When it comes to finances, people are often faced with difficult decisions. One of those difficult decisions is how to pay off debt, and one way that many people choose is equity release. Equity release can be an excellent option for someone who wants the freedom to enjoy their life without worrying about payments on a home or other assets. However, there are some ethical considerations about this decision to consider before you request equity release. We’ll explore these ethics in detail in this blog post!
The Evolution of Equity Release’s Ethics
Equity release has changed significantly in the last few years. Ethical considerations have also increased with more regulation and a new service called SHIP to help with the decision-making process.
The Financial Conduct Authority (FCA1) introduced a new set of rules called “Compulsory Guidance” in July 2015, which has made it more difficult to get equity release plans approved by providers and lenders. This was due to the FCA’s concern that people were unaware about what they would be signing up for when applying for these plans – precisely how much their loans might increase after taking out an equity release plan and whether or not they will lose their home if they die on a payment holiday without paying off all their debts before death.
Some Ethical Considerations
It would be best if you got financial advice before making any decisions about equity release. Your local Citizens Advice Bureau can provide details of one in your area or contact the Financial Services Ombudsman for advice on what an impartial expert would recommend.
Those considering this type of loan should take into account the following ethical considerations:
- What happens if they can’t pay off their debts before death?
- How much control do they have over how large a loan they take out?
- Can this decision be reviewed or amended at any point in time?
- How long will it take for the loan to be paid back?
- What is the effect on other people, such as family members who might inherit an older person’s property after paying for care costs following a period when that older person lived with dementia and couldn’t look after themselves?
- Did I take the appropriate equity release advice? Am I aware of all the features of the plan I’m going to take?
The Equity Release Council
This is where the ERC (Equity Release Council2) comes into play.
The ERC is a regulator that oversees the distribution of equity release products. They have been set up to ensure that providers meet specific standards on their equity release scheme and do not take advantage of consumers in any way, shape, or form. They also set an unprecedented standard in the financial services industry by introducing the no negative equity guarantee.
I want to highlight the importance of ethics in equity release with this example: Imagine there was no regulation at all on how people had to handle their affairs when they were old and dying- many unscrupulous companies would be able to charge extortionate rates for loans just because it’s so easy then. The article also highlights some ethical concerns about taking out debt later in life – should we question whether it would be better if people kept assets until death? What role can regulation play in addressing these issues?
Regulation seems like an excellent idea in this context because it stops unscrupulous providers from being able to take advantage of people when they’re old and vulnerable.
For example, there are often rules about how much you can borrow for equity release each year – so that if the investment stock market has a bad day, your retirement fund might not be wiped out altogether and save your investment and your money.
The other thing I want to mention is regulation around what type of assets you have got left as well- some companies won’t lend against certain things like pensions or savings accounts. This means less risk for them! So despite everything else I’ve said here- having an ethical code still matters.
The ERC was founded in 1992, and it is the regulatory body for equity release. The ERC does not regulate all providers – only those that trade in residential property.
The other thing to mention is that certain types of mortgages are exempt from any regulation, like interest-only mortgages or some bridging loans.
In terms of what you can borrow – there’s a limit on how much you could get each year if this were your first loan, but after two years, they often double this amount so long as things are going well. You also have a right to carry over unused borrowing limits from one period to the next should you need them. And remember these rules apply separately per lifetime, so even if someone has already borrowed £100k before today, they can borrow another £100k now.
Finally, the ERC requires that you make sufficient provision for your funeral and other dependents if applicable.
Yes, equity release is regulated. The Equity Release Council sets the rules and regulations of how equity release should work.
It’s important to remember that these are set separately per lifetime, so if you have already borrowed £100k before today, you can borrow another £100k now. And there is a limit on lending as well.
If you take equity release, it will be a significant change in your life and your family. You should only consider this if there is no other viable option for the future.
You will have to pay for the equity release yourself and not your family. This may well be worth it to provide a better future for your children or loved ones.
Yes. You can change your mind and decide against taking equity release at any point in time, with no penalty to pay. The same applies if you cancel the equity release later down the line for whatever reason – there are no penalties or charges involved.
The ethics of equity release have changed significantly. Equity release is still a valuable way for those with equity in their property to borrow money, but they must consider the ethical implications and understand what rules are required by law.
Investment in equity release is only worthwhile if you are sure of your decision. This is not just a decision that can be made on the spur of the moment because it may have long-lasting consequences. As a consumer, it’s essential to speak with an equity release adviser to make sure you are certain before taking any steps towards releasing equity from your property.