By Tom Philips at December 1, 2023

Equity Release Scams to Avoid

The equity release industry is growing year on year, with demand likely to increase due to increasing property prices and relatively low interest rates when it comes to equity release.

With the rise in the cost of living ever since the Covid-19 pandemic, equity release advisers, Key, found that more and more over 55’s are turning to equity release in order to help to pay for the everyday cost of living.

Essentially, more and more people over 55 are finding that they need help in order to retire. People are not only retiring at a later age, but they’re also finding that their pension just isn’t covering as much as it used to.

With consumers desperate for some extra cash and the industry set to rise in the coming years, the equity release industry is an easy target for scammers.

Whilst most equity release companies are legitimate, there are a number of advisers and companies who are trying to scam you out of thousands.

Do not be alarmed, as the majority of equity release plans and companies are working legitimately and have your best interests at heart.

Whilst the industry is regulated by the Financial Conduct Authority and Equity Release Council, unfortunately, some scammers do slip the net.

This is why it is incredibly important to understand the differences between a legitimate equity release plan and a scam.

What is Equity Release?

Whilst most people are familiar with the term ‘equity release,’ not everyone truly understands how equity release works and how it might be able to benefit you and your family.

Equity release is a type of loan, only offered to those aged 55 or over who own their own home [1].

With an equity release loan, you can gain access to the thousands of pounds that is currently tied up on your property.

This includes access to your house deposit and your monthly mortgage repayments, minus any interest you have been paying.

You only have to repay the loan once you pass away or move into a care home, upon which your house will be sold. The money from the sale of your home pays off the loan [1].

The loan is tax free, although you will be charged interest on a lifetime mortgage, which will turn into compound interest over time. You can take advantage of your rising house price, whilst also being able to remain living in your home for as long as you want.

The two main types of loans are lifetime mortgages and home reversion plans. You can choose to receive your money in one large lump sum or you can opt to receive your money through a series of smaller payments, which is known as a drawdown plan [1].

Is Equity Release a Scam?

No, equity release is not a scam. Although there are some scammers across the industry, the majority of equity release companies and advisers out there are working legitimately and have your best interests at heart.

Unfortunately, there are a lot of myths about the equity release industry across the internet, leading many people to believe, wrongfully, that equity release is a scam.

This means that thousands of people are missing out on living a more comfortable and happy retirement, all because they are simply misinformed.

The equity release industry has improved consumer trust and faith over recent years, and the industry is now regulated and governed by the Financial Conduct Authority, also known as the FCA.

This now means that anyone who wants to offer advice to consumers about anything equity release related now needs to be fully qualified.

As a result of this change, all equity release advisors now have proceeds and laws to follow, and compliance has never been taken more seriously [2].

It is incredibly important that individuals who are considering equity release inform their family of their plans, especially their children.

They might also choose to allow their family to sit in on their meetings with their equity release adviser, which will improve their trust and faith in the process.

If you hear that your loved one is considering taking out an equity release loan, then do not be alarmed or concerned.

Naturally, you might be concerned once you learn that your loved ones might be opting for an equity release loan, as this might mean that your inheritance is reduced.

However, you should simply ask for more information and if your loved one is happy for you to, then sit in during a few meetings with the adviser.

They should always be regulated by the Financial Conduct Authority and should also be a member of the Equity Release Council [2].

If you are considering an equity release plan, then make sure that you discuss your plans with your family, loved ones and next of kin.

It is much better to make this an open discussion with your family, so that your equity release loan does not come to a shock to them once you pass away or move into a care home, as this can cause its own issues later down the line.

Types of Equity Release Scams to Avoid

According to the Equity Release Council, there are a number of common equity release scams that you should avoid [2].

1. Coercion

Common equity release scams include coercion, where someone might be forcing, manipulating or persuading you to take out an equity release loan more than they should be.

2. Freud

Freud is also another common type of scam within the equity release industry and is usually made by someone known to the victim, by applying for loans on their behalf and forging signatures to get the loan across the line before the victim ever even finds out.

3. Romance Scams

Romance scams are another common type of scam within the equity release industry, which is very common when it comes to over 55s. Usually, the individual committing the crime will create a very close bond to the victim and will promise them the world.

They will usually have some form of sob story, which means that they need help financially. They might even make you think that helping them financially was your idea, but in reality they have been planting seeds all along.

4. Investment Scams

Finally, investment scams are very common within the equity release industry and are usually carried out by individuals who ask to borrow money from you, so that they can invest the money on your behalf. In reality, they are simply stealing your money which you will most likely never see again.

How to Tell if an Equity Release Company is Legitimate?

There are a few different ways that you can tell if an equity release adviser or company is legitimate or not. For example, your first port of call should always be asking them for a business card and then googling their company or name. They should work as a larger company and you should be able to visit their website and look at their reviews.

You can tell whether or not an equity release company or adviser is legitimate by checking to see if they are regulated by the Financial Conduct Authority and Equity Release Council.

You can check to see whether or not the company is a member of the Equity Release Council by looking for them on the following website – equityreleasecouncil.com/find-a-member/advisers/.

Lastly, you can also check to see if the company or adviser has signed up to the voluntary code of practice set out by the EPPARG [3].

This voluntary code of practice ensures that all products should last a lifetime or until the individual moves into long-term care.

It also ensures that all customers and clients have been informed of the risks, features and benefits of each product prior to taking out and loan.

Likewise, the client or customer also needs to be made aware of other, alternative solutions and options, such as a personal loan.

How to Avoid Equity Release Scams

The majority of equity release plans, advisers and companies on the market are legitimate.

However, it is important to acknowledge that every year, a number of people across the country are scammed via an illegitimate equity release scheme.

They lose thousands of their hard earned money, and this money is incredibly hard to get back once it is gone.

This is why it is incredibly important to know how to avoid equity release scams if you are seriously considering releasing equity from your home.

Whilst not every equity release plan is legitimate, the Financial Conduct Authority and Equity Release Council are doing what they can to improve the industry and reduce the amount of people who are falling victim to scams up and down the country every year.

Below is a list of just some ways you can avoid falling victim to an equity release scam.

Beware of any equity release calculators which ask for too much personal information
Beware of any equity release advisers who are pressuring you into taking out an equity release loan
Check that your equity release adviser and lender are both members of the Equity Release Council
Make sure that you seek a lot of advice from numerous equity release advisers and not just one
Avoid anyone who cold calls you about equity release
You should also try to look at the service they are offering as a whole, rather than just what they are offering when it comes to equity release
Be very careful when it comes to inputting your information online and onto different websites, so that your information and personal details are safe and secure.
Make sure that you question your adviser on what their qualifications are and what their code of conduct consists of.
Make sure that you have numerous calls and meetings with your equity release adviser, as any legitimate adviser will want to talk to you a number of times before making a decision and signing a contract for a loan.
Make sure that your adviser or equity release company advises you to seek an equity release solicitor, as all successful loans will require one in accordance with the Equity Release Council’s terms and conditions.

If you feel that you are dealing with an illegitimate equity release adviser or company and feel like they are trying to scam you, then it is incredibly important to report them as soon as possible, before you send any money.

Which Equity Release Companies Should You Avoid?

Despite the fact that the industry has become more regulated than ever, there are still a number of companies that you should avoid as they are not part of the Financial Conduct Authority (FCA) or Equity Release Council (ERC).

If you choose to go with a company or advisor who is not regulated by either of these bodies, then you are putting yourself at greater risk of being scammed.

The FCA also has their very own warning list of unauthorised firms across the UK who you should avoid [4].

Things to Consider When Choosing an Equity Release Company

If you are currently considering taking out an equity release plan, but are confused about what you should be looking out for, then read the below tips on what you should look out for and what you should avoid in an equity release company.

1. Regulatory Compliance

Firstly, you should be checking that they are compliant with the laws and regulations of the industry.

The equity release industry is monitored and regulated by the Financial Conduct Authority (FCA), which works to protect all equity release customers and also promotes a healthy, transparent and honest industry with a good reputation.

For this reason, any equity release company or adviser who is not a member of the Financial Conduct Authority should be avoided.

They should also be a member of the Equity Release Council (ERC) which regulates the industry and represents 90% of all companies, advisers and solicitors across the industry.

They ensure that a code of conduct is adhered to, so if your equity release adviser is a member of the Equity Release Council, then you can be rest assured that you are in safe and legitimate hands.

2. Reputation & Reviews

You should also check the equity release company’s reviews online, to check that they have a good reputation and track record of releasing equity to their clients.

It is normal for a company to have balanced reviews, although the majority of their reviews should be positive.

Alarm bells should start to ring if you see more negative complaints or reviews than there are positive. It should be a huge warning sign if people are complaining about the overall service that they received, and you should not take these types of reviews lightly.

3. Downsize Protection

It is also expected that all legitimate equity release companies include some form of downsize protection as part of their contract.

This downsizing protection allows you the chance to pay off your remortgage without having to pay an early repayment charge should you wish to sell up and move to a smaller property for whatever reason.

If your chosen equity release adviser or company does not offer downsizing protection, then you might want to think about how this might negatively impact you in the future should you wish to downsize, and should also start to question whether or not the company is legitimate or someone you want to deal with.

4. Voluntary Interest Payments

In addition to downsize protection, your adviser and lender should also offer you voluntary interest payments. This means that you can pay off a percentage of the interest you are earning over time on your loan.

This is usually offered to most lifetime mortgages, as interest on a lifetime mortgage can quickly turn into compound interest over time.

This is why lots of people choose to pay off the interest on their loan every month or every year, in order to reduce the overall loan amount and increase the likelihood that they are going to leave some form of inheritance for their loved ones after they pass away and the loan is repaid from the sale of the house.

All equity release lenders who are part of the Equity Release Council should offer voluntary interest payments as part of their terms and conditions.

If your lender or adviser does not offer voluntary interest payments, then you might want to question whether or not they are the right company for you.

5. No Negative Equity Guarantee

Finally, your chosen lender should also offer a no negative equity guarantee as part of their terms and conditions.

This is also a condition of all members of the Equity Release Council (ERC), so if your chosen lender does not offer this, then you might want to reconsider opting for them [5].

The no negative equity guarantee ensures that even if your property decreases in value by the time you come to repay the loan, neither your loved ones nor you will be liable to pay off the difference.

Instead, this guarantee ensures that the lender will always be liable should your property decrease in value and no longer cover the cost of the loan repayment once you pass away or move into a care home [5].

If your chosen lender does not offer the no negative equity guarantee, then this means that they are not a member of the Equity Release Council and should be avoided where possible.

What Role Does the Equity Release Council Play?

Essentially, the Equity Release Council (ERC) is responsible for safeguarding all equity release customers against scammers or misinformed advisers.

They are the trade body who represents all key players within the industry, including lenders, advisers and solicitors.

If you are a member of the Equity Release Council, then you are pledging to abide by the standards and values that they set throughout the industry.

These standards and principles are set out here and include the following.

Ensuring that all work within the industry works to promote transparency and trust within the industry, which works to promote public confidence
Ensuring that all key players within the industry work in utmost faith, with the customer’s best interests at heart
Ensuring that all issues and conflicts are resolved swiftly and fairly
Ensuring that all key players within the industry remain fully contactable and helpful throughout the entire process, to support their clients as much as possible

Your chosen lender, adviser and solicitor should all be members of the Equity Release Council, although it is not mandatory.

What Role Does the Financial Conduct Authority Play?

The Financial Conduct Authority (FCA) plays an important role when it comes to protecting customers and the public against scammers within the equity release industry. They work to regulate providers and banks, to ensure that all products they offer are transparent and fair.

They also work to ensure that all products offered throughout the financial industry are from licensed firms, and that their practices are regularly reviewed.

They also need to take swift action when it comes to violations within the industry and will fine a company should they be found to be operating outside of their terms.

If you take out an equity release loan and find yourself a victim of a scam, then you are able to turn to the Financial Conduct Authority’s Ombudsman Service to make a formal complaint, which they will then work to resolve.

Whilst the Financial Conduct Authority are always there to support and protect you, you must also ensure that you are acting reasonably and reasonably when it comes to your finances.

Talk to Equity Release Warehouse for Trusted Advice

If you want advice from a trusted and legitimate adviser, then talk to a member of the team at Equity Release Warehouse.

Our team of advisers are on hand to assist you with everything equity release related, including how much you are able to borrow and how long the process will take.

If you want more information on whether or not equity release is safe, then visit our page on ‘Is Equity Release Safe?’ and speak to our team.

Our team will never push or force you into making a decision, and our helplines are free and entirely confidential. You can call our helpline on 0330 058 1579 or by visiting us online at www.equityreleasewarehouse.com.

References

[1] https://www.ageuk.org.uk/information-advice/money-legal/income-tax/equity-release/

[2] https://www.equityreleasecouncil.com/what-is-equity-release/faq/can-equity-release-be-a-target-for-fraudsters/

[3] https://epparg.org/standards/code-of-practice/

[4] https://www.fca.org.uk/consumers/warning-list-unauthorised-firms

[5] https://www.equityreleasecouncil.com/what-is-equity-release/faq/what-is-a-no-negative-equity-guarantee/#:~:text=Products%20which%20fully%20meet%20the,worth%20when%20it%20is%20sold.