited adviser. Your adviser contacts you for a no-obligation conversation on how they can help. You decide how to proceed. For more information on finding the right company to use for your equity release, consider reading: Equity Release Companies to Avoid