_Equity Release is safer than it’s ever been

I recently wrote an article comparing Lifetime Mortgages with Retirement Interest Only mortgages. Most readers were pleased to have some clarity over the two mortgage types, but a few responses surprised me, claiming that these schemes are not safe and should be avoided! I thought it would be sensible to set the record straight and explain why Lifetime Mortgages, which are a form of Equity Release, are in fact one of the safest products you can buy. In fact, clients thinking about Equity Release can take comfort from the multiple layers of protection now in place to keep them from harm.

Regulatory Protection

Lifetime mortgages fell under the rules of the regulator in 2004, with Home Reversion Plans following closely behind in 2007. One of my jobs between 2009 and 2014, whilst I was part of the Mortgage Market Review team at the FCA, was to make sure the rules read across to Equity Release properly. We now have a regime designed to protect consumers and includes the following;

• Advisers must hold the Equity Release qualification
• Advisers must follow a very strict set of rules around advice (for all you rule nerds, see MCOB 8.5A in the FCA MCOB handbook!)
• Customers can only buy when it is recommended by a qualified adviser who has followed the strict advice process. They can’t buy directly from a provider
• Lenders must follow the responsible lending rules set out by the FCA

Trade Body Protection

The Equity Release Council introduced a new Standards framework on 1st January 2020. Their standards add an extra and very important layer of consumer protection around Lifetime Mortgages, including;

• Interest Rates must be fixed or capped. Most are fixed, and starting at just 2.59% they have become extremely cheap for what could end up being 15 years or more
• Borrowers must have the right to remain in their property for life. This is really important, as it means you can’t be forced out of your home
• Borrowers also have the right to move home. Good news if you’re thinking of downsizing to a more manageable property when your big house gets too much in the future
• The No Negative Equity Guarantee. This means you can never owe more than the value of your home, even if there’s a huge property market crash or you live much longer than expected

Legal Protection

You can choose your own solicitor to carry out the legal work. Before completion, your solicitor will go through the details of your Lifetime Mortgage with you and explain your rights and obligations. You even have to sign a certificate confirming it has all been explained to you.

Industry Protection

Lifetime mortgages have evolved dramatically over the last few years. We now have providers who offer a huge amount of flexibility, which allows borrowers to make their Lifetime Mortgage work for them both now and in the future.  This means borrowers are not unfairly locked in to a product. Some of the more impressive features include;

• Flexible drawdown and over-payment facilities. These allow the borrower to draw some funds when they need them and then pay some back to the lender when they’ve got some surplus funds, all without any additional costs
• Downsizing protection. This allows the borrower to sell, move home and repay the Lifetime Mortgage without incurring a penalty if the new property doesn’t meet the lenders criteria. Alternatively, they could move some or all of the mortgage to their new home

You could argue the Equity Release market is safer today than it has ever been. At Knight Frank Finance we have gone one step further. Our Later Life Finance team give advice on the broadest possible range of property finance products now available to older home owners, not just Equity Release. We want our clients to always have the most appropriate solution for their needs and circumstances both now and in the future. 

Knight Frank Finance is a member of the Equity Release Council. David Forsdyke has 25 years' experience in financial services, including six years with the industry regulator (the Financial Conduct Authority) and two years as a member of the Equity Release Council’s Standards Board. David leads the Later Life Team at Knight Frank Finance. For more information, visit our Borrowing into Retirement page.