Equity Release Companies to Avoid
Equity Release Companies to Avoid
Without this crucial knowledge on equity release firms to avoid in 2022, you may find yourself tied into an equity release plan that you’ll regret!
While equity release solutions are safer than ever, unregulated lenders will only assist you take a step back rather than unlocking the key to your retirement aspirations.
Fortunately, we’re here to guide you through your first step towards equity release.
Through this article, you’ll learn:
- What to look out for in an equity release company.
- What’s an equity release company?
- How to spot a regulated company.
EveryInvestor’s staff is dedicated to assisting retirees in pursuiting financial independence.
As a result, our research team has spent many hours discovering the unmistakable signals of equity release firms to avoid.
Here’s what we’ve found!
Before You Start Reading….
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What’s Equity Release?
Equity release is a loan for over 55s against the value of your estate while still having the option to live on the property for the rest of your life.
What’s an Equity Release Company?
An equity release company is a lender that offers equity release plans.
The most common lenders of equity release mortgage products are later-life mortgage providers, banks, and building societies.
What to Avoid in an Equity Release Company?
You must avoid equity release companies that are unregulated and lack important features set out by the Equity Release Council1.
Here’s more information:
Not a Member of the Equity Release Council
The Equity Release Council will approve & register leading companies in the UK that offer equity release advice and schemes.
Not Authorised & Regulated by the Financial Conduct Authority.
If you’re using an equity release company, it’s crucial you ensure they’re authorised and regulated by the financial conduct authority 2.
This is because
All equity release companies need to adhere to strict regulations and need to be authorised to be classified as legitimate and safe providers.
No Downsizing Clause
Ensure your chosen equity release company has a downsizing clause as it allows clients to pay back your equity release early if you relocate, without suffering any early repayment penalty.
No Voluntary Interest Payments
All equity release companies should provide voluntary interest repayments.
This clause was added to the ERC’s code of conduct for new plans as of 31 March 2022.
No No-Negative Equity Guarantee
All schemes that comply with the Equity Release Council’s product standards must have a no negative equity guarantee.
This ensures that neither you nor your estate will ever owe more than the property is worth when it’s sold.
No Capped or Fixed Interest Rates
Uncapped or unfixed interest rates may cause you to owe more money than intended after your loan.
This is why all equity release providers must have interest rates that are set at the outset and don’t need to be renewed; as they are fixed for life.
Alternatively, they must be a cap.
Fixed equity release interest rates are established initially & don’t need to be updated, regardless of the length of the mortgage.
Capped interest rates may fluctuate, but only to a set point.
High Early Repayment Charges
You may be eligible for an early repayment charge if you end your equity release loan before it’s specified in your contract.
These shouldn’t be more than 3% to 5% of the total equity release loan amount.
No Prior Assessment of Your Circumstances
All equity release advisors are required to assess all of your circumstances when you apply for equity release.
It’s a lengthy process, and there are several factors such as your age, health, and special conditions that determine what equity release scheme is best for you.
This is why
You should insist that your equity release company takes the time to properly examine your situation and work closely with a financial adviser.
Never trust a lender that is willing to instantly deposit money into your account.
No Right to Move to Another Property
You should be able to move whenever you choose under any equity release plan approved by the Equity Release Council.
In such cases, you can port your plan if the new home is approved by your lender.
Who Are the Equity Release Council?
The Equity Release Council is a governing body that oversees, regulates, and protects the equity release market.
The council was formed in 1991 to combat bad practices within the industry.
Who Is The Best Equity Release Plan Provider?
You are in the best hands with any provider who’s a member of the Equity Release Council.
Big names include Aviva and Legal & General, but the best provider for you will depend on your individual needs.
Whom Should I turn to For Equity Release Advice?
When starting your equity release journey, you should get in touch with an independent financial adviser.
Look for a whole market adviser who has a strong understanding of the equity release landscape.
If you’re approaching retirement age, you should consider equity release, as it can be beneficial if you require the means to supplement your income.
With these key signs of companies to avoid, you can do so with confidence.
However, equity release products aren’t the only available option, so always review all the alternatives and consult a financial advisor before making any final decisions.
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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.