Originally known as Safe Home Income Plans (SHIP), the Equity Release Council was relaunched in 2012 and extended its reach from equity release to financial advisers. Its job is to do the following:
- Provide all the information that you might need about equity release and related products
- Safeguard and protect the interests of consumers who are considering equity release, or in the process of releasing equity
- Raise awareness for equity release as a retirement income option
- Represent over 180 member firms and over 500 individual members in the equity release industry, from financial advisers and lenders, to solicitors and surveyors.
How has the Equity Release Council helped consumers?
Equity release is much safer now thanks to a number of policies introduced by the Equity Release Council.
Guaranteed right to stay in your property
Under the Equity Release Council’s rules, both you and your partner have the right to live in your home for as long as you want to - usually for life, or until you move into permanent long-term care. You also have the option of moving, and transferring the equity release plan without paying financial penalties due to various downsizing protections.
There are two main types of equity release product; lifetime mortgages and home reversion schemes. With a lifetime mortgage the money you release is borrowed against the value of your home, and the mortgage (plus interest) is repaid when you die or go into long-term care, usually through the eventual sale of the home. With a home reversion scheme you would have sold your home ‘in advance’ but continue to live there rent-free, and when you no longer live in the property, it will be sold and your provider paid off with the proceeds. Either way, your residency is guaranteed.
What is equity release?
Equity release is when older homeowners decide to free up some of the financial value in their home to allow them tax-free cash to spend on whatever they wish. Some choose to clear an existing mortgage or buy a second home whilst others release the money to spend on helping younger members of their family pay for education, weddings or mortgages of their own.
Consumers can convert the cash they release into a guaranteed lump sum, or a regular income, or a combination of both. The most common ways are lifetime mortgages and home reversion schemes. It’s becoming increasingly common for those who are asset-rich but cash-poor - i.e. they own a valuable property but have a low income - to release equity from their home, giving them greater financial freedom as they get older.
The No Negative Equity Guarantee
With a lifetime mortgage, the UK’s most popular form of equity release, interest is charged on how much you borrow - and the longer you live, the more the compound interest grows. As a result, by taking money out of your property now, a lifetime mortgage may reduce the value of your estate. A lifetime mortgage may also affect your entitlement to means-tested benefits, but an adviser can walk you through the impact of this before you decide to proceed.
The No Negative Equity Guarantee makes sure that the amount of the mortgage, plus any accumulated ,interest, can never be higher than the value of your home. It means that the borrower is protected if there is a downturn in the housing market, the house reduces in value, and the amount of the mortgage is higher than the amount it would sell for at the time of repayment.
The No-Negative-Equity Guarantee ensures that no lifetime mortgage or home reversion debt can be left behind as a liability for your dependents, i.e. those you wanted to benefit from the sale of your home when you die or go into long-term, end-of-life care.
Advice regulated by the Financial Conduct Authority
All advisers and providers for lifetime mortgages and home reversion schemes are regulated by the FCA (Financial Conduct Authority), and there are rules about what providers have to tell you about equity release in their literature.
Nigel Waterson, former chairman of the Equity Release Council, said:
"First and foremost, it is important that you speak with a qualified adviser who belongs to the Equity Release Council. They will be able to provide you with professional guidance and will ensure that you are able to consider all your options.”
Is equity release right for you? Discover how much tax-free cash you could release with the Telegraph’s easy free equity release calculator
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.
The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490.
Information correct at date of publication.