Is equity release safe?

In this article, we'll discover which organisations look out for equity release customers' best interests, and how they do it for lifetime mortgage customers (which is the type of equity release loan we offer).

Formed in 1991, the Equity Release Council (ERC) aims to boost the understanding of the role housing equity can play in later life - such as funding care, supporting family, and making life more manageable.

As an equity release provider, and member of the ERC, we're committed to looking out for our customers' interests and following the ERC’s standards and guidelines. For example, when applying for a lifetime mortgage applicants must seek legal and financial advice.

The following two measures are also needed from ERC members and aim to give you a sense of confidence when making equity release decisions. As well as these two examples, there are a number of safeguarding measures from the ERC that members must follow.

Your home is yours for life 

Applying for a lifetime mortgage requires you to be mortgage free (or be able to pay off any remaining mortgage from the loan secured against your home). When you apply, you can be confident that your home will remain your own and you won't be forced to move out. Our lifetime mortgage is repaid on death or when you go into long-term care, subject to our terms and conditions.

You can therefore take advantage of a lifetime mortgage to access the funds you need whilst retaining full ownership of your home.

No negative equity guarantee

Our customers also get a guarantee of no negative equity. This is only used when the property’s sold and not enough money's left to pay off the loan. 

It guarantees that neither you nor your estate will be responsible for paying back any more than your home can be sold for, providing that it's sold for the best price reasonably obtainable.

For example, if a house is sold for £200,000 but the total amount owed is £210,000, only £200,000 will need to be paid back.

The Financial Conduct Authority (FCA) plays a crucial role in regulating various financial products, including equity release. Its responsibilities extend to ensuring fair and honest conduct within the industry and safeguarding the financial well-being of customers by respecting their individual financial circumstances.

Equity release customers are protected by the FCA too. This means that if the lender goes out of business, the loan will continue. If a new lender then takes over your equity release loan, it will continue as normal.

The two roles the FCA regulates are:

1. Equity release advisers – As well as explaining the equity release process, they'll suggest products and explain how they work, while providing a detailed estimation of current and future costs. 
2. Equity release providers are allowed to lend money as part of a regulated mortgage contract. We’re an award-winning equity release provider and since 1998, we’ve helped over 284,000 customers release equity from their homes – more than £11 billion altogether – with a lifetime mortgage.

Customers who sign up for equity release are bound to the terms and conditions of their plan, but there are regulations in place to make sure these will be fair and reasonable.

There are two types of interest rates: fixed and variable. A fixed rate never changes; while a variable rate can change at any time, but usually within set limits.

You can rely on us to offer you an interest rate that’s customised to your needs. This rate stays fixed throughout your lifetime mortgage - so you won't have to worry about increases. This means you'll be able to keep a good idea of how much you'll owe in the future. 

You can lower your outstanding balance in two ways.

1. Pay off some of the outstanding loan and interest as and when you want, subject to our terms and conditions. Our voluntary partial repayment feature allows you to do this, with no early repayment charges. 
2. Don't borrow more money than you need - there's no point in paying interest on money that you never use. Our lifetime mortgage offers the ability to take out an initial lump sum and set up a cash reserve to borrow from in the future. You'll only pay interest on the money that you actually take, not on any that remains in reserve. The interest rate which applies to any money you take from your reserve, will be the interest rate available at the time of borrowing – which means it could be higher or lower than the interest rate we offered when you first took out your lifetime mortgage. If you’ve used your full cash reserve, and you need more money, you may be able to apply for additional borrowing. Whether we accept your application for additional borrowing depends on the lending criteria at the time of application and if there’s any available borrowing taking into consideration the money you’ve borrowed so far. Again, the interest rate we offer will be the interest rate available at the time of borrowing.

Depending on your equity release provider's terms and conditions, you may be able to transfer your plan to a new home.

If your new property meets our lending criteria at the time and we agree to it, you can move home and take your Aviva lifetime mortgage with you. However, if your new home is worth less than your current one, you may need to repay some of the loan and interest. If it doesn't meet our lending criteria, you may be able to use our downsizing protection feature to pay off the whole lifetime mortgage with no early repayment charge - your adviser will be able to tell you if you're eligible for this.

As a result of the FCA's regulation and the oversight of the ERC, equity release can be considered as safe. The FCA regulates, and the ERC sets standards and principles for it's members which guarantee customers are fully informed and properly protected.

Any equity release plan, including our lifetime mortgage, will reduce the amount of inheritance you're able to leave. Your tax position and eligibility for welfare benefits may also be affected. Your adviser will go through all of the risks and considerations with you.