Which Equity Release Companies Should You Avoid in 2024?

The equity release companies you should avoid are the ones that are not accredited by the Equity Release Council, as they may not adhere to the high standards and protections required in the industry. Due diligence and research are key.
  • Last Updated: 14 Jun 2024
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Which Are the Equity Release Companies to Avoid in the UK? Discover the Importance of the Equity Release Council and Who to Turn to For Advice in 2024. All the Answers You Need Are Here.
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Which Equity Release Companies Should You Avoid In 2024?

Key Takeaways
  • Steer clear of equity release firms with bad reviews, sky-high interest rates, and sneaky fees; additionally, note that companies known for lousy service and steep rates are no-gos.
  • Do your homework and check reputations, customer feedback, and how open they are about their deals.
  • Watch for warning signs: dodgy charges, stiff interest, and vague terms can spell trouble, and caution against firms playing fast and loose with the rules.

Though equity release solutions have become safer, it is important to know which equity release companies to avoid and be aware of potential scams, and in 2024, it’s advised to avoid companies lacking transparency, poor customer feedback, or those not adhering to Equity Release Council standards.

Scams can take various forms, ranging from the obvious to unexpected tactics. 

Examples include agents misleading customers on their sales commission generation, biased product comparisons, and lenders irresponsibly granting loans to vulnerable individuals. 

However, you do not need to dismiss equity release entirely. 

In This Article, You Will Discover:

    If you are considering an equity release mortgage in the UK for retirement financing, conduct thorough research before seeking advice. 

    Every Investor, an independent team of researchers and writers, provides resources and research that could aid you in understanding the retirement financial landscape. Professional financial advice must also be considered.

    We have compiled this guide to help you identify signs of danger before you enter into a contract with an equity release lender, and we are proud to present you with our findings because of the strict accuracy and compliance checks we perform before making this information available.

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    Equity Release Companies to Avoid

    What Is Equity Release, and How Has It Evolved Over the Years?

    Equity release, which is a way for homeowners to access property equity, has evolved over the years to offer more safeguards like the no-negative-equity guarantee, reflecting growing market maturity and consumer protection.

    What Does Equity Release Mean?

    Equity release means homeowners can access the value tied up in their property as cash, either as a lump sum or in smaller amounts, without needing to sell their home.

    This scheme, through equity release loans, converts part of the home’s equity into cash, which can be spent however the homeowner chooses.

    Unlike a traditional mortgage, equity release loans do not require monthly repayments.

    The loan, plus interest, is repaid when the homeowner passes away or moves into long-term care, usually from the sale of the house.

    In the UK, individuals often use an equity release calculator to estimate the funds they can unlock from their property.

    The maximum loan amount for equity release is determined by factors such as property value, age, and lender policies.

    Examining the interest rates for equity release is a key step in managing the long-term financial implications of unlocking home equity.

    Equity release setup costs may encompass administrative expenses and charges incurred during the initiation of the equity release process.

    How Have Equity Release Companies Evolved in Recent Years?

    Equity release companies have evolved significantly in recent years by adapting to meet the changing needs and expectations of consumers like you, offering more consumer-friendly terms such as lower interest rates and flexible repayment options, and enhancing regulatory oversight for increased consumer protection.

    With advancements in technology and regulatory requirements, these companies have streamlined their processes and improved transparency.

    Moreover

    They have expanded their product offerings to cater to a broader range of individuals seeking financial solutions in retirement.

    An equity release adviser specialises in helping individuals understand the implications and benefits of releasing equity from their homes.

    Why Is It Important to Choose the Right Equity Release Company and Avoid Certain Advisors?

    Choosing the right equity release company and avoiding certain advisors is crucial to ensuring fair terms, avoiding excessive fees, and securing consumer protection under regulated guidelines.

    What Are the Equity Release Companies to Avoid?

    Equity release companies to avoid are those that are not authorised and regulated in the UK by the Financial Conduct Authority (FCA), lack transparency, have poor customer service, and are non-compliant with Equity Release Council (ERC) standards.

    Engaging the services of an experienced equity release broker can help navigate the complexities of releasing equity from your home.

    Avoid equity release companies that are not Equity Release Council (ERC) members and are not Financial Conduct Authority (FCA) authorized and regulated in the UK.

    Dealing with such companies means you are exposed to several risks, which we will discuss in detail below.

    The more challenging aspect of avoiding scams, however, involves spotting a financial advisor or broker who is not acting in your best interests, because they are your first point of contact before obtaining equity release. 

    This is why conducting thorough due diligence on your own is highly recommended, and you can find out more in our article about the misselling of equity release and the importance of understanding equity release pros and cons for homeowners over 65.

    Which Equity Release Advisors Should Be Avoided?

    Equity release advisors to be avoided are those not regulated by the Financial Conduct Authority (FCA) or failing to uphold the standards of the Equity Release Council.

    The FCA’s oversight is crucial for ensuring fair and transparent dealings.

    In addition, look out for the following:

    • Pressure Tactics: Be wary of advisors who pressure you into making quick decisions. Equity release is a significant financial step and should be considered carefully.
    • Family Involvement: Advisors should be open to involving your family members in discussions if you desire.
    • Exploring Alternatives: A good advisor should explore and suggest alternatives to equity release if they are more suitable for your situation.
    • Fee Structure: Prefer advisors who charge fees upon successful completion of equity release, rather than upfront fees.

    How Can You Identify Equity Release Solicitors to Avoid?

    You can identify equity release solicitors to avoid by looking for lack of accreditation, poor reviews, and absences from the Equity Release Council’s list of approved solicitors.

    Firstly

    Ensure that the solicitor you choose is regulated by the Solicitors Regulation Authority (SRA), maintains independence, and is not swayed by the influences of advisors or lenders.

    This will ensure that your interests are their primary concern.

    Secondly

    Choosing a solicitor with expertise in this area guarantees a comprehensive grasp of its intricacies, equipping you with well-informed and personalised guidance suited to your specific needs.

    What Are Key Indicators to Avoid Certain Equity Release Companies?

    Key indicators to avoid certain equity release companies include lack of transparency, high fees, poor customer reviews, and the employment of high-pressure sales tactics, among other red flags. 

    Hearing an equity release horror story highlights the potential risks and negative experiences that some individuals may have encountered with this financial option.

    Key indicators to help you identify equity release companies you should avoid:

    What Is the Role of Regulatory Compliance in Equity Release?

    The role of regulatory compliance in equity release is crucial for ensuring fair practices, consumer protection, and the integrity of financial products within the market, governed by standards set by the Financial Conduct Authority and Equity Release Council.

    All legitimate equity release companies in the UK must be authorised and regulated in the UK by the Financial Conduct Authority (FCA), which acts to protect consumers, enhance market integrity, and promote competition in the best interests of consumers. 

    Any firm operating without a FCA licence should be avoided. You can check whether a company (or an individual, for that matter) is regulated by the FCA on the FCA’s register.

    More on what the FCA publicly discloses about financial service providers:

    • It lists all restrictions applying to the products and services the entity is permitted to provide.
    • It confirms whether any disciplinary or regulatory action has been taken against the entity.
    • With the information available to it, the FCA indicates whether an entity has been cloned – in other words, whether people are dishonestly selling services under the pretence that they work for that individual or company.
    • The entity’s head office details, contact information, firm reference number, and registered company number are listed.
    • The firm’s status (whether currently authorised to conduct business or not) and type (regulated or not) is listed.
    • All of its legal trading names are listed.
    • It lists the details and current role of any individual associated with the company, as well as whether any disciplinary or regulatory action has been taken against the individual.
    • It lists all current regulators of the firm in the UK and other European Economic Area (EEA) countries.
    • It explains how customers of this entity are protected, and the available provisions concerning complaints against the entity.

    The Equity Release Council (ERC), though not a regulator, plays a crucial role as the UK equity release sector’s industry body. 

    Membership in this council indicates that advisors, brokers, solicitors, and lenders are adhering to a stringent code of conduct, ensuring consumer interests are a priority.

    How Important Are Reputation and Track Record in Choosing Equity Release Companies?

    Reputation and track record are crucial in choosing equity release companies, as they indicate reliability, customer satisfaction, and adherence to industry standards, impacting the quality and safety of financial arrangements.

    If a high proportion of a company’s customer feedback is negative or there are multiple unresolved complaints, this could serve as a warning sign.

    Naturally, it is safer to use companies that are positively reviewed.

    However:

    When you look at any company’s online reviews, you should always consider the number of negative reviews in light of the total size of the company’s customer base.

    No matter which company you deal with, customers will always have unreasonable expectations and negative views, whereas satisfied customers are typically not so quick to praise.

    In terms of it’s track record, you may want to look into:

    • The company’s overall history and how long it has been offering equity release.
    • The size of its customer base, as it’s usually a fair indicator of how much trust the public places in it.

    What Is the Significance of a Downsizing Clause in Equity Release?

    The significance of a downsizing clause in equity release lies in its ability to allow borrowers to repay the loan without penalty if they sell their home and downsize, offering flexibility.

    This safeguard allows you to pay off your mortgage without any early repayment charges if you decide to move to a smaller home.

    So, if a lender does not offer downsizing protection, consider how this could impact your future decisions and potentially explore other lenders who offer this feature.

    Should You Consider Voluntary Interest Payments in Equity Release?

    You should consider voluntary interest payments in equity release, as it can reduce the overall debt by preventing interest from compounding over time.

    If your provider does not allow voluntary interest repayments, this can result in compound interest significantly increasing the total amount you owe over time. 

    A reasonable company should allow voluntary interest repayments to help manage the total loan cost.

    As of March 28, 2022, the ERC requires that member lenders always offer this feature to new equity release customers.1

    In addition:

    The ideal lender will also allow you to make partial repayments on the principal loan amount should you wish to, so keep an eye out for this feature in any plan offered to you.

    What Does a No-Negative Equity Guarantee Mean in Equity Release?

    A no-negative equity guarantee in equity release means that you will never owe more than the value of your home, and it is a fundamental equity release safeguard that the ERC has required lenders to offer for more than two decades now.2

    You should avoid any company not offering it or run the risk of the loan ballooning beyond your control to such a degree that you and your family could be left destitute.

    Why Are Transparent Fees Crucial in Equity Release?

    Transparent fees are crucial in equity release to ensure borrowers fully understand the costs involved, facilitating informed decisions and financial planning.

    When you consult with an adviser/broker/provider about a product, they should offer this information to you freely as part of explaining how the product works.

    Once that conversation has taken place, you should investigate the reliability of the information you were provided with by taking two basic steps:

    1. Ask the advisor and/or provider about all costs, fees, and charges involved with using the product that they may not have mentioned to you.
    2. Inspect all paperwork you are required to sign for details about this, and do so before you sign anything.

    Expert Tip:

    Depending on your local laws, you may be able to record all conversations with your financial services providers for future reference. Always inform them if you plan on doing so.

    Keeping a record of your conversations can help provide evidence if you believe you have been misled, and could be useful if you need to file a complaint with a financial authority.

    Should You Worry About High Early Repayment Charges in Equity Release?

    Yes, you should worry about high early repayment charges in equity release, as they can significantly affect the cost of repaying the loan early, impacting financial flexibility.

    Loan terms end when you either pass away or move into long-term care, making this one of the main reasons why you need to ensure that equity release is the right later-life lending product for you.

    But should something happen that leads you to make the decision to repay the loan earlier than contractually agreed upon, the provider must recoup the following amounts:

    • Costs incurred in setting up your lifetime mortgage.
    • Transaction costs associated with reinvesting your funds.
    • Transaction costs due to changes in long-term interest rates.3

    In essence, the provider must recover the costs of losses suffered since they had prepared to supply you with capital until at least an average mortality rate.

    These days, most reputable companies offer a short initial grace period in which you are able to change your mind about your equity release loan without facing any early repayment charges.

    In addition:

    Some companies offer a compassionate window where early repayment charges are waived in the case of joint applications where the first applicant dies or enters into long-term care.4

    However:

    Bear in mind that some companies may impose substantial charges for early repayments, which could potentially impact your finances at a challenging time.

    Look for a company with reasonable early repayment charges by comparing quotes from different providers, and before entering an agreement, make sure you are prepared to pay these charges should anything happen that compels you to end your equity release contract early.

    How Can You Identify High-Pressure Sales Tactics in Equity Release Companies?

    You can identify high-pressure sales tactics in equity release companies by recognising aggressive selling, urgency claims, or pushing products without considering your financial situation and needs.

    A reputable firm will allow you sufficient time to think things through and make an informed decision.

    If an advisor or company appears to be pressuring you, you should consider contacting the Financial Ombudsman Service.

    Why Is Prior Assessment of Your Circumstances Essential in Equity Release?

    A prior assessment of your circumstances is essential in equity release to ensure the chosen plan aligns with your financial needs, goals, and impacts on inheritance.

    A regulated company should only approve your application if they find that none of the various alternatives to equity release would be a better way for you to address your financial challenges.

    So, one of the easiest ways to spot an unreliable equity release company is when they do not investigate your circumstances and discuss the (potentially better) alternatives available to you.

    It is highly recommended that such an equity release company is avoided at all costs!

    How Does the Right to Move to Another Property Affect Equity Release?

    The right to move to another property affects equity release by offering flexibility and ensuring the plan can adapt to changing life circumstances without financial penalty.

    Since it has been a requirement of the ERC for equity release providers to allow this since 19915, a lack of this provision is a clear red flag.

    Beware, however:

    It is reasonable for your lender to impose restrictions on which property they will allow your lifetime mortgage to be ported to, but you should still make sure you are aware of what those restrictions are to avoid running into issues.

    What Innovations and Consumer Preferences Are Shaping the Equity Release Market?

    Innovations and consumer preferences shaping the equity release market include lower interest rates, more flexible repayment options, and increased transparency, meeting the evolving needs of homeowners.

    What Innovations Are Leading Equity Release Companies Implementing?

    Leading equity release companies are implementing innovations such as online calculators, flexible drawdown options, and enhanced customer service platforms to improve accessibility and the user experience.

    From digital platforms facilitating smoother transactions to innovative product features such as flexible repayment options and inheritance guarantees, these companies are committed to offering tailored solutions that meet your evolving needs.

    Additionally, they are investing in educational resources and personalised advice to ensure you make well-informed decisions regarding your financial future.

    How Do Consumer Preferences Impact Equity Release Company Choices?

    Consumer preferences impact equity release company choices by driving demand for lower interest rates, greater flexibility, and more transparent terms, shaping the offerings in the market.

    As individuals demand more flexibility, transparency, and value from financial providers, companies must adjust their offerings accordingly.

    Factors such as competitive interest rates, flexible terms, and excellent customer service are prioritised to meet consumer expectations and determine the success of equity release companies in the market.

    What Types of Equity Release Schemes Are Considered Less Favourable?

    Types of equity release schemes considered less favourable often have higher interest rates, inflexible terms, or lack consumer protections like the no-negative-equity guarantee.

    What Types of Equity Release Schemes Should Be Avoided?

    Equity release schemes that should be avoided typically lack transparency, offer unfavourable terms, have high interest rates, or do not include protections.

    Some specialists advise against home reversion plans due to their nature of trading part or all of your home for a lump sum, leading to a loss of property ownership and potentially not achieving full market value.

    These plans can reduce your estate’s value and the inheritance you leave behind.

    As an alternative, lifetime mortgages allow you to release equity while retaining ownership of your home, offering a more flexible and potentially more financially beneficial solution.

    Your advisor will be able to discuss all of your available options to find the one best suited to your circumstances.

    Are Variable Interest Rates in Equity Release Risky?

    Variable interest rates in equity release can be risky, as they may increase over time, affecting the total amount repayable and reducing the property’s remaining equity.

    Variable rates may start lower and decrease, but they also pose the risk of increasing with market changes, potentially leading to higher costs.

    Key considerations include:

    • Your comfort with rate fluctuations
    • Financial capacity to handle potential increases
    • Plans for early repayment or property changes

    Consulting a financial advisor is crucial to determine which type of rate aligns with your needs.

    How Does Equity Release Stand as a Retirement Financial Solution Today and Into the Future?

    Equity release stands as a viable retirement financial solution today, offering homeowners a means to access their property’s value.

    As the market evolves with consumer needs, it is poised to remain a key option for financial flexibility and support into the future, with innovations and regulatory advancements enhancing its appeal and safety for retirees.

    How Does Equity Release Compare to Other Retirement Financial Solutions?

    Equity release offers a unique option by providing tax-free cash from home equity, compared to other solutions like pensions or savings, with considerations for long-term impact and inheritance.

    Unlike downsizing or relying solely on pension income, equity release allows you to access the value tied up in your home without the need to move.

    Additionally, it provides you with the flexibility to use the released funds as you see fit, whether for home improvements, supplementing your income, or fulfilling other financial goals.

    However

    Equity release may not be suitable for everyone due to factors like potential impact on inheritance and eligibility criteria, requiring careful consideration before proceeding.

    What Are the Future Trends in Equity Release Schemes in the UK?

    Future trends in UK equity release schemes include lower interest rates, increased product flexibility, and stronger consumer protections, adapting to the evolving financial needs of retirees.

    These include a continued emphasis on flexibility and customisation, with companies offering more diverse product options tailored to unique needs and circumstances.

    Additionally, technological advancements are expected to play a significant role, with the integration of digital solutions streamlining the application process and enhancing accessibility for consumers.

    Frequently Asked Questions on Equity Release

    How to Determine Which Equity Release Companies to Avoid?

    Which Are the Worst Equity Release Companies in the UK?

    What Are the Methods to Identify Equity Release Companies to Avoid?

    What Are the Known Equity Release Scams to Be Aware Of?

    What Are the Red Flags in Equity Release Companies?

    Which Regulatory Bodies Oversee Equity Release Providers in the UK?

    What Are Common Pitfalls in Choosing the Wrong Equity Release Company?

    Is It Advisable to Rely Only on Online Reviews for Evaluating Equity Release Companies?

    Concluding Thoughts on Equity Release Companies

    Although equity release is the best solution to financing retirement for some people, it is a product that should be approached with caution.

    When scammers and unreliable financial service providers are factored into the equation as well, it is more critical to ensure you fully understand the market and processes before accepting an offer for an equity release deal.

    We trust this article has provided you with a good basis for working out which equity release companies to avoid!

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