There are a number of risk considerations that need to be taken into account. It is important that you are aware of these.
- If you take out an equity release plan too early in life, you may not have enough value left in your home to move to a property later on
- You may experience problems if you decide to move. Although the majority of lenders allow you to move from one property to another, moving may be difficult if the new property is more expensive than the equity remaining in your current home
- Some properties are not accepted by lender i.e. sheltered housing, as these are typically hard to sell
- Using equity in your home will affect the amount you are able to leave as an inheritance
- Any means tested state benefits (both current and future) may be affected by any equity released
- Taking out an equity release scheme will affect you in the short and long term. You need to be sure you are happy with the scheme now and that it will suit your objectives now and in the future as far as you are able to judge
- Most schemes do not allow you to pay off the loan early. If you decide to repay the loan early, the majority of lenders apply an early repayment charge. Charges for valuation, administration, advice and legal fees may apply
- Your home may be repossessed if you fail to abide by the terms of the contract as detailed within the mortgage offer
- Typically any outstanding mortgage(s) will need to be fully repaid before entering into an equity release contract.
- If any relevant information provided has not been disclosed accurately and honestly, this could result in any offer made, becoming invalid
- Failure to disclose any requested or relevant information may adversely affect any offer made
- It is important that you fully read and understand the terms and conditions of the mortgage prior to going ahead
- Specialist lenders products tend to be less competitive than those generally available
- Equity release can be more expensive when compared to an ordinary residential mortgage
Additional risk considerations relevant to where regular payments are being made
- The payments shown in the Key Facts Illustration provided could be considerably different, and higher, if interest rates change
- In the event that your income falls, you will still have to make your mortgage payments
- Your home may be repossessed if you do not keep up payments on your mortgage
Equity Release Council
The Equity Release Council is the industry body representing the lenders, providers, qualified financial advisers, lawyers, intermediaries and surveyors who work within the equity release sector. It was launched in May 2012 and is dedicated entirely to the protection of plan holders.
Members display the Equity Release Council logo in their brochures and other printed material as a guarantee to their customers.
All participating companies are pledged to observe the Equity Release Council’s Statement of Principles, which puts in place a number of safeguards and guarantees for consumers.
In addition to these Statements of Principles, members voluntarily adopt further safeguards, including:
All of the following standards must be met in order for a company to state that their product meets these standards:
- Interest rates for lifetime mortgages must be fixed or, if they are variable, must be ‘capped’, for the life of the loan
- Providing the property remains your main residence and you adhere to the terms and conditions of your contract, you must have the right to remain in your property for life or until you need to move into long-term care
- You have the right to move to another property subject to the new property being acceptable to your lender / product provider as continuing security for your equity release loan
- The product must have a “no negative equity guarantee”
Independent legal advice
You may choose your own solicitor to carry out the legal work in connection with your plan. Before the plan is completed, your solicitor will be provided with full details of the plan, including the rights and obligations of both you and your lender / product provider under the contract, should you choose to go ahead.
As a further safeguard, your own solicitor, who will oversee the transaction on your behalf, must sign a certificate to acknowledge that the essential features and implications of your chosen Equity Release Plan have been brought to your attention. No Equity Release plan can proceed without a signed certificate.
Information about and explanation of your equity release plan
You will be provided with a fair and simple presentation and explanation of your equity release plan.
You will be given information about:
- All the costs that you will have to bear in setting up the plan
- The tax implications
- What will happen if you wish to move to another property and
- How changes in house values may affect your plan
Updated as of 3rd April 2020