Now that equity release is fully regulated, you are probably wondering what the rules are with equity release?

With regulation and guidance, it is an option for older homeowners.

No wonder over 93,400 new and existing plans were taken out in 2022.¹

If you are wondering, what the regulations are, and who governs the industry, we have done the research for you.

Who Is the Equity Release Council?

Who Is the Equity Release Council?

The Equity Release Council (ERC)² is a non-profit organisation that was formed in 1991 to promote safe products and protect homeowners’ interests.

Who Needs to Abide by Equity Release Council Rules and Standards?

These regulations need to be followed by all registered members.

That includes financial advisers, providers, solicitors, and surveyors.

Why Does the Equity Release Council Help Enforce Regulations?

The Equity Release Council enforces safeguards³ to protect homeowners who unlock cash from their homes.

Before 1991, the industry was fraught with dubious lenders taking advantage of innocent retirees.

Today’s plans are designed to benefit the lender and the homeowner whilst safeguarding customer interests.

What Is the Guidance Set Out by the Equity Release Council?

The main guidelines set out by the Equity Release Council include the ‘no negative equity guarantee,’ homeowners being required to seek advice, and all properties must undergo a detailed and up-to-date valuation.

Further information on the Equity Release Council categories:

Annual Certificate of Compliance

All Council members must submit an Annual Certificate of Compliance with all the regulations on the anniversary of their admittance as members.⁴

You can ask your lender to view their certificate.

Accepting Business

Members of the equity release provider network are only able to accept applications for products from firms or their designated representatives.

They must be authorised and regulated in the UK by the Financial Conduct Authority (FCA).⁵

Advisers must have an appropriate equity release qualification⁶ and must be authorised to advise customers on products.

All these ensure that your lender is legitimate.

The Sales Process

According to the Council, you must be recommended by a financial adviser before unlocking equity, and they must be declared sound of mind or have a power of attorney present.⁷

You will also need advice if you:

• Want to increase the amount you have borrowed with a lifetime mortgage contract.
• Want to review your loan commitment on which advice was previously given.
• You are considering an increase in the share of ownership to be sold under a home reversion plan.

Furthermore, whilst you can ask for suggestions from your adviser, you must be the one to choose your attorney.

Finally, it is the adviser’s responsibility to inform you of all benefits and drawbacks before committing to the process.

Some of the drawbacks include:

• Impacting your eligibility for means-tested benefits.
• Affecting the inheritance amount you plan to leave to your heirs.
• Early Repayment Charges should you wish to settle your loan early.
• Additional fees for setting up and making changes to your loan.

Product Standards

The Equity Release Council states that products must include:⁸

• Their definition of long-term care.
• The customer’s right to move to a new property by transferring their plan.
• Either fixed or capped interest rates. The annual interest rate starts from 6.05% (AER)*. You can see what the latest equity release rates are here.
• The ‘no negative equity guarantee’ and how it applies.
• Details stating that the valuation must be done by someone who is a current member of the Royal Institution of Chartered Surveyors (RICS)⁹ and registered under the RICS Valuer Registration Scheme (RICS VRS).¹⁰

*Whilst we regularly review our rates, these may have changed since our last update.

Certificate of Compliance with Product Standards

With new products or changes to existing ones, a Certificate of Compliance with the Product Standards must be completed and submitted to the Equity Release Council.

This ensures that all member's plans are compliant.

Once you have released equity, a rule states that you must be provided with an annual account statement.¹¹

This statement must include details of early repayment charges, when they cease to apply, and the circumstances under which they will not apply.

Plans with a Drawdown Facility

Throughout the drawdown process, the Council endeavours to guarantee that you are aware of your provider's embedded financial crime, exposure, data, and capacity policies, whilst always adhering to responsible lending standards.

The drawdown procedure must follow their policy for personally sensitive information, telling you how this will be recorded, used, stored, and shared.

Your provider is also required to tell you about any potential future liabilities under the taxation and welfare benefits systems.

Checklist for Adviser

The Council requires advisers to use the Checklist for Adviser.

This provides professional financial advisers with materials and tools that they may utilise to help them control and develop their businesses.

The Council ensures that the customer receives an equity release advice a written record of their advice and recommendation, known as ‘The Suitability Report.’¹³

The Council also feels the client must acknowledge receipt and acceptance of the Suitability Report.

Independent Legal Advice

You must be fully informed of your continuing obligations under the contract.

Any financial advice or comments about the product’s suitability should not be included in the legal advice given.

There must be evidence that complete legal advice has been received and that at least one face-to-face meeting between the client and solicitor took place.

Before an equity release contract may be completed, the advising solicitor’s certificate, which both parties must always sign, ensures that the advice was given in person.

A certificate verifies that the client was advised about all risks by the broker prior to signing up for a plan.

Compliance

The ERC can only look into complaints against firms that were members of the ERC (or its predecessor SHIP) when the alleged breach occurred.

Members of the ERC should have an opportunity to fully respond to claims before the Council considers them and make amends where feasible.

• Complaints concerning a lifetime mortgage or home reversion plan - Generally are addressed to the firm that provided the service.
• Advice given during the scheme’s sale - Also generally addressed to the firm that provided the service.
• An issue with legal or surveyor advice or service - Addressed with the professional firm involved. If no resolution can be reached, the relevant regulatory body will address the issue, depending on the type of business being complained about.

Use of the Equity Release Council’s Logo

It is entirely up to each member whether or not they wish to display the Council’s logo on their literature and websites.

The Council is naturally concerned that non-members do not attempt to impersonate members.

Membership of the Council should allow the member to demonstrate compliance with a broader range of Council standards than the non-member.

The Council logo could serve as a “Kite-Mark”¹⁴ for consumers to recognise that they are dealing with a member.

Members' Subscription

The Equity Release Council members must pay an annual subscription.

The only exception is if the Council’s board wavers all or any part of the subscription or fees, or any arrears thereof, due from a member.        

Fees and Charges

Several fees can be incurred throughout the life cycle of an equity release product.

The Council has produced a consumer-facing document to outline the many changes that customers may face during the product’s lifecycle.

The interest rate charged on money released under lifetime mortgage plans will include the initial advance and any further borrowing.

This is usually included in the loan amount as ongoing repayments are not expected under plans.

A personalised illustration will be provided to each customer during the consultation process that details the interest rate.

Who Are the Financial Conduct Authority (FCA)?

The Financial Conduct Authority (FCA) is a financial regulatory organisation in the UK that is funded through collecting fees from members of the financial services sector.

It is governed by the UK Government's HM Treasury department.

They regulate the industry in the UK alongside the Equity Release Council who supervises it's members.

Property Title Deeds and Equity Release

How things work with property title deeds and equity release depends on the plan you unlock.

You will still be the title deed holder if you choose a lifetime mortgage because you retain property ownership.

However, the title deeds will be handed over to the lender if you opt for a home reversion scheme.

Equity Release and Long-term Care

When it comes to equity release and long-term care, your plan will come to an end when you need to move to a permanent care home.

At this time, your property will usually be sold, and the profits will be used to repay the loan before the balance goes to you or your beneficiaries.

Death and Equity Release

The rule about death and equity release is that a plan automatically comes to an end when the last homeowner passes away.

If one partner passes away in a joint plan, the other will still retain access to the property, and the plan will remain in place.

Common Questions

In Conclusion

Now that you have had a detailed glimpse of the regulations enforced by the FCA and Equity Release Council, you can see why it is essential to unlock cash from a member thereof.

It is a good idea if done carefully, with all the appropriate advice.

By working with an ERC member, you can rest assured that they will be following the equity release rules.