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

Avoid becoming a fraud statistic by using a trusted equity release plan provider!

More than 16,500 UK retirees released equity from their homes in 2021. If you’re looking to join them, you must ensure you know which equity release firms are on top and which ones to avoid.

We’ll guide you in discovering:

  • The signs that indicate an equity release plan provider is regulated.
  • The red flags to look out for, to avoid illegitimate lenders.
  • Why it’s so important to release equity through a regulated plan provider.

While the equity release industry is the safest it’s ever been, there are still risks to be aware of. Luckily, we’ve carried out an in-depth analysis of the industry, looked at over 220 plans, and discovered all the details you need to know about releasing equity from a legitimate lender in 2021.

What’s Equity Release?

Equity release refers to the use of financial arrangements to help homeowners release cash tied up in their property, while allowing them to remain living in their home.

Learn More: What Is Equity Release?

How Does Equity Release Work?

Simply put, equity release is a UK product that allows you to unlock the cash tied into your home, with no payments required in your lifetime. Instead, the loan, plus interest, is repaid from the sale of your home when you pass away or move into permanent care.

Learn More: How Does Equity Release Work?

What are Types of Equity Release?

There are two equity release options available to you. A lifetime mortgage is a mortgage secured on your property (provided it’s your main residence), while retaining ownership, while a home reversion is where you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, but you have to agree to maintain and insure it.

Best and Worst Equity Release Companies

What’s an Equity Release Company?

An equity release company is a provider that offers equity release & lifetime mortgage plans. Later-life mortgage providers, banks, and building societies are the most likely lenders of equity release products.

What are the Pros & Cons of Equity Release?

The main pro of equity release is that you can gain access to tax-free cash. The main con of equity release is that the money you unlock will need to be paid off with interest.

Advantages

Equity release is rapidly growing in popularity due to the number of benefits that it provides.

  • Tax-free cash – Any money released with an equity release plan is tax-free and can be used for anything you want. You can receive a lump sum, a regular income to support your pension, or withdraw smaller lump sums as and when you need them.
  • No monthly repayments – No monthly repayments are required throughout the full term of the loan. Everything is paid off in full when your property is sold after you pass away or move into a permanent care facility. However, if you do have the ability to make repayments, there are plans that allow for this. The benefit of making monthly repayments is that the amount you will end up paying back in interest will be reduced.
  • You can stay in your home – Some people think that the only way of releasing a large sum of money from your property is to downsize. This is a good option if you don’t mind moving, but you may not want to leave the family home or to have the stress of moving house later on in life. With equity release, you could be able to release the money that you need and stay living in the property. 
  • Fixed interest rates – The interest rate on most lifetime mortgage plans is fixed throughout the entire term of the loan, so you’ll know exactly how much you will owe at the end of the term. 

Disadvantages

  • Reduce the value of your property – this means that if you take out an equity release loan, your loved ones could receive a smaller inheritance compared to if your home had been sold on the open market.
  • Loss of ownership – with a home reversion plan, your home is either all or partially owned by a home reversion company.
  • Reduced means-tested benefits – if you take out an equity release loan.

Equity Release Companies to Avoid

Make sure that you avoid any equity release companies that are not members of the Equity Release Council (ERC).

Before 1991, the equity release market was riddled with scandal as dubious lenders took advantage of UK’s elderly homeowners, some being left with crippling debt.

What’s changed?

The Equity Release Council was formed to regulate the market and protect consumers releasing equity from their homes.

Some of the rules set out by the ERC include:

  • Capped or fixed interest rates – All plans need to have fixed or capped interest rates, limiting the amount of interest that can accumulate.
  • The right to remain in your property for life – Plan holders have the right to stay in their homes until they pass away or move into permanent care.
  • The right to move to another property – Homeowners can relocate and transfer their plan to another home, as long as it meets the lender’s criteria.
  • No negative equity guarantee – This ensures that your family never owes more than the sale value of your home, when you die or are transferred to long-term care – even if property prices fall.
  • Reasonable interest rates – Plans must have reasonable interest rates that are in line with industry standards.
  • Reasonable early settlement fees – At the onset, you must be made aware of an early settlement fee structure.

Any regulated lender will be upfront about their Equity Release Council membership, which might even be visible on their website.

Members of the Equity Release Council will need to abide by this set of rules to protect the consumer and are, therefore, the best equity release companies to approach. Furthermore, if you opt for one of the best equity release companies out there, you’re bound to find top deals, great interest rates, and exceptional customer service.

Discover Now: The Best Equity Release Companies Available in Dec 2021

Are Equity Release Schemes Risky?

The Financial Conduct Authority (FCA) now controls equity release companies. This means you can claim compensation if you sold an unsuitable product. 

Equity release is an option for people who need money immediately and don’t have the time or resources to save up. However, it’s important that you do your research before making this choice so you don’t end up signing up to a poor-value contract with high fees – especially as there are risks involved!

Learn More: Is Equity Release Risky?

What are the Alternatives to Equity Release?

The most common equity release alternative is to sell assets to raise money.

Other equity release alternatives include:

  • Downsizing to a smaller house which is cheaper to maintain than your current house. As well as saving on maintenance costs, you would also raise money through selling your current property
  • Remortgaging your current property or modifying the current mortgage. This could help you save money without having to borrow more
  • Changing your budget. This could stop you spending money without needing to 
  • Using private pensions instead of equity release.

Learn More: What Are the Alternatives to Equity Release?

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

If done right, equity release can be a life-changing financial product for you and your family. By releasing equity from your home, you can have the means to stay put and live out your days stress-free.

Just ensure that you don’t get caught out by an illegitimate provider. The best way to stay safe is to check your chosen provider is a member of the Equity Release Council.

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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.
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    2019 Intereconomics Volume: 54, Issue: 1, pp 53-58 DOI: 10.1007/S10272-019-0792-5
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    Institut der deutschen Wirtschaft 12345
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    Tripti Sharma 1,Declan French 2,Donal McKillop 2
    1 University College Cork ,2 Queen’s University 12
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    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
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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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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.