What are the core product standards set by the Equity Release Council?
THE core product standards set by the Equity Release Council aim to ensure that equity release products are safe, transparent, and beneficial for consumers.
Below we hear more about these standards from Kelly Melville-Kelly, Director of Risk, Policy & Compliance at the Equity Release Council.
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“The Equity Release Council’s standards have been part of our products for a very long time and many people probably don’t even realise that these are in addition to regulations set by the Financial Conduct Authority.”
“These standards are designed to protect homeowners who choose to unlock the value of their property by setting guidelines for product providers.”
Tenure for life
“The first product standard to highlight is tenure for life. This simply means that anyone who takes out an equity release plan actually has the ability to stay in their home for the rest of their life or until they move into long term care.”
“This is providing the property remains your main residence and you abide by the terms and conditions of your contract.”
No negative equity guarantee
“Secondly, all products come with a no negative equity guarantee which means that the customer will never pay back any more than what their home is worth when it is sold.”
“In the unlikely event that the value of your house has decreased significantly, it is possible that it might not be worth enough to cover the amount which you owe. The no negative equity guarantee means that if this turns out to be the case, the remainder of the loan would be written off.”
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Fixed or capped rates
“Another standard for Lifetime Mortgages is fixed rates or capped rates. Fixed rates simply mean that the interest rate on products will remain constant throughout the entire term of the loan and do not change with market fluctuations.”
“This can offer reassurance to the customer as they will know exactly how much interest they will owe at the end of their loan term.”
“Although there aren’t many capped rates in the market at the moment, these have an interest rate ceiling set. This means that while the interest rate may fluctuate with market conditions, it cannot exceed a predetermined maximum limit.”
“This provides borrowers with the assurance that their interest rate—and consequently, the amount they owe—will not surpass a certain threshold, even if market rates rise significantly.”
Right to move
“Every customer has the ability to move home subject to lending criteria and the property they are moving to must meet the regulations set by their equity release lender.”
“Some lenders are more flexible than others, but this is something your advisor can discuss with you when you take out your plan, or when you’re planning on moving. The property must be worth at least £70,000 and generally must be in a good state of repair.”
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Overpayments
“The last feature I want to address we only introduced two years ago, and it is an important one, as it really distinguishes between old school equity release plans and the modern equity release, we see today.
“This is the ability for people to make overpayments, typically up to 10%, but some lenders allow even more. This enables customers to service some or all the interest, and even pay down some of the original loan.
“It’s worth knowing there are certain limits and early repayment charges may apply above a set value. However, a typical equity release customer could reduce their interest by £50,000 over 20 years, by paying £100 a month.
“One of the benefits of equity release is the customer can stop and start these payments, without penalty.”
Independent legal advice
“Although independent legal advice is not a product standard, it is an extremely important part of the process and one that underpins our standards.
“All equity release customers must meet with a suitably qualified legal professional, usually a solicitor, before the plan can go ahead.
“The solicitor will carefully go through the implications of the plan and ensure the customer understands everything.”
Could equity release be right for me?
Advice is required before releasing equity, and your advisor will help you consider your options and talk you through everything you need to know.
It could be that downsizing could be a better way to raise the funds you need for example.
They will also explain the potential risks and impact it will have on your entitlement to means tested benefits now or in the future.
Equity release may involve either a home reversion plan or a lifetime mortgage, which is secured against your property and will reduce the value of your estate and impact funding long-term care.
Any money released, plus accrued interest would be repaid upon death, or moving into long-term care.
Equity release requires repaying any existing mortgage.
Through Age Partnership, initial advice is provided for free and without obligation.
Only if your case completes would an advice fee of £1,895 be payable. Other lender and solicitor fees may apply.
Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Registered address, 2200 Century Way, Thorpe Park, Leeds, LS15 8ZB.