Why it’s vital to get professional Equity Release advice

12th August 2015

Kevin Woods puts the record straight on recent dialogue about early repayment charges (ERCs)

Nigel Waterson, the Chairman of the Equity Release Council, was recently moved to comment on some “misleading” reports about early repayment charges on equity release products. Let me summarise what he said for you here.

Waterson firstly stressed the tight controls on the sale of equity release products, which have been regulated by the FCA (formerly FSA) since 2004/5 and remain one of the most tightly regulated financial services in the UK. Indeed, prior to this in 1991, members of the Equity Release Council (formerly SHIP) established a set of practices and safeguards to ensure that their customers received accurate, fair and comprehensive advice.

Waterson went on to describe the specific situations in which early repayment charges were payable. He firstly emphasised that lifetime mortgages are designed as long term commitments between the customer and provider, which have no fixed end date and typically remain in place until the customer passes away or moves into permanent care, and that there is no ERC involved when customers move into long term care.

The only circumstance in which an ERC may be required is if customers want to repay some or the entire amount they borrowed before that point. This is because the provider also has to pay a cost to exit the arrangements that were set up to fund the loan. This is the same principle as exists for fixed rate, fixed-term residential mortgages.

He stressed that ERCs are clearly documented during the advice process so that customers can see whether a charge may apply, when this is applied, how it is calculated and the maximum amount in money terms that it could amount to.

If you have any questions about the subject matter of this blog, or would like more information on any equity release related point, please do not hesitate to contact me in any of ways highlighted on this website.

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