Is Equity Release Safe?

Malcolm

Hi, Dan. So, is equity release safe?

Dan

Well, I would always say that as long as you speak to a properly qualified and experienced adviser, then equity should be a safe proposition for you.

We are directly authorised by the Financial Conduct Authority, which is the government watchdog, which oversees everything within financial services pretty much.

So we have to meet certain standards of integrity and training and so forth.

We're also voluntarily members of the Equity Release Council.

Now, this is an extra set of standards that arrived across the industry.

The Equity Release Council used to be called Safe Home Income Plans, so the ship scheme, and it's setup to protect the interest of equity release plan holders.

But what it's actually done is with it with it's council made up of industry specialists, it's driven a lot of innovation across the industry and a lot of protection.

So it's brought in things like the no negative equity guarantee.

Equity release had a lot of bad press in the old days where people would own more than the value of the house, or there would be shared appreciation schemes where the banks seem to be profiteering on the back of companies, of people's plans because of the increase in property prices.

All the no negative equity guarantee means that as long as a house, at the end of the day, is sold for a fair market value, even if the property market has crashed and the compound interest on the loan is going to be more than the value of the property, that the lender can never come back to the families looking for money, it can never pass a debt onto the estate.

So the worst case scenario is a zero balance. But speaking to an advisor, we can help you manage that.

So the zero balance is the least likely option.

Malcolm

So I suppose in those, back in the early days. Wasn't there a product once where you could draw the cash down to put into an investment, which was meant to generate enough income to service the mortgage?

Dan

It was. Yes. The income plans have largely disappeared now.

There has been a really good version of that up until recently, but that's not available at the moment, which involve taking a whole series of small drawdowns.

Now of course, we can still do that on a flexible basis, but it's not based on an investment.

It's not risk based. What you're essentially doing is taking small amounts of your equity release each year or each six months, however much it suits you, to help supplement income over time to maybe just reduce the shock of moving from an employed income to a to a pension income.

That can be flexible, but that is not based on an investment.

It's purely taking taking a loan that would normally be available as a lump sum, in smaller bites.

It can also help save interest.

Malcolm

So in I suppose the products I was referring to there, was it could be possibly more aggressively sold to a potentially vulnerable customer there, but the risk will always be that the investment doesn't perform as well as the underlying mortgage interest rate, leading to potential financial catastrophe, which I think happened and I suppose your industry suffered for many years off the back of those type of practices.

Dan

Yeah. Yeah. Absolutely. There were there were several schemes before equity release was so tightly regulated that would hold out the hope of unrealistic profits to clients and not stress the fact that actually the capital far from not turning a big profit, but capital is actually at risk and may be lost.

Malcolm

Yeah. Okay. Well, it it sounds like things are in a much better place. So thank you for that Dan.

Dan

Thank you.