You may be wondering what happens if your equity release company goes into liquidation.

As more and more people are considering equity release to fund their retirement, there is been an increased interest in how it works.

This article answers your questions about the potential risks of pursuing equity release products.

Our dedicated equity release team has spent countless hours gathering all the market news and updates that you need. If your are considering releasing equity but are concerned about your lender possibly going bust, we have the answers.

Therefore...

What Is Equity Release?

Equity release is a financial strategy that allows homeowners to access the equity in their homes without needing to sell immediately.

This option is particularly beneficial for individuals aged 50 and above, offering a tailored solution to meet financial needs and align with retirement objectives.

By exploring equity release, homeowners can consider various options, such as equity mortgage loans and house equity release schemes, which enable them to strategically use their property's value.

This approach not only clarifies the concept of equity release but also helps homeowners make informed decisions about their financial futures.

What is a Dissolved Company?

A dissolved company is one that has completed its closure through a legal framework, ensuring that all liabilities are settled and assets are distributed appropriately.

Following this termination, individuals or entities often explore equity release options as part of their financial restructuring efforts.

In the UK, equity release becomes particularly relevant for those assessing property equity to manage any remaining assets.

After dissolution, companies or individuals might investigate equity release mortgages or loans to unlock the value of property assets.

This process aids in reallocating resources by releasing funds from property, serving as a strategic move to liquidate assets efficiently and provide a fresh start or financial relief.

What Happens if Your Equity Release Lender Stops Trading?

Some of equity release's best companies have been trading for many years, but others are newer to the market.

It is best to look into potential lenders and find out about their track record, so you can make an informed decision about which company to go with.

However, if your lender stops trading, there may be no way of recouping your funds.

There may even be clauses¹ in the contract that can see you locked into using them even after they have stopped trading.

To avoid this situation, make sure your equity release agreement has a no 'tie-in clause'.²

Further, ensure that it does not state anything about being committed to using their life services just as long as they trade.

Another thing to keep an eye on is any penalties involved with not completing your mortgage term.

If it is stated in your equity release plan, then you need to think carefully before swapping providers, which could result in costing you more than staying.

Ensuring Your Safety

If you are a homeowner with equity tied up in your property, you must use a licensed lender to release your funds.

You must work with a provider that is a member of the Equity Release Council.³

This means that if something happens to your provider, such as going into liquidation or getting into financial difficulties due to poor management, a prudent investor will bail them out without any impact on customers like yourself.

In other words, you have nothing to worry about because all lenders must provide this protection by law.⁴

It stops borrowers from being stuck with contracts that could otherwise see them locked into using their current providers even after they stop trading.

So, make sure you do not make the mistake of signing up with a company that does not have this license.

Suppose you are are worried about losing your home.

In that case, there is no need because most equity release products allow borrowers to terminate their agreements before they have spent all of their capital if certain significant life events happen – like retirement or terminal illness.

This means that any money left after these circumstances are met will be refunded in full and not just as an annuity⁵ with interest payments for the rest of someone's life.

Securing Your Home

When securing your home, the first thing to do is check the company's license.

If they hold a credit license, then your house will be safe if they go under.

This may seem obvious, but it is not uncommon for unscrupulous companies to take advantage of people in this situation and try to sell them complicated investments that are difficult or impossible to obtain out of.

Do not sign up with a lender that does not have this crucial protection!

4 Options for Homeowners When the Lender Goes Bust

If the lender does happen to close down, there are still options for homeowners.

These include:

1. The lender would have to give you back your 'loan repayments' (the money that has been taken out of your home).
2. If the value of your house has gone up, the lender needs to make sure this is clear in the contract and provide you with a fair valuation⁶ before taking any money for themselves. This will be at least as much as it was worth when they started taking payments from you.
3. All promises made by the lender must be honoured, even if they close down. Any disputes should go through an independent arbitrator who can ensure fairness on both sides.
4. Finally, if the company does go into liquidation, the regulator will make sure you get your money back.

3 Organisations Your Lender Should Be a Member Of

You should always check that the equity release provider is regulated by a reputable body with strict rules on how they treat customers and their money.

This is usually through membership of one of two organisations:

• The Financial Conduct Authority⁷(FCA)
• The Council for Mortgage Lenders⁸ (CML)
• The Equity Release Council

Any regulated lenders will be clear about being a member of the Equity Release Council on their website.

What Happens if Your Equity Release Lender Stops Lending and You Need Additional Funds?

Once your present lender has gone bust, your new lender will continue the plan as is, and it will run until you pass away or move into long-term care.

In other words, the rules stay the same.

You will only be able to borrow additional funds if there is still money available to release from your home.

You can also look at equity release alternatives for additional funds.

What Happens if Your Equity Release Advisor Stops Trading?

Your equity release advisor may stop trading for several reasons.

If this happens, your guarantor will need to take action and find another company to manage the mortgage on their property.

It is worth noting that if you released some funds from an equity release plan, then these would be lost.

However, many lenders have clauses in place to allow someone else to purchase the equity release plan and refund it.

Sometimes, the equity release company may not have enough money to pay out a lifetime mortgage income stream, leading to them becoming insolvent.

The guarantor⁹ will then need to find another equity release adviser who can manage their property's lease agreement with the new lender, or they will need to carry on paying for all of these costs themselves.

This is unlikely, given that most people use an equity release scheme as part of their retirement planning.

In many cases, this would mean having cash available to fund your living expenses until you sell your property at some point in the future when your are ready for residential care.

Common Questions

In Conclusion

The Equity Release Council supervises the equity release industry, so if your company goes into liquidation, your plan will generally be passed on to a new lender.

However, it is always worth checking how much protection is in place when signing up for an equity release deal, and ensuring that any guarantees are 'transferable' or passed on to a new provider.

It may also be worthwhile looking into other ways of securing long-term peace of mind with a pension annuity, rather than relying solely on an equity release plan.

This will provide a safety net, so you will have less worry about what happens if your equity release company goes under.