Mortgages - Equity release

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Equity release is a way of getting hold of the money tied up in your house. Equity is generally only available if you’re over the age of 55, and you can take the equity (i.e. the money) you release as a lump sum or as multiple payments. 

Equity release schemes can be a real commitment – if you change your mind on an equity release scheme or have to move to a new house, you could find that your equity release scheme becomes a problem.

You should be aware that some plans will stop you from moving, meaning you may become stuck in a property that isn't suitable for your needs (for example, if you find that you can no longer manage the stairs in your property).

The amount of equity that you can release typically increases the older you get – and, since interest is added on a regular basis, the later you release equity, the less you'll end up having to pay at the end of the plan

Interest on equity release schemes can build up over the years – and, in some cases, may mean that there isn't enough money left after the end of the plan to pay off the value of your loan, leaving your dependents liable (more on this below).

If you've taken out an equity release plan, it's likely you've taken out one of two major types of equity release.

 

Lifetime mortgages

 

If you’re taking out equity release, you’re most likely to be using a lifetime mortgage plan to do so.

This is where you take out a mortgage secured on your home, keeping full ownership of the property. You can either make repayments or let the interest build – the full loan has to be paid back when you die or if you have to go into long-term care.

With a lifetime mortgage, you can normally borrow up to 60% of the value of your home – this also depends on your age, with the amount you can borrow increasing with your age at the time you take out the plan.

Daily interest is calculated and charged monthly on the loan, and will be paid off from the value of your estate when you die or enter care. If you have a lifetime mortgage, you typically won’t have to make any payments while you’re alive – but you should be careful, as any unpaid interest is added to the loan, meaning your mortgage debt can increase very quickly!

However, if there isn’t enough money left in your estate to pay off the value of your loan, your family and other beneficiaries will have to repay any extra!

To avoid this, you should make sure that you get a “no-negative-equity guarantee” from the equity release firm. This means that you’ll never have to pay back more than the value of your home. Most lifetime mortgage plans include this guarantee.

 

Home reversion

 

With a home reversion plan, you agree to sell all or part of your home. You’ll get either a lump sum or regular payments and can continue living in your house – but you have to maintain and insure it. At the end of the plan, your property is sold and the home reversion plan is paid off. You can set out some of the property to be held as inheritance for your family or beneficiaries. 

Home reversion plans normally pay out between 20% and 60% of the value of your property.

Home reversion plans typically result in significantly lower interest accumulating than lifetime mortgages, but you don't have the same rights while you're living in your property.

Some providers insist that you’re at least 60 before they’ll let you take one out. 

Always check the level of maintenance you’ll be responsible for, check that you have the right to move to another property, and check that the plan has a “no-negative-equity guarantee” – meaning your family and beneficiaries won’t have to pay more than the value of your loan if there isn’t enough money to cover it.

 

Fees

 

Any fees or charges involved with an equity release plan should be made clear to you before you agree. If they were not, you may have been mis-sold the plan.

 

State benefits

 

Equity release plans may affect your entitlement to state benefits. Always double-check with an advisor whether a plan will affect any benefits you might receive.

You should know
  • Any financial organisation is obliged to treat you reasonably. If you feel that any action has been unreasonable, you have the right to make a complaint.
  • Ensure that any complaint is marked at the top with ‘Official Complaint’. After eight weeks you can take your complaint to the Financial Ombudsman – resolver will remind you when you can do this.
  • Your bank or building society might not respond back via resolver; however, any case submitted by resolver is recognised as an official complaint by the Financial Ombudsman, and your case will be accepted if you are unsatisfied after eight weeks have passed. 
  • You have the right to claim for your time and the inconvenience caused if your case goes to the Financial Ombudsman Service; it can also award interest at 8%, but this will not be compound interest. 

If you have a complaint with your bank, building society or mortgage provider, you can use resolver to raise and manage the complaint. While not all financial organisations will respond to resolver, they are obliged to take and handle your complaint when it is submitted via resolver. To ensure that your issue is taken seriously, the email template you can use includes the text ‘this is an official complaint’.  This means that, if you are not satisfied after eight weeks, resolver will remind you that you can escalate your complaint to the Financial Ombudsman Service. 

Reasonable & fair

All financial organisations in the UK are required to treat you fairly, and to ensure that their actions are reasonable. These are the key principles for any financial product, so ask your friends or family member for their opinion on whether you have been treated fairly – this is a good way to determine if you have a reasonable complaint.

Discrimination

Discrimination is unacceptable as part of the reasonable and fair approach; if you have experienced discrimination, you have the right to make a complaint. 

What you cannot complain about

Issues such as an investment losing money are not covered by the Financial Ombudsman Service, unless you were not made aware of the risk. 

Should I use a Complaints Management Company?

Claims Management Companies (CMC) will handle a complaint for you in certain areas, such as Payment Protection Insurance (PPI). A CMC will charge you a fee, which is often between 30% and 40%. However, following the complaints process is something that can be done yourself, and it is unlikely that you will get a better result from using a CMC than by going directly to the company yourself. 

Raising a complaint

If you have a complaint, first ensure that it is reasonable; if you believe that it is, you can use resolver to submit your issue. Any complaint from resolver is an official complaint, and the bank is therefore obliged to act upon it; if it’s not resolved, you can take your case to the Financial Ombudsman Service. 

In your complaint, ensure that you state your issue clearly and concisely, give information about when the problem happened or began, and say how you would like it to be resolved. The bank or building society may or may not respond back via resolver, but it does have to respond, as your case will be recognised by the Financial Ombudsman Service. 

Managing your case 

During your complaint you can use resolver to manage your issue: you’ll be able to upload documents, store emails, set reminders and make notes about your case so that you have a complete file to send to the ombudsman. 

If your issue is not resolved

If you feel that your issue has not been addressed, resolver will remind you when you can escalate your case to the ombudsman: this is possible after eight weeks. 

From which date can I make a claim?

The statute of limitation in England and Wales is six years; in Scotland it is five years. In theory you can make a claim that dates before this, but the probability of winning is considerably reduced. 

You must also contact the Financial Ombudsman Service within six months of your last communication with the financial organisation. 

Financial Ombudsman Service

The Financial Ombudsman Service will independently assess your case. There is no charge to the consumer for the assessment, but you must wait eight weeks before you can take your case to the ombudsman. An exception to this is if the issue relates to a payday loan, in which case the ombudsman will accept your case immediately, to ensure that you do not experience hardship.

Can I claim for time and hassle?

There is an award in a quarter of cases that are assessed by the Financial Ombudsman Service. The compensation guidelines state an allowance of £50 to £100 per day, and no more than £10 per hour. Be sure to keep records of the time that you have spent handling your case.

Financial Ombudsman Service decision 

The ombudsman will make a decision on your case and provide an outcome that is binding on the company. You can choose whether to accept the decision. 

If the decision is held in your favour, and you are awarded financial compensation that relates to miss-selling, you will be awarded interest at 8%. This is not compound interest, so you will not receive interest on the interest. 

If you are still not happy

If you are dissatisfied with the outcome, you could consider switching bank or provider. The final option would be to take the bank to court; you should get expert legal advice before taking this route.

Bank goes bust

If your bank or another financial firm goes bust, you might be able to claim compensation via the Financial Services Compensation Scheme. You are limited in the amount that you can claim - these limits are:

  • Deposits: £85,000 per person per firm
  • Investments: £50,000 per person per firm
  • Home finance (mortgage advice and arranging): £50,000.

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