Has the government legislated on equity release schemes?


Equity release schemes are commercial arrangements whereby older home-owners can benefit from the cash locked up in the value of their home, whilst continuing to live in the property.  The home-owner may receive a tax-free lump sum, or a guaranteed monthly income, or a combination of these payments, in order to help with large purchases or a pension income shortfall. Equity release may also decrease the value of an estate for inheritance tax purposes. There are two main types of equity release scheme.

A lifetime mortgage is a loan where the interest is rolled-up with the capital, so that you don’t have to pay anything back until the scheme ends, usually on death. However, because the interest rate is compounded, the final amount owed can be much higher than the original amount borrowed, especially if you enjoy a long life.

A home reversion is a scheme where you sell all or part of the value of your home to a reversion company and, in effect, become a tenant of the property. You will pay little or no rent, but you will remain responsible for the upkeep and repairs to the property. When you die or move into long-term care, the property will be sold and the company will take all the proceeds or the part of the proceeds that they are owed.

SHIP (Safe Home Income Plans) came into being in 1994 and produced strict guidelines for its members to follow. SHIP can fine or expel members who break their code of conduct. Equity release schemes are now regulated by the FSA (Financial Services Authority).

The FSA regulations include:

  • Equity release advisors must demonstrate their competency by passing accredited examinations
  • Advisors are monitored continually, and must comply with professional development rules to keep their knowledge current
  • Financial advisors must issue their terms of business and disclose how they are paid, before they can give the client advice; and they must document  their fact-finding about the client’s needs
  • If there is a claim for miss-selling, the client may have recourse to the Financial Services Compensation Scheme and the Financial Ombudsman Service
  • Equity release companies must be authorised, and are regulated to conduct their business. There are fines and possible disqualification for firms that break the rules
  • Equity release companies must ensure that their advertisements are not misleading, and all adverts must carry risk warnings

If you would like to obtain legal advice on equity release, Contact Law can put you in touch with a local specialist equity release solicitor free of charge. So, if you have any questions or would like our help in finding local equity release solicitors please call us on 0800 1777 162 or complete the web-form above.

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