Equity Release Rules
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Now that equity release is fully regulated, you’re probably wondering what the rules are with equity release?
The regulation of equity release is great news! It makes it a fantastic financial project for retirees.
No wonder 20,352 new and returning homeowners unlocked equity between April and June 2021.
If you’re wondering, what the rules and regulations are, and who governs the industry, we have done the research for you.
What You’ll Learn in This Article:
At SovereignBoss, we’re here to help you unlock equity with total confidence. Therefore, we’re here to bring you simple and up-to-date facts.
Let’s take a detailed look!
Who Are the Equity Release Council?
Who Needs to Abide by Equity release council rules & guidance?
The equity release rules and regulations need to be followed by all registered and member financial advisers, equity release providers, solicitors, and surveyors.
Why Does the Equity Release Council Enforce Rules & Regulations?
The Equity Release Council enforces rules and regulations² to protect homeowners who unlock cash from their homes.
Before 1991, the equity release industry was fraught with dubious lenders taking advantage of innocent retirees.
Today’s plans are designed to benefit the lender and the homeowner.
What Are the Rules & Guidance Set Out by the Equity Release Council?
The main rules set out by the Equity Release Council include the ‘no negative equity guarantee,’ homeowners being required to seek equity release advice,
And all properties must undergo a detailed and up-to-date valuation.
Here’s further information on the Equity Release Council rules & guidance categories:
Annual Certificate of Compliance
All Council members must submit an Annual Certificate of Compliance with all the Rules & Guidelines on the anniversary of their admittance as members.
You can ask your lender to view their certificate.
Members of the Equity Release Provider network are only able to accept applications for equity release products from firms or their designated representatives.
They must be licensed and regulated by the Financial Conduct Authority (FCA)³,
Have advisers with an appropriate equity release qualification, and are authorised to advise customers on Equity Release 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.
You’ll also need advice if you want to increase the amount you’ve borrowed with a lifetime mortgage contract, review loan commitment on which advice was previously given,
Or you’re considering an increase in the share of ownership to be sold under a home reversion plan.
Furthermore, while you can ask for suggestions from your adviser, you must be the one to choose your attorney.
Finally, it’s the adviser’s responsibility to inform you of all equity release benefits and drawbacks before committing to the process.
The Equity Release Council states that equity release products must include:
- 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. View the most current rates here.
- The ‘no negative equity guarantee’ and how it applies.
- Details stating that the valuation must be done by someone who’s is a current member of the Royal Institution of Chartered Surveyors (RICS)⁴ and registered under the RICS Valuer Registration Scheme (RICS VRS)⁵.
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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 Council,
So you can ensure that the plan you select is compliant, but all members’ plans should be.
Once you’ve released equity, the rules state that you must be provided with an annual account statement.
Including 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 endeavors to guarantee that you’re aware of your firm’s embedded financial crime, exposure, data, and capacity policies, while 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 firm is also required to tell you about any potential future liabilities under the taxation and welfare benefits systems.
Checklist for Adviser
The Council states that advisers are required to use the Checklist for Advisers,
Which is intended to provide professional financial advisers with materials and tools that they may utilise to help them control and develop their businesses.
The Council feels that it is better to give a client seeking equity release advice a written record of their advice and recommendation, known as ‘The Suitability Report.’
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 equity release contract.
Any financial advice or comments about the product’s suitability should not be included in the legal advice given.
Therefore, the rules are designed to ensure that there is always clear evidence that complete legal advice has been received, and at least one face-to-face meeting between the client and a 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.
The certificate verifies that the Advising Solicician advised the client about the risks of signing up for an equity release product.
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 Council’s Logo
While 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 when this is not the case.
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” for consumers to recognise dealing with a member.
The Equity Release Council members must pay a subscription to remain annual members,
Unless the Equity Release Council’s board wavers all or any part of the subscription or fees, or any arrears thereof due from a member.
Fees & Charges
Several fees can be incurred throughout the life cycle of an equity release product.
The Equity Release 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 equity release 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)⁶ is a financial regulatory organisation in the United Kingdom that operates independently of the UK government and is funded through collecting fees from members of the financial services sector.
They work alongside the Equity Release Council to regulate the industry.
Now that you’ve had a detailed glimpse of the rules and regulations enforced by the Equity Release Council, you can see why it’s essential to unlock cash from a member of the Council.
Equity release is a good idea if done carefully, with all the appropriate advice.
Working with an equity release provider that’s a member of the Equity Release Council protects your interest.
You can rest assured knowing that they are following the equity release rules.
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