Tag Archives: Financial Services Authority

How Far Has The Lifetime Mortgage Evolved?

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The concept of lifetime mortgage to release the equity held in one’s property initially started somewhere in the mid of 1960s. It is based on a simple process to use the value of your property without having to move out of it. These schemes were not as popular then, as they are today because they were neither systematic nor regulated, which gave birth to several poorly devised products called Shared Appreciated Mortgages that made it look like a poor product in those times. Even today, we cannot forget the stigma that still lingers on amongst today’s elderly population in 1990s.

The government understood the need of regulating equity release schemes to provide consumer protection after the sad events that happened in 1990s. There was a need to protect the consumer rights which motivated the introduction of Safe Home Income Plan, abbreviated as SHIP. It laid down certain voluntary measures to be followed by the institutions offering these lifetime mortgage schemes to get their schemes included under the scope and definition of SHIP. Ship has now been superseded by the Equity Release Council (ERC) which lays down the precedents by which all equity release firms & advisers must adhere to.

These new equity release schemes that meet the ERC criteria have to leave the consumer with the right to repay the loan at anytime which secured against the mortgage of the property, if they want, although against some early repayment charges may be levied. It is even mentioned at www.equityrelease2go.com that all the lifetime mortgage plans must have the inclusion of no negative equity guarantee, so that the consumers need not worry about the liabilities stretching beyond the value of the property. With the increasing flexibility and portability, the consumers even got the rights to move to a houses freely and either transfer the equity release scheme or repay it.

All these schemes are today regulated under the guidelines laid down by FSA as well as Equity Release Council. In 2004, the Financial Services Authority fully regulated these schemes as well as the institutions offering these schemes so as to guard the interest of consumers at large all across UK.

Home reversion plans were merged with lifetime mortgages under the guidance of FSA in 2007. Today, these schemes offer greater flexibility to the consumers, enhanced plans for people suffering from several health ailments as well as the options of only paying interests through the interest only lifetime mortgage plan.

Lifetime mortgage schemes have evolved today as one of best products available, in the right place, at the right time to enhance the lifestyle of people even beyond the age of 55.

What can I spend the proceeds of an Equity Release on?

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Equity release is a way of turning the value tied into your home into cash. It is becoming increasingly popular today and more and more people want to use this option to use some of their home equity to generate additional income during retirement. There are many equity release plans available from several different providers.

Retirement is known as the golden period of life, when one is finally free to do what one wants. But ironically, it is during retirement that cash flow can be a problem and this can limit one’s freedom in so many ways. A pension is generally the main source of income during retirement, which may not always be enough to maintain a comfortable lifestyle. This is why more and more homeowners are considering equity release plans as a way to supplementing their income.

Some people have enough income to support their day to day life, but the problem arises when there is a relatively big one-off expense that needs to be made. This could be anything from home improvement work, to a dream holiday! The released equity can be taken in regular monthly installments or as a lump sum and one off expenses is another reason why people consider releasing equity from their home.

There is absolutely no restriction on what you can use the money for. The proceeds you get from equity release plans are tax free and could be used for a variety of purposes, depending on personal needs. Some common uses of equity release proceeds are home improvement works, buying a new car, investing in a second property or paying for care in your home. Another common use is to gift money to children and family or as supplementary income.

Equity release plans are many and varied. As the concept caught on and became popular, more providers entered the market and equity release schemes became flexible. Increased competition among providers has resulted in a customer-friendly market, with favourable interest rates and better terms of contract. Equity release schemes are now fully regulated by the FSA (Financial Services Authority) which was not always been the case.

Equity release plans can be a good way to generate usable cash from the equity built on your property without selling the house. Obviously, equity release does have some potential risks and disadvantages, and is not for everyone. To understand more about how equity release works and whether it’s right for you, seek the advice of an independent financial expert.

Are Equity Release Schemes protected?

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Equity release schemes have come a long way since they were first introduced in the market. Equity release plans proved to be a very popular concept, and it is their popularity that paved the way for new, improved and more flexible options. Equity release mortgages today are also better regulated when compared with older mortgages.

The popularity of equity release is due to a very real need in society. Living costs have gone up considerably, as have property prices. In this light, pensioners who own homes, but not have enough cash flow can find equity release to be a good solution. It allows homeowners to increase their income during retirement, without the need to sell the property and move into a different place.

The Financial Services Authority (FSA) is a body that regulates financial services and products. The FSA aims to maintain transparency and fairness in communication related to financial services, including advice issued to customers. It also aims to eradicate financial wrongdoing. Equity release schemes and mortgages today are completely regulated by the FSA. Equity release customers can seek support and protection from the FSA.

A common concern that people have with equity release mortgages is the potential risk of negative equity. Due to compounding interest built up over a long period of time, an equity release debt can become quite large compared to the amount borrowed. When the house is sold, if the amount owed is higher than the sale value of the house, a negative equity is created.

As the equity release market has matured and become more competitive, it has also become safer for customers. Safe Home Income Plans is a self regulated body that aims to serve customers by making the terms of equity release mortgages more transparent and safe. For instance, all SHIP equity release schemes offer a no negative equity assurance. This means that any negative equity does not need to be repaid to the lender.

Solicitors that can handle all the paperwork related to an equity release application, as well as provide specialist advice. The equity release solicitors’ alliance  ERSA, is a charter of specialist solicitors dealing with equity release mortgages. There is a wide variety of equity release schemes available in the market. It is important to seek professional independent expert advice regarding equity release. Independent experts can provide guidance on the potential risks and advantages of equity release for you.

Are Equity Release Schemes Safe and Could I lose My Home?

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Equity release schemes have been around in some format since the 1960’s. However, they have undergone significant changes to ensure that today’s equity release mortgages are complaint & trustworthy in the eyes of the over 55 marketplace.

The first steps towards recognition of the need for consumer protection came in 1991 with the launch of SHIP (Safe Home Income Plan). SHIP brought about a voluntary code of practice that must be implemented within any equity release scheme in order to achieve SHIP status: –

  • The flexibility to still be able to move house. Therefore the equity release plan must be portable
  • You can repay the equity release mortgage at any time, subject to potential early repayment charges
  • All plans must have the inclusion of a ‘no-negative equity guarantee‘ option

The no-negative equity guarantee provides the protection in an ‘over’ roll-up situation, where the equity release balance supercedes the value of the property in the future.

If this does occur the lender will invoke the no-negative equity guarantee and only ask for the property value on eventual sale. This provides the reassurance that no debt can be transferred onto the beneficiaries.

Since then, the FSA (Financial Services Authority) has become involved in the equity release market & taken all schemes under its wing.

Therefore in 2004, lifetime mortgages became fully regulated by the FSA & provided greater consumer protection. This led to only qualified equity release advisers being able provide recommendations to the general public.

Three years later in 2007, home reversions plans were amalgamated with lifetime mortgages resulting in both types of plans becoming regulated by the FSA.

With recent developments in the industry & SHIP now reforming itself into the Equity Release Council to have a stronger presence & stance within the post retirement market, then greater changes are to follow. This in turn will lead to greater consumer awareness of equity release schemes & their benefits to the over 55’s.

Lets Start with the Background History to Equity Release

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Equity release schemes have increased in demand with the elderly generation not just in the UK, but all over the world. These schemes have come a long way since their introduction back in the mid 1960’s. However, this hasn’t been without its problems & adverse press coverage.

The stigma of the elderly generation having been fleeced by the Shared Appreciation Schemes (SAM’s) back in the 1990’s still lingers. However, important steps have been taken to clean the image of equity release schemes. This has been led by FSA (Financial Services Authority) regulation of both lifetime mortgages & more latterly home reversion schemes have come under its wing. The current front runner in hailing the equity release cause is SHIP (Safe Home Income Plans).

Launched in 1991, SHIP has laid down a code of conduct that all equity release providers must follow to be a member of their trade body. SHIP is the representative of the equity release market in terms of promotion & statistics covering members which include the main providers of lifetime mortgages and home reversion plans.

Now confidence has been restored, equity release schemes have become a mainstay of providing financial freedom in allowing people over the age of 55 to utilise their main asset. These equity release schemes enable citizens to spend their retirement days in peace by way of providing a tax free capital lump sum or an income for life.

How do these schemes usually work?

Different schemes offer different amounts but the basic principles remain the same. The three options are a one-off cash lump sum, drawdown facility from which you can take ad-hoc payments when required or an income for life. The most popular route these days for financial & flexibility reasons are the drawdown equity release schemes. These schemes give the amount to you in regular instalments as per your convenience.

The most crucial of all conditions that a prospective client should fulfil is that they must have little or no outstanding mortgage. Based on a combination of age & property value will determine how much can be raised. If a mortgage is in force, then as a minimum, this calculation must cover the outstanding mortgage amount. However, for many a further lump sum maybe required for additional expenses such as home improvements, new car, holidays or gifting to the children.

It is always wise to be on the lookout as only then will you get the best deal available in the market. Analyse and evaluate your overall financial position before you jump into any equity release scheme, making sure to choose the one that gives you the most advantages. Consult an equity release specialist who can assess the whole of the equity release market & provide independent advice. Such companies that are major brokerages in UK equity release schemes are: –

• Equity Release Supermarket

• Compare Equity Release.com

• EquityRelease2go.com

For contact details on all these equity release advisory services call our dedicated freephone number on 0800 678 5159