Important changes to improve equity release

The Equity Release Council (ERC) has recently announced updates to its list of product standards as well as a wider review of consumer safeguards.

Here, Which? explains what it could mean for you if you're thinking about equity release and if there any issues to consider.

What is changing with equity release?

On 15 February  2024, the ERC unveiled some initial updates to its standards, with a wider refresh planned for later in 2024.

The first round of updates took effect on 1 March 2024 and included two changes to increase product flexibility and consumer choice in later life.  

Firstly, new standards for mandatory payment lifetime mortgages have been developed to offer customers enhanced protections and additional peace of mind. 

These broadly mirror the core product standards (more on these below). There are slight differences around remaining in the property (as long as mandatory payments are made), arrears plus arrears interest being liable outside of the ‘no negative equity guarantee’ and the right to make voluntary penalty-free payments only being available once the mandatory payment period has ended. 

A lifetime mortgage is the most popular type of equity release. You take out a loan against your property, which is repaid from the proceeds when it is sold. 

In addition, the standards now include the requirement for advisers to cover income and expenditure as part of the advice process. This brings discussions about equity release into line with other similar product options. 

If you take out an equity release product recommended by HUB Financial Solutions, Which? will earn a commission to help fund our not-for-profit mission 

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What are the ERC’s current product standards?

The ERC has put together certain standards and principles since 1991, which are designed to safeguard customers. Products provided by members of the ERC currently have to meet the following standards:

• For lifetime mortgages the rate must be fixed for each release or, if variable, the rate must be capped for the life of the loan.
• You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence, and you abide by the terms and conditions of your contract.
• You have the right to move to another property subject to the new property being acceptable to your lender as continuing security for your equity release loan.
• The product must have a 'no negative equity guarantee'. This means that when your property is sold and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan, neither you nor your estate will be liable to pay any more.
• All customers taking out new plans which meet the Equity Release Council standards must have the right to make penalty-free payments, subject to lending criteria.

As the representative trade body for the UK equity release sector, the ERC has more than 750 member firms and 1,800 individuals registered, including providers, funders, regulated financial advisers, solicitors, surveyors and other professionals.

Equity release issues to consider

Starting with a company that is a member of the Equity Release Council is a good idea. There are other key considerations to weigh up before you choose a provider. 

Taking out equity release can prove useful if you have value tied up in your property but are worried about having enough to live on in retirement or to cover care costs. The money could also be used for home improvements or helping out relatives. With equity release, there is no obligation to make any repayments, although some products allow you to do so.

There are potential downsides to equity release. Not making any repayments on your loan will mean you end up paying far more than you’ve borrowed due to the compounding of interest. This could mean the value of your property is wiped out entirely.

You’ll need to discuss taking out equity release with your family first. Using equity release will often reduce the size of your estate and the amount you’ll be able to leave behind for loved ones as the lender is repaid before the rest is divided among beneficiaries.

• Find out more: what is equity release and how does it work?

Take financial advice  

Before arranging a lifetime mortgage, you'll need to obtain regulated advice from a qualified equity release adviser. This is a requirement of the Financial Conduct Authority.

Providers selling equity release must therefore offer advice. The Equity Release Council has a directory of financial advisers with equity release experience. 

Your chosen adviser should be a specialist in equity release and hold one of the following approved qualifications:

• CeRER (Certificate in Regulated Equity Release) – awarded by the Institute of Financial Services (IFS).
• CER (Certificate in Equity Release) – awarded by the Chartered Insurance Institute (CII).
• ERMAPC (Equity Release Mortgage Advice & Practice Certificate) – awarded by the Chartered Institute of Bankers in Scotland. The ERMAPC was discontinued a few years ago but may still be held by some advisers.

It’s preferable to have an adviser who isn't restricted to recommending products from just one or two firms.

Brokers of equity release products such as HUB Financial Solutions, Age Partnership and Key Later Life Finance can look across the whole market to find the product that meets your specific requirements. 

Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665  and is an Introducer Appointed Representative (FRN 610689) of the following:

1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance, who are authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd. 

2. LifeSearch Partners Limited (FRN656479), for the introduction of Pure Protection Contracts and Private Health Insurance, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts and Private Health Insurance Contracts.  LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386.

3. HUB Financial Solutions, for the introduction of equity release advice, who are authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide advice and guidance on financial products for those who have retired or are approaching retirement (FCA Firm Reference Number: 455713). HUB Financial Solutions is registered in England and Wales to Enterprise House, Bancroft Road, Reigate, Surrey RH12 7RP, company number 05125701.

4. Alan Boswell Insurance Brokers Ltd (FRN 301), for the introduction of non-investment landlord insurances, who are authorised and regulated by the Financial Conduct Authority to provide advice and arrange insurance contracts. Alan Boswell insurance brokers Ltd is registered in England at Prospect House, Rouen Rd, Norwich NR1 1RE, company number 02591252.

Other financial services:

Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ. London & Country are authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

We do not make, nor do we seek to make, any recommendations or personalised advice on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and, if you choose to, you can buy a product from our commercial partners. 

If you go ahead and buy a product using our link, we will receive a commission to help fund our not-for-profit mission and our campaigns work as a champion for the UK consumer. Please note that a link alone does not constitute an endorsement by Which?.