Amid concerns around potential harm to consumers, the Financial Conduct Authority (FCA) has warned advisors that it will look at equity release.¹ 

As the UK’s equity release industry does not appear to be showing any signs of slowing down, the news that the financial regulator is concerned about an aspect of the equity release process may have you worried. 

In this article, the EveryInvestor team will explore the reasons for the FCA’s warning, it’s equity release advice strategy, and what financial organisations and advisors can expect going forward.

Our objective is to give you a thorough overview of the FCA’s warning to advisors so you can make informed decisions when it comes to your later-life financial planning.

At EveryInvestor, we are committed to maintaining the highest standards of accuracy and comprehensiveness. 

Our researchers have spent hundreds of hours analysing the latest equity release news, and our editorial team reviews, fact-checks, and updates all content to ensure it remains current, relevant, and undergoes extensive quality checks.

This article was researched and written by a team of financial experts, without the use of AI assistance.

Continue reading to learn more about the FCA’s warning to equity release advisors.

Who Is the FCA?

The Financial Conduct Authority (FCA) is a regulatory body in the UK, overseeing the financial markets to ensure fairness and transparency.

They are guardians of the financial marketplace, protecting consumers, upholding integrity, and promoting competition.

Their role is pivotal in equity release, as they regulate lenders and advisers, ensuring safe and ethical financial practices.

This is crucial for those over 55 considering equity release, as it guarantees a layer of protection and standards.

What Does the Term ‘Equity Release Loans’ Mean?

Equity release is a fiscal strategy for those aged 55 and older, enabling them to liquidate a portion of their home’s equity.

It is a practical solution for accessing funds whilst retaining home ownership.

Through either a lifetime mortgage or a home reversion scheme, homeowners can convert their home equity into cash, with repayment terms usually linked to their estate or home sale.

What Are the FCA Warnings for Equity Release Advisers?

The FCA has issued several warnings to equity release advisors to ensure compliance with regulations and to protect consumers.

These warnings are aimed at preventing misleading or unsuitable advice, promoting transparency, and safeguarding the interests of individuals considering equity release as a financial option.

It is crucial for advisors to fully understand the complex nature of equity release products, conduct thorough assessments of client’s circumstances, and provide clear and unbiased recommendations.

Failure to adhere to these warnings can result in serious consequences, including regulatory action and potential harm to consumers.

Equity release advisors must be well-versed in the specific regulations set forth by the FCA to avoid any potential pitfalls.

The FCA has emphasised the importance of advisors providing accurate and comprehensive information to clients, including the risks and costs associated with equity release.

Advisers should also ensure that their advice aligns with the needs and objectives of each client, taking into account their financial circumstances and long-term goals.

By staying up-to-date with FCA guidelines, keeping clients fully informed, and acting in their best interests, equity release advisors can navigate this regulated market successfully and provide valuable advice to those considering this financial option.

Why is the FCA Closely Monitoring the Equity Release and Lifetime Mortgage Advice Market?

The FCA is closely monitoring the equity release and lifetime mortgage advice market because of concerns regarding the quality of advice being provided to customers.

This market has grown rapidly in recent years, with more consumers looking to unlock the value in their homes to fund their retirement or other financial needs. 

Because of this, there is a higher chance of mis-selling and possible harm to customers. 

The FCA aims to ensure consumers receive suitable advice, which includes a clear understanding of both the potential risks, such as long-term costs and impact on inheritance, and the benefits of these products.

What Prompted the FCA’s Decision?

The FCA’s decision to closely monitor the equity release and lifetime mortgage market was prompted by several factors. 

These factors include:

• Significant growth in the market, which raises concerns about the quality of advice being offered and the need for proper risk assessment.
• Instances of mis-selling or unsuitable advice reported by customers and industry stakeholders.⁴
• Apprehension about a lack of competition could lead to consumers being provided with limited product choices.⁵
• The complexity of equity release products, may not be fully understood by consumers or advisors.⁶
• Potential conflicts of interest, as some advisors may be incentivised to recommend certain products.⁷

In a 2020 review titled ‘The equity release sales and advice process: key findings’, the FCA noted that the advice being offered to equity release customers needed to be improved because it could lead to financial harm to the customer.⁸

Examples of poor advice included:

• Not sufficiently accounting for the borrower’s age, stage of life and their related financial needs.
• Only using the Key Facts Illustration (KFI), a mandatory document that outlines the features, costs, and risks of an equity release plan, on a Mortgage Offer to point out the long-term costs and implications of equity release.
• Recommending equity release for debt consolidation when it is not necessary, such as when the debt has only a short period left to run or the interest rate is too low to warrant debt consolidation.
• Recommending that one of the joint owners be removed from the title deeds because they are not old enough to qualify for equity release, without explaining the long-term implications.

What Are the Highlights of the Financial Conduct Authority’s Equity Release Advice Strategy?

The highlights of the FCA’s equity release advice strategy include:

• Ensuring that financial organisations and advisors provide clear and accurate information to clients about equity release and lifetime mortgages, including a fair and prominent indication of relevant risks and benefits.
• Ensuring that advisors are taking into account the individual circumstances and needs of clients before making recommendations.
• Make sure that advisors are recommending products that are right for the client and their situation. 
• Ensuring that advisors are adequately disclosing any charges associated with the products being recommended.

It is crucial for financial organisations and advisors to treat customers fairly and consider their information needs, in compliance with the FCA’s Principles for Business.

What Can Financial Organisations and Advisers Expect?

Financial organisations and advisors can expect the FCA to closely monitor their practices when it comes to equity release and lifetime mortgage advice. 

This was reiterated in the FCA’s ‘Business Plan 2022/23’, where the regulator followed up on it’s earlier findings.⁹

The FCA may carry out spot checks or full audits as part of it’s ongoing efforts to ensure that regulatory standards are met and consumers receive accurate, fair advice. 

Financial organisations and advisors who fail to meet these standards may face regulatory action.

Advisers should establish robust systems and controls to manage the risks associated with providing equity release advice, ensuring fair outcomes for consumers

Can You Trust Equity Release Advice?

Yes, you can trust equity release advice from qualified advisors who provide suitable recommendations. 

The FCA’s warning highlights potential issues in the market, but it does not imply that all advice in this sector is untrustworthy. 

How Should I Approach Seeking Advice?

Consumers should still seek advice from qualified and regulated advisors, as this can help them make informed decisions about their financial options. 

Nonetheless, conducting thorough research, verifying the advisor’s credentials and regulatory status, and examining independent reviews are necessary steps for ensuring unbiased, high-quality advice.

It is also recommended to request a clear explanation of fees and charges and to seek a second opinion if uncertain about any suggestions.

What Do I Need to Know About the Risks and Benefits of Equity Release? 

Whilst equity release can offer financial freedom, it is important to consider the associated risks. 

For instance, compound interest may accumulate, increasing your debt, and interest rates on lifetime mortgages may be higher than those on conventional mortgages. 

Alternatively, benefits include the ability to access a tax-free lump sum without having to move, and no monthly repayments are required on lifetime mortgages.

Common Questions

In Conclusion

The FCA’s warning to equity release advisors in the UK should serve as a crucial reminder of the importance of providing high-quality, unbiased advice to consumers seeking to access the value in their homes. 

As the market continues to grow, it is paramount that the industry upholds rigorous standards to protect consumers from potential mis-selling and ensure they are fully informed of the risks and benefits associated with equity release products. 

Consumers need to be diligent in their research and engage with qualified, regulated advisors to make the best financial decisions for their circumstances. 

The FCA warned equity release advisors that maintaining trust and transparency within the sector is vital for the long-term success and reputation of the equity release market.

Ultimately, the FCA’s warning to advisors is a demonstration of it’s commitment to maintaining the integrity of the financial system and protecting consumers from potential harm.