Which Equity Release Companies Should You Avoid in 2024?

Do You Want to Know Which Equity Release Companies to Avoid? Discover the Importance of the Equity Release Council and Who to Turn to For Advice in 2024. All the Answers You Need Are Here.
  • Last Updated: 30 Jan 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways:

  • Avoid companies not authorised and regulated in the UK by the Financial Conduct Authority (FCA) or not part of the Equity Release Council.
  • Be wary of companies with a high number of unresolved complaints or negative feedback.
  • Opt for providers offering a downsizing clause, to avoid early repayment charges when moving to a smaller home.
  • Ensure the company allows voluntary interest payments to manage the loan cost-effectively.
  • Check for a No Negative Equity Guarantee to ensure you do not owe more than your home's value.

Though equity release solutions have become safer, it is important to know which equity release companies to avoid and to be aware of potential scams. 

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.

    What Is An Equity Release Mortgage?

    Equity release is a financial mechanism allowing homeowners over 55 to access the value tied up in their property. 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.

    Which Equity Release Companies Should You Avoid?

    You should avoid equity release companies that are not authorised and regulated in the UK by the Financial Conduct Authority (FCA) and are not members of the Equity Release Council (ERC).

    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 of your own is highly recommended, and you can find out more in our article about the mis-selling of equity release as well as understanding equity release pros and cons is crucial for homeowners over 65.

    Factors That Indicate When a Company Must Be Avoided

    Factors that indicate when a company must be avoided include a lack of FCA-registration and the use of high-pressure sales tactics, among other red flags. 

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

    Regulatory Compliance

    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 license 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 it's 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.

    Reputation and Track Record

    Once you have checked that an equity release company is regulated, the next thing to consider is it's reputation and track record. 

    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 reviewed positively.

    However:

    When you look at online reviews of any company, 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, there will always be customers with unreasonable expectations and negative views, whereas satisfied customers typically are 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 it's customer base, as this is usually a fair indicator of how much trust the public places in it.

    Downsizing Clause

    A downsizing clause is a provision some equity release companies include in their contracts. 

    This safeguard allows you to pay off your mortgage without having to pay 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.

    Voluntary Interest Payments

    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 28th March 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.

    No Negative Equity Guarantee

    A No Negative Equity Guarantee ensures 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.

    Transparent Fees

    A reliable company should be upfront about all costs associated with its equity release products.

    When you consult with an advisor / 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 / 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 for 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.

    High Early Repayment Charges

    Inherently, equity release products, especially lifetime mortgages, are designed to endure for your lifetime. 

    Typically, that translates to the loan term ending when you either pass away or move into long-term care.

    This is 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 the decision to repay the loan earlier than contractually agreed upon, the provider must recoup the following monies:

    • 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.

    High-Pressure Sales Tactics

    Be cautious of advisors / companies that seem to employ high-pressure sales tactics to convince you to sign an agreement.

    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.

    No Prior Assessment of Your Circumstances

    Before recommending a product, a reliable equity release provider will undertake a meticulous evaluation of your financial situation and needs

    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!

    No Right to Move to Another Property

    Consider whether the company allows porting your lifetime mortgage to another property as it can impact your flexibility.

    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.

    Are There Equity Release Advisors That Should Be Avoided?

    Considering the financial implications this form of borrowing can have on your future, getting the right advice is essential.

    Steer clear of advisors that are not authorised and regulated in the UK by the Financial Conduct Authority (FCA). 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.

    Equity Release Solicitors to Avoid

    When selecting a solicitor, it's important to prioritise both regulation and specialisation.

    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.

    Which Types of Equity Release Should Be Avoided?

    Depending on your circumstances and goals, certain plans may be best avoided.

    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 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.

    Should Variable Interest Rates Be Avoided?

    Deciding on interest rates when releasing equity hinges on your personal circumstances and risk tolerance.

    Variable rates may start lower and could 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.

    Common Questions

    Are There Any Regulatory Bodies That Oversee Equity Release Providers in the UK?

    What Are the Common Pitfalls Associated With Choosing the Wrong Equity Release Company?

    Should I Solely Rely on Online Reviews When Evaluating Equity Release Companies?

    In Conclusion

    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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    Do You Want to Know Which Equity Release Companies to Avoid? Discover the Importance of the Equity Release Council and Who to Turn to For Advice in 2024. Get All the Answers You Need Here.

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