The protections in place to safeguard homeowners using equity release

Increasing numbers of homeowners aged 55 and over are turning to equity release to access a lump sum of tax-free cash. According to figures from The Equity Release Council, the trade body for the industry, more than 23,000 people released money from their homes in the first three months of this year, the highest ever in any quarter.

Equity release, which includes both lifetime mortgages and home reversion plans, allows homeowners aged 55 or over to access some of the money tied up in their property tax-free.

With a lifetime mortgage borrowers get a loan secured on their home – usually up to 56 percent of its value, depending on their age – and they remain the sole owner. Once any outstanding mortgage has been paid, they can enjoy spending the money. They can take the funds all in one go or in stages, depending on the plan they choose.

The money must be repaid from their estate once they die or go in to long-term care – although borrowers can now choose to pay some of the money back before then if they wish, although there could be a charge for this You can request a personalised illustration from your adviser, this will explain all of the features of the plan plus the risks involved.

It is a requirement that anyone taking out equity release must get professional advice from a trained equity release adviser. To ensure that you get the best plan for your individual requirements you should contact an adviser who is a member of the Equity Release Council (ERC), such as Age Partnership.

The adviser will talk you through the different plans available and will only put forward products that meet the ERC’s strict standards.

The industry body has existed since 1991 and its members, which include lenders and brokers, have advised customers on almost 600,000 new equity release plans.

To protect customers, the ERC has put in place a series of safeguards to which any plans sold or recommended by its members must adhere to. The five guarantees set a standard for the industry to follow and should provide a level of reassurance for anyone considering releasing equity from their home.

These standards offer a protection to anyone taking out equity release. Advisors who are members of the ERC are only allowed to tell you that a plan meets these standards if it meets all of them.

  • For lifetime mortgages, interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan.

  • You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract.

  • You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan.

  • The product must have a “no negative equity guarantee”. This means that when your property is sold, and agents and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.

  • All customers taking out new plans which meet the Equity Release Council standards must have the right to make penalty-free payments, subject to lending criteria.

Correct at time of publication. The Express Money Equity Release service is provided by Age Partnership Limited, 2200 Century Way, Thorpe Park, Leeds LS15 8ZB. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Age Partnership Limited is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432 and is trading as Age Partnership. We offer a comprehensive range of equity release products from across the market.