Equity Release Companies to Avoid

The Secret To Why You MUST Avoid These Equity Release Companies in 2021

Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui

Equity Release Can Be a Dream Come True, But if You Get Caught Out by an Illegitimate Lender, It Can Be a Nightmare. Discover the Firms to Avoid in 2021.

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Equity Release Companies to Avoid

Without this vital information about equity release companies to avoid in Jan 2022, you could end up being locked into an equity release plan you regret!

While equity release products are safer than they’ve ever been, unregulated lenders will only help you take a step backward instead of unlocking the key to your retirement dreams.

Luckily, we’re here to help you take a step in the right equity release direction.

Through this article, you’ll learn:

  • A clear definition of what’s an equity release company.
  • What you must look out for when deciding on an equity release company.
  • Signs that a lifetime mortgage or home reversion company is dubious.

At EveryInvestor, our team is proudly committed to supporting retirees through their quest for financial freedom. Therefore, our research team has dedicated hours towards determining the surefire signs of the equity release companies to avoid.

Take a look at what we found!

Best and Worst Equity Release Companies

What’s Equity Release?

Equity release refers to the use of financial arrangements to help older homeowners release tax-free cash tied up in their property while allowing them to remain living in their homes. The industry is regulated by the Equity Release Council. The 2 most common types of equity release products are a lifetime mortgage and a home reversion plan.

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How Does an Equity Release Loan Work?

Equity release works by allowing you to unlock the cash tied into your home, with no payments required in your lifetime. Instead, the equity release loan, plus compound interest, is repaid from the sale of your home when you pass away or move into long-term care. You can take out the cash in a drawdown, cash lump sum, a combination of the 2, or a monthly salary.

Learn More: How Does Equity Release Work?

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What is an Equity Release Company?

An equity release company refers to a lender that offers equity release plans. These can be a lifetime mortgage, a home reversion scheme, or both. While equity release lenders focus solely on equity release and lifetime mortgages, other lenders include banks and building societies1 that also offer other financial products.

Discover More About Equity Release: The Best Equity Release Companies in Jan 2022

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Equity Release Companies to Avoid in Jan 2022

While equity release can be a fantastic retirement product to give you a nice cash lump sum to get you through retirement, it does come with its pitfalls. Therefore, it’s essential to unlock your tax-free cash through a reputable equity release lender.

Luckily, there are surefire signs of equity release companies that you must avoid at all costs. To make things easier for you, we’ve put together a list of questions that will help you determine these equity release product red flags. Here they are!

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Is the Equity Release Company Registered with the Financial Conduct Authority (FCA) & Members of the Equity Release Council?

When selecting your equity release company, you must avoid all equity release providers that are not members of the Equity Release Council2 or Financial Conduct Authority (FCA).3 With no membership, it means that the company is unregulated.

The FCA oversees the entire UK financial industry, and the Equity Release Council was formed to specifically regulate the equity release industry, weeding out dubious lenders and unfair practices. Equity Release Council members adhere to a strict code of conduct designed to protect the equity release consumer.

Furthermore, the Equity Release Council has implemented the essential ‘no negative equity guarantee’ so that equity release companies never expect your family to pay more than the value of your loan.

Full article: What is the Equity Release Council?

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What Are the Costs Involved with Equity Release?

Equity release should cost you between £1,500 and £3,000, plus compound interest, usually at a fixed interest rate between 2.3% and 6%. These equity release costs can include application and completion fees, a property valuation, advice fees, and the cost of a solicitor. In addition, your equity release provider must be upfront about all the costs involved.

If equity release providers have unusual additional fees, huge charges, and unreasonable interest rates, you should definitely avoid those companies. Your adviser will help you determine the standard fees for the equity release market.

Furthermore, with the equity release sector being more competitive than ever before, equity release lenders are often waving some of the fees involved, including application fees, completion fees, and the cost of a valuation.

Here’s more: Equity Release Costs in Jan 2022

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Are There Any Early Repayment Charges with Equity Release Mortgages? If So, How Much?

You can usually expect to pay early repayment charges to most equity release providers if you end your equity release loan before the end of its term, but you must ensure that these are within a reasonable range.

For example, an equity release lender may impose early repayment charges for the first 5 years of an equity release plan, beginning at 5% per year in years 1 through 5, 3% each year from 6 to 8, and 0% after that. Other equity release plans have a 10-year ERC term, dropping to 3% after 5 years and no charges after that.

If your potential equity release company’s early repayment charges seem unreasonable, we suggest you chat these through with your financial adviser.

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Are They Offering You Equity Release Loans before Knowing Your Circumstances?

If an equity release lender is willing to offer you a loan right off the bat, without investigating your home and circumstances, avoid them at all costs. This immediately means that the equity release company is illegitimate. Releasing equity is a detailed process that usually takes 4 to 12 weeks, and involves a detailed home valuation with sound equity release advice.

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Does the Equity Release Lender Offer a No Negative Equity Guarantee?

All legitimate equity release companies will offer a no negative equity guarantee. Put in place by the Equity Release Council, the guarantee is designed to make sure that when your loan comes to an end, your family will never owe more than the final sale value of your property, even if property prices have dropped. This is even if the loan and compound interest amount to more than what the house sold for.

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Are Equity Release Interest Rates Capped or Fixed?

Equity release interest rates must always be fixed interest rates or capped. If a lender offers variable equity release interest rates4 that are not capped, they’re an equity release company to avoid in Jan 2022.

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Do I Have the Right to Remain on Your Property for Life with my Equity Release Plan?

According to a rule set out by the Equity Release Council, homeowners have the right to remain living in their property for the rest of their life after unlocking equity. Avoid companies that advise on compulsory repayments or threaten foreclosure if you don’t adhere to their terms and conditions.

 in the past two years, there has been huge change in the personal loans market,”

Do I Have the Right to Move to Another Property Despite Equity Release?

The Equity Release Council has also ruled that you can transfer your equity release plan if the new home meets your equity release company’s criteria. Avoid lenders who tell you that they won’t allow this. However, because only certain properties will qualify, moving can be a little more tricky than it would be without equity release products.

Download our FREE equity release guide to get the best advice on the market!

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Are Equity Release Schemes Risky?

Equity release schemes can be risky as it’s a big financial commitment, whether a lifetime mortgage or a home reversion plan. Therefore, it’s essential that you seek specialist equity release advice from a whole market financial adviser before making any concrete decisions. The equity release adviser will do a full risk analysis to help you determine if you should proceed with an equity release plan.

Interesting Read: Is Equity Release a Good Idea?

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Common Questions

Who Are The Equity Release Council?

Who Is The Best Equity Release Plan Provider?

Whom Should I turn to For Equity Release Advice?

Conclusion

Now that you know what to look out for when it comes to avoiding illegitimate equity release companies, you can find the perfect lender for your lifetime mortgage or home reversion scheme with a lot more confidence. Furthermore, get your family members involved as they can help you through the process.

Are you wondering how much tax-free cash might be tied into your estate? Try our FREE equity release calculator right now to get an accurate estimate of the maximum equity you could be eligible to unlock!

How Much Can You Release?

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Equity Release Companies To Avoid

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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
  1. Homebuyers, Liquidity Constraints and Private Market Solutions – European Best Practices
    2019 Intereconomics Volume: 54, Issue: 1, pp 53-58 DOI: 10.1007/S10272-019-0792-5
    Michael Voigtländer
    Institut der deutschen Wirtschaft 12345
  2. Risk and Equity Release Mortgages in the UK
    2020 Journal of Real Estate Finance and Economics pp 1-24 DOI: 10.1007/S11146-020-09793-2
    Tripti Sharma 1,Declan French 2,Donal McKillop 2
    1 University College Cork ,2 Queen’s University 12
  3. ‘Living Poor to Die Rich’? Or ‘Spending the Kids’ Inheritance’? Attitudes to Assets and Inheritance in Later Life
    2006 Journal of Social Policy Volume: 35, Issue: 2, pp 175-192 DOI: 10.1017/S0047279405009475
    Karen Rowlingson
    University of Bath 12
  4. Overcoming obstacles to equity release
    2007 Housing, Care and Support Volume: 10, Issue: 1, pp 18-22 DOI: 10.1108/14608790200700004
    Rachel Terry ,Richard Gibson
    Joseph Rowntree Foundation 1
  5. Attitudes towards housing equity release strategies among older home owners: A European comparison
    2021 Journal of Housing and The Built Environment pp 1-20 DOI: 10.1007/S10901-021-09823-2
    Joris Hoekstra ,Kees Dol
    Delft University of Technology 12
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Equity Release Companies To Avoid

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Jason Stubbs
Equity Release Expert

Jason Stubbs Is a Specialist in the Equity Release Sector. He Enjoys Helping Older People Who Are Struggling Financially Get Out From Under Financial Pressure.

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Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Mortgage Expert

Mark Patterson is a well-known expert in mortgages. He has been working as an expert for over 15 years, and he specializes in the UK mortgage market.
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Katherine Read
Consumer Affairs Writer

She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date

Nicola Date
Writer & Journalist

Nicola is a financial writer for EveryInvestor and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.