Equity Release loans offer the over-55s the opportunity to unlock the money tied up in their home or financial retirement planning, either as an additional income source or as a lump sum to pay for any emergencies.
Unfortunately, there are some equity release scams out there that people need to be wary of, that often target the vulnerability of some in this age group.
What Is the Main Equity Release Scam to Look Out For?
Equity release scams are popular on social media. They target customers to gather their data, which is then sold onto telesales agents who will often sell unsuitable plans to vulnerable people.
Equity release scams are used to collect data on customers, that can be sold to telesales agents who will aim to tie customers into unfair deals. They’re avoidable if you know what to look for.
Continue reading to get the full details about Equity Release scams and how you need to be careful.
- – What is Equity Release?
- – How Does Equity Release work?
- – Pros & cons of Equity Release
- – What age do you qualify for Equity Release?
We update all our guides regularly. If you are researching Equity Release and we haven’t got an exact guide that helps you, keep coming back as we update daily.
How Safe Is an Equity Release Loan?
If you take out an equity release loan with a reputable, well-known lender then it is perfectly safe. It will be processed professionally, handled appropriately and as long as you’re aware of the financial implications of the loan on your own finances and your estate, won’t be something you need to be concerned about.
The problem is that there are many out there who want to take advantage of people and can do so through equity release scams.
These usually take the form of a false price comparison website. These websites target people through clever social media advertising or manipulation of online search to make sure they’re easy to find, and they promise fantastic (and often unrealistic) offers on equity release loans.
According to the Equity Release Council 37,000+ people used Equity Release schemes in 2018, releasing over £3.06bn from their properties.
Equity Release and the Collection of Customers’ Data
However, they are usually merely a front to collect customers’ data, including email addresses and most frequently phones numbers. As soon as they have this info, they will sell it on to a third party that can them bombard the customer with marketing to the point of almost harassment.
The scam doesn’t stop there, as these third parties may be telesales companies that will trick customers into signing up for a “free” quote with no-obligation, that actually has various hidden charges tied into it. Customers may end up signing up to an equity release deal that is completely unsuitable, or they may just be conned out of a large amount of money with no actual return at all.
How to Avoid Equity Release Scams
You should always make sure that the equity release lender, or the comparison site you’re using, is legitimate. You can double-check any Equity Release lenders or advisers on the Financial Conduct Authority register at register.fca.org.uk. With comparison sites, make sure to search online for customer reviews before you enter your personal details.
Also, it’s important you check the terms of your loan before you sign anything. Any reputable lender will encourage you to take your time and to speak with your family, before making a final decision. This will help you check you’re getting a fair deal from a trusted organisation.
The easiest way to make sure you avoid equity release scams is to do your research, which is where we can help. Keep reading our guides to equity release loans and you’ll have a full understanding of what to expect.
What Is a Lifetime Mortgage?
A lifetime mortgage is a form of equity release available to those over 50 years of age. While individual lifetime mortgage companies will have a different minimum age, they tend to be the reserve of older homeowners. In basic terms, a lifetime mortgage offers the opportunity to release equity from your property often with no repayments until you move into full-time care or pass away.
Will I Need to Make Any Payments for a Lifetime Mortgage?
Historically there has been some controversy regarding the structure of lifetime mortgages. There are no monthly repayments with interest rolled up and paid off at the end of the term – together with the capital.
You will tend to find that the interest rate on a lifetime mortgage is higher than a traditional mortgage but, as the sector becomes more competitive, there are hopes that the downward pressure on rates will continue.
What Is a Home Reversion Scheme?
When looking at a home reversion scheme, you need to do your research and take financial advice. In essence, you are selling part of your property to a home reversion company in exchange for an upfront payment.
The controversy begins with the rates paid by home reversion companies. For example, if you are selling 50% of a £200,000 property then in market terms this would be worth £100,000.
However, a home reversion company will only pay between 10% and 50% of the market rate. So they could pay as little as £10,000 for a share of your property worth £100,000 in the market.
Why Don’t Home Reversion Schemes Pay Market Value for Property Investments?
There are three main factors to consider when looking at home reversion schemes and the below-market-rate they will pay for a share of your home. Firstly, their investment could be tied up for anything between 10 and 50 years.
Secondly, the original homeowner will live rent-free in the property until they move into full-time care/pass away, and the property is sold. Thirdly, there is no guarantee of long-term capital appreciation with the property in question – although the property has been one of the steadier long-term investments in recent years.
Should I Take Advice About Equity Release?
It is vital that you take advice about any form of equity release, especially in the older years. While there is no doubt that the industry is more heavily regulated today than ever, you still need to be fully aware of the specifics relating to lifetime mortgages and home reversion schemes in particular.
There is no excuse for going in “blind”, signing documentation and then claiming that you didn’t know what you were doing. If you have been mis-sold an equity release scheme that is totally different but claiming ignorance further down the line will prevent you from claiming any kind of compensation.
Why Can’t Over 50s Get Traditional Remortgage Funding?
Many people over 50 will struggle to obtain traditional remortgage funding because very often they will see their regular income fall in later years. As a consequence, many will find it difficult to pass the mortgage affordability test, which then pushes them towards lifetime mortgages and home reversion schemes as a way to release equity.
Quick Equity Release FAQs
Home reversion plans are, in essence, a means of selling a share in your property to an investor, in exchange for payment. There are no repayments, with the investor receiving their share of proceeds when the property is eventually sold.
The Equity Release Council is the industry body which represents equity release providers, qualified financial advisers, solicitors and intermediaries. Equity release is a growing sector, especially for older homeowners who may have limited access to finance.
You need to be at least 55 years old to apply for equity release in the UK. If you are planning to make a joint application, this applies to both of you.
Equity release drawdown works by giving you the value of your loan as a pot that you can make withdrawals from. You’ll only pay interest on the money you decide to withdraw.
How Can Money Savings Advice Help You With Releasing Equity?
Here at Money Savings Advice, we have partnered with some of the UK’s leading Equity Release brokers. They have already helped thousands of people get the best Equity Release deal and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.