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In 2019, the Financial Conduct Authority (FCA) launched an investigation into the mis-selling of equity release mortgages. The move, which was described as ‘exploratory’, was focused on examining the issues associated with these equity release schemes, and to flag up any major problems.

However, consumers have been complaining about these schemes for several years. In fact, in 2009, Which? magazine referred to them as a “lifestyle dream that can turn into a nightmare”.

Here’s more information about the situation.

Why did equity release mortgages become popular?

At the start of the 21st century, there was a noticeable rise in equity release schemes. They rapidly became popular with retired people; particularly those who had most of their wealth tied up in property, and who wanted a more accessible pot of retirement cash.

Most of the schemes promised that the mortgage value would never be higher than the value of the property, and that nothing would need to be repaid until the home was sold. While the loan was being taken out, interest would accrue, which would also need to be paid back.

However, the problems associated with equity release mortgages were already becoming evident. Back in the 1990s, for example, they hit the headlines for all the wrong reasons. Grieving relations reported that they were being pressured into paying debt that their dead relatives had accrued via an equity release mortgage (in instances where the property value dropped below the value of the mortgage debt). The surviving family members understandably felt this was unfair, given that they hadn’t agreed to take out the loan themselves.

The other major issues

On paper, equity release mortgages seemed like a good option. In practice, they were problematic, and not just in instances where the property value had dropped.

A common issue highlighted by Which? was that consumers ended up owing a considerable amount in interest at the end of the mortgage term. For example, if a 60-year-old borrowed £80,000 against their home, it could cost them as much as £256,570 twenty years later.

The consumer magazine also highlighted the irresponsible manner in which the equity release mortgages were sold. For example, Norwich Union advertised their product with a suggestion that their customers could use the money to fund a trip to New York.

A spokesperson commented: “Lenders want to sell you a lifestyle dream, but the reality can be very different. These schemes could turn into a financial nightmare which can stay with you for the rest of your life.”

Other complaints against equity release mortgages

On their website, The Financial Ombudsman Service listed other common complaints they’d received regarding equity release mortgages. These included:


  • Financial advisors targeting vulnerable older people, with equity release schemes that weren’t suitable for them
  • Advisors recommending equity release when it wasn’t the best option for the consumer (e.g. in instances where they’d originally planned to move home)
  • The client being forced to pay an early repayment charge even though they required long-term care and their mortgage had a clause covering them for this
  • Being unfairly asked to pay an early repayment charge when their partner had died (or had to move into a care home)

Home reversion schemes

Another form of equity release mortgage is home reversion. In this instance, the consumer sells part or all of their home, in exchange for a lump-sum pay-out. In return, they agree to give up a percentage of the proceeds when the house is sold.

This can leave people out of pocket. For example, if the property rises in value, they’ll miss out on the full profit from capital growth. Another significant issue is that home reversion schemes are unregulated. As such, some experts recommend avoiding them.

Are equity release mortgages really that bad?

Safe Home Income Plans (SHIP) was formed in 1991, to protect consumers from equity release mortgage mis-selling. Its aim was to make sure all its members operated under a code of conduct, and stuck to ethical practices when selling these financial products.

The chairman of the company felt that equity release had been unfavourably presented by Which?. He referred to the report as ‘unbalanced’, as it made no mention of SHIP, or the measures they took to limit cases of mis-selling.

Is it a case of mis-selling?

The mis-selling scandal regarding equity release mortgages continues to grow. In cases where the consumer was pressurised to select a certain scheme, or were given poor financial advice, it’s a clear-cut example of mis-selling, and might warrant some compensation.

Given the evidence so far, it seems probable that the number of complaints will rise in the future.



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