This guide contains all the answers to the most common questions about the issue.
Frequently asked questions about equity release mortgage mis-selling
What are the types of equity release on offer, and is one riskier than the other?
There are two main kinds of equity release mortgages - the lifetime mortgage, and the home reversion.
A lifetime mortgage means you take out a mortgage for your property and release some money in the process, either as a lump sum, or in instalments. You’re still the owner of your home, and you can either repay some of the debt as you go along, or let the interest accrue and pay it at a later date (for example, after you die, or if you have to move into a residential home).
A home reversion involves selling all or part of your property, in exchange for a lump pay-out (or regular instalments). You can still live in your home, but it won’t be fully yours anymore, and you have to agree to maintain it properly, and keep it insured. This is the less popular option.
There are risks involved with both (particularly from a mis-selling perspective). The key things to consider are:
- How you’ll make the repayments
- Who takes on the responsibility of the debt in the event of your death?
- What happens if the house suddenly goes down or up in value?
Your financial advisor is obliged to discuss these things with you, before you commit to equity release. Failure to do so counts as mis-selling.
Why do people complain about being mis-sold their equity release mortgage?
There are several different reasons why consumers lodge a formal complaint. These include:
- Not being given adequate information about the mortgage and what’s involved
- Not being told how much interest they’ll end up paying
- Not being offered a full range of options
- Being pressurised into committing to a product they aren’t entirely happy with
- Having to pay far more interest than they anticipated, or having to pay hidden fees
Sometimes, a relative may register a complaint; for example, if they believe their vulnerable elderly relation was hassled into getting an equity release mortgage when it didn’t really benefit them.
Don’t the advisors tell you how much money you’ll end up owing in the end?
A good financial advisor should be open about the interest payments, and the fees involved. In some cases, this can add up to significant sums of money. It’s not uncommon for consumers to end up owing tens of thousands in interest at the end of the mortgage term.
The advisor should also factor in the fees involved with setting up the mortgage, which are usually between £1,500 and £3,000. There are typically penalty fees for early repayment too. If you believe that you weren’t given adequate information about these costs, that counts as mis-selling.
What questions should an advisor ask about my financial circumstances?
It’s the financial advisor’s job to examine your unique financial situation, so they can recommend the right product for you. They should enquire about the following:
- What your goals are for the future
- Whether you’ve got access to finances elsewhere (e.g. from other investments like ISAs etc.)
- Whether you need the extra money in addition to your pension
- How you plan to repay the loan
- What benefits you’re currently receiving (some means-tested benefits are affected by taking out an equity release mortgage)
If they advised you to take out a particular equity release scheme without exploring your current circumstances and aims for the future, this means you could be taking out a loan that’s unsuitable for you. In legal terms, this is a case of mis-selling.
How do you know if you’ve been mis-sold to?
In some instances, it’s obvious when you’ve been mis-sold your equity release mortgage. Good examples of this are:
- If the advisor failed to explain the product properly
- If you weren’t told about all the fees and costs involved
However, it’s not always so clear-cut. This is especially the case if your relation died, and you found out after the event that they had considerable debt as a result of an equity release mortgage. If this is the case, it’s best to discuss the situation with an industry expert, to find out if you’re in a position to make a claim.
References
https://www.moneyadviceservice.org.uk/en/articles/equity-release
https://www.hughjames.com/blog/the-potential-dangers-of-an-equity-release-mortgage
