Many people facing retirement and looking for additional finance may have considered equity release. However, many have wondered whether equity release schemes bred consumer confidence and how safe they actually are.
Regulation of the Equity Release Industry
In the equity release market in the United Kingdom, all equity release schemes and products are regulated by the Financial Conduct Authority. The FCA monitors the activities of equity release companies and advisers and ensures that they are abiding by the code of conduct and operating guidelines which were established by the ERC or Equity Release Council. The FCA monitors all transactions and has the power to take action if there has been a breach in the compliance to adhere to these standards.
The Consumer Safeguards in Place
In order to broker or supply an equity release scheme, there are a number of safeguards to which professionals must be aware of and adhere to. These include:
• Any adviser must be suitably qualified: Not every financial adviser has the relevant qualifications needed to advise on equity release schemes. Every single adviser in the equity release industry must have a qualification from one of two exam bodies which ensures that they are allowed to advise on this range of products. The notation of Certs CII (MP & ER) denotes that the adviser has obtained a Certificate in Equity Release from the Chartered Insurance Institute. A notation of CeRER denotes that the adviser has a Certificate in Regulated Equity Release from the Chartered Institute of Financial Services.
• All scheme providers should be a member of the Equity Release Council: The Equity Release Council is a body which was established to focus specifically on this industry. They set the industry guidelines and represent the professionals in the industry including lenders, legal representatives, advisers and any other administrators who are associated with equity release. All companies offering to lend as part of an equity release scheme should be a member and be subjected to the regulations and codes of conduct.
• Solicitors should be familiar with equity release processes: Ideally, the solicitor representing your interests in the equity release process should be a member in the Equity Release Solicitors Alliance. This is an industry body of specialist legal representatives who have been vetted by the ERSA and specialise in equity release conveyancing.
• Financial Ombudsman Scheme Protection: Another confirmation that equity release schemes bred consumer confidence increases, is that there is now protection through the Financial Ombudsman Scheme. As the industry is FCA regulated, all transactions now fall under the remit of the Ombudsman. The Ombudsman has the authority to investigate consumer complaints and can provide compensation of a maximum of £50,000 in cases where poor financial advise has been received.
• Cancellation period: Another protection measure is that there is a cancellation period allowed in any equity release transaction. At any point up to signing the mortgage deed, you can make the decision that you would like to not proceed and cancel the agreement. However, depending on how far in the process you are when you make this decision, you may have already incurred costs which would not be refunded.
Equity Release Advisers
All equity release schemes must be brokered by an equity release adviser. This person is qualified to assist you in assessing the advantages and disadvantage of any scheme. They will supply you with key facts illustrations of the product, show you financial illustrations and explain the implications of taking out a scheme. The adviser will also be able to assist you in finding the best possible deal to suit your circumstances and requirements. While some people may be confident in their internet researching skills, an equity release adviser will have access to products and schemes which are not generally available elsewhere.
Awareness of the Disadvantages of Equity Release
In order to feel truly safe and confident in your decision about equity release, you must be aware and understand the disadvantages of the schemes. The main disadvantage most people consider is that the balance of the loan can take up a great deal of the equity from their home. This will mean that when the home owner has passed away, there may be a small amount or no remaining funds left to pass to the beneficiaries of the estate. However, there are a number of different schemes which can minimise this impact, if this is a concern. You can then be confident that equity release bred consumer confidence legitimately.