When it comes to releasing equity tied up into your home, it’s vital to use a trusted company to avoid being taken advantage of.
With equity release being regulated, there are definite signs that a lender is legitimate. Luckily for you, we are here to guide you on which equity release companies to avoid in 2021.
4 Questions to Help You Identify Which Equity Release Companies to Avoid
In the past, equity release has had a bad reputation as many dubious lenders would take advantage of elderly folks, providing dodgy plans with high interest rates.
Since 1991, the Equity Release Council has regulated equity release, implementing strict laws that protect the consumer.
Here are the 4 questions to ask, helping you avoid the wrong equity release providers:
1. Are they registered with FCA and a member of the ERC?
TAKE NOTE: You MUST avoid all lenders who are not members of the Equity Release Council.
Suppose a company claiming to provide equity release schemes is not registered with the Financial Conduct Authority (FCA) and isn’t a member of the Equity Release Council. In that case, it implies that they are not regulated.
Equity Release Council members must offer plans with:
- A ‘no negative equity guarantee’.
- Fixed or capped interest rates.
- The right to remain living on your property for the rest of your life.
- The right to move to another property.
- Reasonable interest rates, in line with industry standards.
- An early settlement fee structure.
You will not be protected if you borrow from an unregulated lender, and you’re at risk of being duped into buying a product for which you have no recourse.
2. Are they upfront with expected costs?
There are some costs involved when releasing equity from your home that you need to be aware of.
Working with an experienced lender means that they will be fully upfront with all the costs involved, having no hidden terms and conditions.
If your lender is unclear about the costs involved, you would be better off finding an alternative provider that you can trust.
3. Are there reasonable early repayment charges?
Life doesn’t always go as planned, meaning you might end up being in a position, for whatever reason, where you need to forfeit your equity release plan before you die or move into permanent care.
In such cases, there will be early repayment charges.
That being said, members of the Equity Release Council will have a reasonable and competitive early settlement fee structure.
Be sure to inquire about this with your financial adviser.
4. Are they offering loans before knowing your circumstances?
If a company offers you a loan, before even looking into your details and property valuation, avoid them at all costs!
If it seems too good to be true, it might just be!
Equity release is a process that takes 4 – 8 weeks that involves legal representation, and a detailed property valuation. Any company that offers an instant cash injection with no groundwork is not a legitimate equity release lender.
Got Questions About Which Companies to Avoid? Check These Out First!
What is a 'No Negative Equity Guarantee'?
The ‘no negative equity guarantee’ protects you so that you don’t pay more than you owe to the equity release provider. However, when your lifetime mortgage plan comes to an end, the lender will sell your house and settle the loan amount plus any interest. When does your plan end? When you pass away, or you go under residential care.
Any remaining proceeds will be offered to your heirs. However, if the estate market value decreases and the money can’t repay your mortgage, the lender won’t request more cash from your estate or heirs. Since you’ll be protected by the ‘no negative equity guarantee’, they aren’t legalised to do so. Therefore, consider the equity release firm that will offer you this protection.
Who regulates the Equity Release Providers?
Legitimate equity release providers are regulated by the Equity Release Council.
Will the providers give me a breakdown of costs?
Any legitimate provider will give you a full breakdown of ALL the costs involved with equity release.
Can I pay out just the interest off of my loan?
While you are not obligated to do so, you can make monthly interest repayments on your loan to reduce the amount owed when you pass away or move into permanent care. You can ask your financial adviser for guidance on this process.
If equity release is done correctly, it can be an incredible way to give you a cash injection while still being able to live in your precious family home.
However, you MUST work with a trusted financial adviser and select a lender that is a member of the Equity Release Council.
Now that you know which companies to avoid, it’s time to look at the best equity release providers in 2021. Perhaps one of these lenders has a plan that is right for you.
In addition, you can use our equity release calculator to find out how much cash is tied up in your home!