How Safe is Equity Release?
A. Equity release schemes have undergone a revolution since their early
impact in the 1960′s. There has undoubtedly been much negative press on
some of the poorly devised products from the past such as Shared
Appreciation Mortgages (SAM’s) and Home Income Plans.
However, since regulation started on equity release schemes in 2004, the
market has been cleaning up its act & developed much more compliant
financial products with consumer protection built-in.
All equity release schemes now come under the remit of the Financial
Conduct Authority (FCA) and the industry trade body – the Equity Release
Council (ERC). Both lay down rules and guidelines for both home equity
providers and equity release advisers to follow including a code of conduct.
Must I Take Equity Release Advice?
A. Equity release companies will not accept a lifetime mortgage or home
reversion application without the customer receiving professional advice
from a qualified equity release adviser. This protects the providers in
ensuring the product being recommended is best advice for their
customers needs.
Equity release cannot be taken on an execution only basis, unlike some
financial products due to the risks and the age group involved.
Therefore, those who wish to conduct their own home equity research must
still seek a financial adviser authorised in equity release to transact
their business.
What are the Equity Release Set Up Costs?
A. In order to set up an equity release scheme, there are fundamental
set of procedures that must be adhered to in order to ensure the legal
process is complied with. The equity release set up costs are borne from
four sets of individual charges or fees that can be levied either from
the outset or paid upon completion, once the equity has been released.
The initial charge is the valuation fee, which is usually charged on
application. and paid by cheque or debit card. The standard cost for a
valuation varies between providers and is usually based on the estimated
value of the property. For guidance purposes, a £200,000 property
valuation with an Aviva application would normally cost £220.
The next charge to apply would be the application fee charged by the
lender for setting up the application. Once again, this can vary between
lenders but can be anywhere from £0 (Partnership) upto £995 (Hodge
Retirement Mortgage Plan).
Involved in any equity release mortgage would be the legal work. This is
represented on both sides of the equation; the lenders solicitor & the
clients own solicitor. The client now is usually only charged for their
own legal practitioner. However, legal costs can vary. By using a member
of ERSA (Equity Release Solicitors Alliance) you can usually obtain
fixed costs at £395 + VAT & disbursements. Using a local solicitor,
inexperienced in equity release could cause both delays and additional
costs over & above an ERSA member.
Finally, as you will be using the professional services of an equity
release adviser, they will usually charge for the advice provided & the
processing of your application through to completion. Fees can vary
significantly from £595 upto £1495. A word of caution though would be to
always shop around to negotiate on fees, particularly those of your
financial adviser as a sensible fee would be in the region of £795 with
no VAT.
What is the SHIP Code of Conduct?
A. SHIP (Safe Home Income Plans) was the forerunner to the now rebranded
Equity Release Council (ERC), headed by Nigel Waterson. SHIP was formed
in 1991 to provide the start of the regulation of the home equity
market. This new Equity Release Council trade body aims to promote to
virtues of lifetime mortgages and home reversion plans further & has now
opened up its membership to accept advisers, solicitors and relevant
trade associations.
The Equity Release Council code of conduct lies in the following four
principles:-
- No negative equity guarantee – all equity release providers must
include a ‘no negative equity guarantee’ in the products the offer.
This will protected the balance of the mortgage ever getting larger
than the property value itself. - Lifetime tenancy – under both lifetime mortgages & home reversions all lenders must offer a lifetime tenancy arrangement. This ensures
the occupant can never be forced out of their home under normal
circumstances. - Choice of solicitor – two solicitors must be involved in the home
equity loan process; one for the lender & the client can choose
their own. Therefore, they must receive separate legal advice from
the lender under SHIP/ERC rules. - Portability – the lender must include a portability option which
allows the customer to transfer their equity release loan to another
qualifying property, should they decide to move home in the future.
How Long Should An Equity Release Application Take?
A. The time taken for a home equity loan application will depend on
several factors; the type of equity release mortgage you have applied
for, the lender concerned & the practicing solicitor.
The main determinant to speed is whether a lifetime mortgage or home
reversion is being applied for. A lifetime mortgage should take between
6-8 weeks to process, whilst a home reversion will take longer on
average between 8-10 weeks, due to the extra legal work involved in the
transfer of ownership.
To link the whole application process together lies with the choice of
solicitor. Using an experienced equity release solicitor who is a member
of the Equity Release Solicitors Alliance (ERSA) would help speed up
matters as they process multiple applications on a daily basis.
Where Can I Find The Best Equity Release Deals?
A. The best equity release deals are never the same for everyone. The
reason being everyone needs different retirement solutions. Therefore,
the right equity release for one person, may not be the right equity
release plan for another.
By undergoing the FCA factfind process with a specialist adviser will
uncover your needs & a plan can then be made with your own individual
recommendation. Once the features required are established, then
research can commence.
The main consideration will be to find the best equity release interest
rate in conjunction with the plan attributes necessary to fulfill one’s
immediate & future needs. The best lifetime mortgage interest rates are
now sub 6% and represent some of the lowest rates in their history. With
these interest rates being fixed for life, now would be an opportune
time to consolidate your rate at today’s lowest levels.
Further Information On Home Equity Loans
The Financial Conduct Authority produces free booklets and fact sheets
on the subject of equity release schemes.
A useful guide to equity release can be found here – Money Advice
Service – Free Guide to Equity Release Schemes
These are home equity loans and reversion plans. To understand the risks involved, please request your personalised illustration from your equity release adviser.