Equity Release Ethics in 2022

How Ethics Relates to Equity Release & Is There a Need?
Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui
The Equity Release Market Has Grown Exponentially in Recent Years. Is There a Need for Ethics in This Rapidly Growing Industry? Let’s Find Out…

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Equity release ethics are a set of moral principles that govern the behavior or particular activity of service providers in the equity release sector.

The equity release market is growing fast and we can’t help but notice that some of the stigma present in the previous decades are still there.

Today, we will look into how ethics has a central and pivotal role to play in the equity release market and the ongoing changes made to improve standards all-around.

Let’s find out now!

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Ethical Considerations & the Equity Release Market

Equity release options sometimes have a higher cost when compared to other schemes.

However, in return for the high price tag, equity release gives you greater peace of mind by providing financial security and stability.

It’s all about ethical consideration. Making money is still an integral part of any business endeavor, but doing it right is what makes it ethical.

Now, equity release providers are well-versed in the needs of consumers, as they make a living by helping them plan for tomorrow!

This market is growing to meet those changing demands and provide suitable options with all sorts of customers looking at it favourably.

Essentially, ethical standards are needed to ensure the safety and sustainability of everyone in this market; ensuring that consumers will not be taken advantage of.

With the need, comes a solution…

Why Was Regulation Introduced?

The Equity Release Council1 was introduced in 1991 as a governing body that protects individuals who release equity from their homes.

PRO TIP: Never use an equity release lender that is not a member of the council.

In 2009, the Financial Conduct Authority (FCA)2 introduced additional regulations to provide protection for consumers and make it clear as to which equity release providers are legitimate.

The new rules dictate that all firms be authorised or registered by the Equity Release Council unless they are a broker acting on behalf of an already registered firm.

In the past, there have been some cases where unscrupulous lenders used pressure tactics to persuade desperate people to take out equity release products,

Which were then unaffordable and could not be repaid without further borrowing.

Poorly understood agreements can lead elderly homeowners into financial hardship as their property increases in value.

At the same time, they lost assets such as savings due to inflation3.

Regulation helps ensure better safeguards against these risks so that people who need equity release are treated with dignity and respect.

In addition, the regulations ensure a high standard of service, the FCA also has some rules:

  • Advertising – strict limitations on what providers may say about regulated mortgage deals when advertising them.
  • Responsibilities – the need for providers to offer these products as part of a full and fair assessment of what customers can afford.
  • Financial Conduct Authority (FCA) supervision – responsible regulation will also allow people with equity release mortgages to access affordable credit if they wish.

The Launch of SHIP

The launch of SHIP (the Single Home-Owners’ Insurance Premium) marks the end of a regime that has blighted homeownership for many people in recent decades.

This is just one way to make sure everyone has an opportunity to own their own home.

As a result, people will buy their own homes with just one affordable monthly payment.

This is good news for those who want to get on the property ladder but have not been able to do so because of sky-high prices and unaffordable mortgage payments.

It’s also worth remembering that mortgages4 are now more likely than ever before to come with hidden fees and increased interest rates, making them difficult or impossible for some people to repay.

That’s why we must look at ways in which equity release could work alongside government schemes like Help To Buy,

Enabling first-time buyers to purchase their properties without getting into debt themselves and putting an unnecessary burden on future generations.

5 Looming Problems on the Horizon

However, the worst thing about this latest revelation is that it’s not an aberration5.

You could argue that it’s just a sign of what we have come to expect from the housing market:

  • A property ladder that locks out many ordinary people.
  • A continual rise in housing prices and rentals in many parts of England making homeownership impossible for most people – especially those in the 18 to 24 age bracket.
  • An acute shortage of affordable homes with a sale price of less than £450,000.
  • The chronic lack of social housing available to the poorest people in society.
  • Restricted access to affordable credit meaning that many cannot afford their mortgages or rent payments should they lose their jobs.

With all these problems persisting,

It’s clear that there needs to be more government investment into building new homes priced at £150,000 and below.

Suppose the government is to succeed in this goal,

They would then need to provide help for building new homes by giving incentives such as reduced VAT6 rates on new builds or reducing business taxes.

In addition, they would also need to provide a guarantee of long-term funding to borrow money more affordably from financial institutions.

Making a Huge Step Forward – the Financial Services and Markets Act

The Financial Services Authority is responsible for regulating the financial services industry in this country.

It was created by The Financial Services and Markets Act of 2000, which merged various elements from several other regulatory authorities, including the Securities and Investments Board (SIB)7.

3 Primary Functions of the Financial Services Authority

  • Supervising firms’ compliance with UK law.
  • Preventing market abuse.
  • Providing consumers with information to protect themselves when shopping around for financial products and services.

It also has a duty to protect consumers from market abuse by ensuring that equity release is safe.

As such, it monitors trading on securities exchanges (including share prices) and takes action against those who may be manipulating prices through insider trading,

So as not to mislead investors about stocks they might wish to buy.

It provides information designed to help consumers make informed decisions about financial products.

It also monitors the safety of banks.

The Financial Conduct Authority took over responsibility from the FSA in 2013 when they had authority on all aspects of regulation,

Including mortgages and personal finance providers – though these responsibilities may be shared with other regulators depending on their field.

Securing Your Rights – Legal Safeguards

The FSA has helped regulate the market and equity release companies by providing a code of conduct outlining the standards that equity release providers are expected to adhere to.

The FSA has also produced guidance for consumers on how these companies should treat them and what their rights are.

This is an essential measure as many people will feel vulnerable when considering equity release or any other financial product.

There are some cases in which elderly clients were not given all relevant information about loans, charges, or tax implications before signing up with a company,

So customers must read through documents thoroughly and get independent advice if necessary.

Instead, lenders are regulated by either the Consumer Credit Act or Bankruptcy Act.

This means that if you have problems with your loan and feel you can’t resolve them directly with your lender – for example,

Because they don’t provide an alternative solution to help make repayments more affordable – then there is a possibility that the Financial Ombudsman Service may be able to assist as well;

But this will depend on what type of insolvency order has been made against your home (if any).

SHIP Update – So What’s New?

The Equity Release Council is a voice for the equity release industry.

The market has grown, and there was an increasing need to have a louder voice to be heard on issues that affect this niche field of finance.

After much debate, it was proposed by SHIP (Secured Home Income Plans) that The Equity Release Council would serve as their new marketing arm with greater trust,

More demand from investors seeking security in today’s uncertain economy, and product innovation still ahead of us all.

This change will propel the council to be more cohesive8, focused, and proactive in its actions.

The Equity Release Council will also continue to grow as a voice for equity release to create a competitive marketplace that is fair on all fronts.

3 Main Functions of the Equity Release Council

The Council’s new activities include:

  • Providing real-world case studies highlighting the benefits of using equity release products.
  • Creating educational materials that provide financial guidance, risk management tools, and information about how families can meet their needs through these types of plans.
  • Working closely with industry professionals so that they can effectively help people understand equity release products and the various options available.

The council is committed to ensuring that all stakeholders – consumers, providers, government regulators, and policymakers – have access to information about how equity release works.

What Does This Mean for Equity Release?

Having ethical standards in equity release which govern the conduct of providers and in turn,

Outline the rights of the regular consumer, makes the industry stronger and safe for everyone to engage in.

The more secure we make the standards for the industry, the further we can ensure its sustainability.

In addition, the more the industry grows, the better rates we all can have, and this, in turn, allows more seniors flexibility in their retirement.

Thanks to equity release, they can now pay off debts like mortgages, credit cards, and loans with assets tied up elsewhere. And all this, without having to dip into any savings.

Common Questions

Is It Ethical to Use Your House for Equity Release?

What Are the Effects of Equity Release on My Family?

How to Make an Ethical Decision When Choosing Equity Release?

How Can I Make Sure That This Decision Does Not Affect Anyone Other Than Me?

In Conclusion

As equity release becomes more and more popular amongst retirees over the age of 55, it’s important to select a firm that is a member of the Equity Release Council.

Despite some pitfalls, the benefits of equity release are vast. It allows you to unlock the cash tied up into your home, giving you a financially free retirement.

Those considering this type of borrowing must seek legal advice before proceeding.

So, make sure you know your rights when securing equity release loans, and always be informed.

Do the research and ensure that you have the best options available and work with service providers who adhere to equity release ethics.

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Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

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