Equity release products are currently enjoying increased popularity. According to the Equity Release Council, more and more people over the age of 45 are willing to utilize such products to provide income into retirement, revealing a shift in their attitude to property.
Whilst equity release products can be a useful way to obtain additional funds in retirement, they are not always suitable for everyone, as set out below.
What is an equity release mortgage?
Equity release mortgages usually fall into two different types of product, namely:
- Life time mortgages – these are mortgages which are restricted to older borrowers, usually over the age of 55. The borrower will be advanced a lump sum, where the term of the mortgage may or may not be specified. The provider of the mortgage product will seek full repayment of the lump sum upon an event occurring, which is either the death of the borrower or entering into long-term care. During the intervening period no repayments will be made and interest will accumulate;
- Home reversion plans – this product allows the borrower to have access to some or all of the monetary value of their property. The provider of the plan will pay the borrower a lump sum and then enter into a lease with the borrower which provides the borrower the right to remain in the property until death.
Regulation of advice
Like other mortgage products, the adviser / provider of the relevant product must ensure that the advice given to the borrower is compliant with the Mortgage Conduct of Business Sourcebook (“MCOB”). This is to ensure that the equity release mortgage is presented in a way which is not misleading and that there is evidence that the borrower’s demands and needs have been considered in recommending such a product.
Examples of a mis-sale of an equity release product include:
- Failure to explain the nature of the product to the borrower so that they did not understand what they are entering into;
- failure to complete an adequate fact find to ascertain that the borrower has other means of obtaining finance which would be cheaper;
- does not consider the vulnerable nature of the borrower in providing advice;
- does not properly consider the purpose of entering into the product; and
- misleading advertising in relation to the product.
As with standard residential mortgage products, claims in relation to the alleged mis-sale of equity release mortgages should be made within six years of the product being taken out. This is because all claims which are based on a breach of MCOB (breach of statutory duty) or common law negligence must be made within six years. Whilst there are limited circumstances where a claim can be made three years after a borrower first became aware that a product was unsuitable, such circumstance are limited and, after the expiry of six years, a mortgage provider will have a complete defence to a claim.
If you think you may have been mis-sold an equity release or other type of mortgage product, please contact the Financial Mis-selling team at Hugh James for specialist advice on how you might recover your money.