Why it’s vital to get professional Equity Release advice

12th August 2015

Kevin Woods talks about early repayment charges (ERCs) and why it's important to get the right equity release advice

In 2015, Nigel Waterson, the then Chairman of the Equity Release Council, was 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 Financial Conduct Authority (formerly Financial Services Authority) since 2004 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 Safe Home Income Plans) 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 (ERC) 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 pass away or moves into long term care, and that there is no ERC involved when customers move into long term care or passes away.

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 the ways highlighted on this website.

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Equity release will reduce the value of your estate and may also affect your entitlement to means-tested benefits. You should always think carefully before securing a loan against your home.

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A lifetime mortgage is the most popular form of equity release, and is a loan secured against your home that’s typically repaid when you pass away or go into long-term care.