What Happens If Your Equity Release Company Goes Under in 2022?

Do You Know What to Do if Your Equity Release Company Goes Under?
Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui
Are You Thinking About What Would Happen if Your Equity Release Company Were to Go Under? Know Who to Notify if Your Equity Release Advisor Goes Bust & How to Tell if Your Equity Release Company Is Insolvent. Read This So You Don’t Get Caught.

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What happens if your equity release company goes under?

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

One of the most common questions is ‘what happens if my equity release company goes bust’?

Luckily for you, this article will answer your questions about the potential risks of investing in equity release products.

What You’ll Learn in This Article:

    Let’s find out now!

    What Happens if Your Equity Release Lender Stops Trading?

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

    It would be best if you asked your lender what their track record is, and how long they’ve been trading 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 no ‘tie-in clause’2

    And doesn’t state anything about being committed to using their life services or even 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’s stated in your equity release plan, then you need to think carefully before swapping providers, which could end up costing you more than staying put!

    Ensuring Your Safety

    If you’re 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 who is a member of the Equity Release Council3.

    This means that if something happens to them – for example,

    They go bust or get 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 law4.

    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 don’t make the mistake of signing up to a company that doesn’t have this license.

    Suppose you’re worried about losing your home.

    In that case, there’s no need because most equity release products allow borrowers to terminate their agreements before they’ve 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

    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’s 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 get out of.

    Don’t sign up with a lender who doesn’t have this crucial protection!

    Before You Keep Reading….

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    4 Options for Homeowners When the Lender Goes Bust

    If the lender does happen to close down, there are still options open for homeowners- here’s what would happen:

    • The lender would have to give you back your ‘loan repayments’ (the money that’s been taken out of your home).
    • If the value of your house has gone up, they need 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.
    • All promises made by the lender must be honored even if they close down. Any disputes should go through an independent arbitrator who can ensure fairness on both sides.
    • Finally, if the company does go bust, 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.

    Alternatively, you can look at equity release alternatives to try to find 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’s 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 out 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 them to become 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’ll 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 you’re ready for residential care.

    Common Questions

    Who Do I Need to Notify if My Equity Release Advisor Has Gone Bankrupt or Ceased Trading?

    What Happens to the Property That Was Released When Your Company Goes Bust?

    How Can I Tell if My Equity Release Company Is Insolvent?

    If the Worst Happens, What Are the Steps That Can Be Taken to Make It Easier For My Family Members and Me?

    What Happens if I Can't Find a New Lender to Cover the Cost of Managing My Property's Lease Agreement?

    In Conclusion

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

    However, it’s 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’ll have less worry about what happens if your equity release company goes under.

    Before You Go…

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