Is equity release safe?

Equity release schemes such as home reversion plans and lifetime mortgages are regulated by the UK Government’s Financial Services Authority – which offers those seeking to release equity from their homes, considerable protection.

Since 1991, equity release providers have introduced a number of plans through the Safe Home Income Plan (SHIP) organisation. SHIP was formed to ensure member providers adhered to a stringent set of self regulatory rules to protect customers. Any scheme endorsed with the SHIP logo will be properly explained and, above all, safe.Safe Home Income Plans

Furthermore, in April 2007, the Government’s Financial Services Authority (FSA) regulated the home reversion plan market (the lifetime mortgage market was regulated on 31 October 2004). See the FSA website for more information.

About SHIP
This is the trade body which was launched in 1991 and is dedicated entirely to the protection of plan holders and promotion of safe home income and equity release schemes. All participating equity release providers are pledged to observe the stringent SHIP Code of Conduct:The SHIP Code of Conduct requires equity release providers to meet strict criteria in order to become a member. The following guarantees have to be provided to customers:
1. To allow customers to remain in their property for life provided the property remains their main residence.
2. To provide customers with fair, simple and complete presentations of their equity release plans. This means that the benefits and limitations of the product together with any obligations on the part of the customer are clearly set out in their literature. It should include all costs that the customer has to bear in setting up the plan as well as the tax implications, their position on moving house and the effects of changes in house values on their loan.

3. The right to move their equity release plan to another suitable property without any financial penalty

4. The right for the customer to choose an independent solicitor of their own choice to conduct their legal work. The equity release provider must provide the solicitor with full details of the benefits their client will receive prior to the completion of the plan. The solicitor only signs a certificate once he or she is satisfied that their client fully understands the risks and benefits of the equity release plan.

5. The SHIP certificate signed by the solicitor is there to ensure clients are aware of the terms and implications of the equity release plan including the impact of equity release on their estate.

6. All SHIP plans carry a no negative equity guarantee. This means customers will never owe more than the value of their home and no debt will ever be left to their estate.

Warning: It is vital that consumers are aware that ‘sale and rent back’ and ‘shared appreciation’ schemes are not equity release products. Some ‘sale and rent back’ and ‘shared appreciation’ schemes are regulated but need careful scrutiny before proceeding – many provide virtually no protection to customers.