Business

Avoiding the pitfalls of equity release

'If an equity release salesman’s job is to sell an equity release plan, and they are only compensated if they sell one, the motivation isn’t there to be unbiased.'
'If an equity release salesman’s job is to sell an equity release plan, and they are only compensated if they sell one, the motivation isn’t there to be unbiased.' 'If an equity release salesman’s job is to sell an equity release plan, and they are only compensated if they sell one, the motivation isn’t there to be unbiased.'

‘EQUITY Release’ is one of those magical terms steeped in the probability of getting it badly wrong. It is a £4bn per year market now.

Equity release, home reversion, or lifetime mortgages revolve around releasing ‘equity’ from your home to spend/live on or even gift away.

For many years, equity release salesmen who were not independent sold plans designed to benefit the company rather than the individual.

That individual was often the most vulnerable.

During Covid lockdown, those same vulnerable people have been on the receiving end of ‘very nice people’ taking their credit card details over the phone, taking money, and returning with another scam to protect them against fraud, and defrauding them again.

Be very alert in these times because such unscrupulous people can often be… unscrupulous. Its better you put in place the protection you need.

First, never, ever accept an invitation to talk about equity release from someone ‘cold calling you’. Whilst illegal, it will not stop someone whose intention is to be dishonest from calling you, by definition.

If I look at the Financial Ombudsman Service website on equity release, I can see the cause of many of the complaints where people feel they have been disadvantaged, so I will guide you through them and how to protect yourself.

Always involve your solicitor early. They do not have a vested interest.

Use an Independent Financial Advisor who charges you for advice rather than taking an earning from the sale of a product.

Therein lies the motivation. If an equity release salesman’s job is to sell an equity release plan, and they are only compensated if they sell one, the motivation isn’t there to be unbiased. An adviser paid to give advice is not motivated to sell something, and can give the correct advice.

Indeed the Financial Conduct Authority have made it clear they believe that advice to those taking out loans is not ‘up to scratch’.

At the heart of the problem, is the belief there is somehow a magic pot of money in the house. There is not. There is its value, less any borrowing and sale costs, but no magic bank in the ceiling and the value varies significantly, particularly in a market downturn.

There are plenty of positive reasons to look towards releasing ‘equity’, and that should be explored with loved ones present along with the Independent Financial Adviser and solicitor.

The demographics clearly point to a high percentage of these customers being vulnerable, and seeking the plus sides of the product but being blinded or not told about the downsides.

I’ve experienced numerous equity release cases through this column where elderly customers have been told to release equity and keep it in the bank so they can use it later when they needed it. This is of course nonsense as they could have raised that money when they needed to, rather than having interest roll up on the debt in the meantime.

Plenty have not been explained there was an Early Repayment Charge (ERC) and how that would affect them in the event of needing long term care and/or if their partner had passed away or gone into care, and that they now face that ERC.

Firstly, consider, do you really need this money now, or can it wait until later. Do you even ‘need’ it at all? Should you just downsize and bank the cash and live from that, or has been seen; the children buy the house from the parents.

Consider all the relevant options available.

We’ve experienced equity release schemes being offered to people around 50 years of age when they could simply have taken out a remortgage at todays’ very low rates, would have been able to finance themselves through a temporary hole, and then pay that interest back.

Be sure to use a fully qualified Independent Financial Adviser with an expertise in equity release if possible.

If an adviser knows all the right solutions, they will ask all the right questions.

Limited solutions equals limited questions.

Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. For a complimentary life cover audit, call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit www.wwfp.net.