Can Equity Release be mis-sold?

By definition Equity Release can be mis-sold. However it is not a legal practice.

If you want to know the pitfalls to look out for this guide is for you.

What types of complaints does the Financial Ombudsman Service (FOS) look at?

A lot of complaints about lifetime mortgages stem from people, or loved ones, being vulnerable and there being a poor assessment of current and future financial needs.

The FOS see’s a lot of complaints relating to:

• Loved ones being vulnerable and talked into, manipulated and coerced, into Equity Release.
• Equity Release being used as an unsuitable financial product because of future plans to move or downsize.
• Providers not honouring the terms of agreement and levying excessive early repayment charges.
• Joint Equity Release plans where one partner has passed away or gone into long-term care, and now the provider is seeking an unfair early repayment charge.

What does the FOS look at when assessing a mis-sold case?

There are extensive rules and regulations. The Financial Conduct Authority and the Mortgage Conduct of Business make specific reference and provisions regarding lifetime mortgages and home reversion plans.

Lifetime mortgages must always go through an advised process. When assessing a case the FOS will ask the adviser responsible the following questions:

• Did you follow Equity Release Council advice?
• Did the customer clearly understand what they were agreeing to when you explained the arrangement?
• When the customer borrowed the money, how was it used?
• Could the customer have accessed that sort of equity in a less expensive way?
• Did the customer’s circumstances make them vulnerable at the time?
• Was the customer eligible for care at the time of application and was the potential impact of this assessed with a view to early repayment charges?
• When a joint application was made, was there a fair assessment made on charges if a partner were to pass away or enter into long-term care?

The FOS will expect detailed responses from the adviser and that they’ve clearly thought about:

1. The questions they’ve asked the customer.
2. How the information has been collected and considered.
3. The specific reasons they gave to the customer for rendering the advice that they did.

What compensation can I claim if the adviser is found to be at fault?

If an adviser and/or provider is found to be at fault, the Financial Services Compensation Scheme (FSCS) may instruct the parties at fault to:

• Pay compensation for any distress or inconvenience experienced.
• Refund any early repayment charges incurred, possibly with interest added.
• If it’s deemed that Equity Release was a completely unsuitable solution, the FSCS may instruct the parties at fault to put the customer back in a suitable financial position that they’d be in if they hadn’t received the advice.

Signs of Equity Release mis-selling

There are a number of things to look out for when it comes to being mis-sold. You must do your due diligence and make sure the adviser and providers are part of the Equity Release Council, a body which lays out and stipulates pillars of conduct and practices.

Other things to look out for are the sorts of questions you’re being asked. Is the adviser truly considering your wishes and asking questions about your current and future needs?

It’s also very important that all charges are explained including interest, early repayment costs and other loan fees.

The value of your estate will also be directly impacted so there needs to be careful consideration given to inheritance tax and other estate planning situations.

A big red flag is when you’re advised to put the application in on the basis that there is only one homeowner, when in fact there are two. The younger homeowner will not be protected if something happens to the other.

An example of Equity Release mis-selling

Mr and Mrs F’s complaint, brought on their behalf by their representative, concerns advice given to them in 2006 by a financial planning consultant to take out a lifetime Mortgage.

They had a complicated financial arrangement that involved refurbishment and investment in property abroad.

The FOS found that the financial planning consultant didn’t take adequate steps to advise correctly on the lifetime mortgage and ordered them to make extensive compensation payments.

Is Equity Release a con?

No, equity release is not a con. Lifetime mortgages and home reversion plans have been viable financial products for a number of decades now. It is important that you choose an adviser and provider that is authorised and regulated by the Financial Conduct Authority. They should also be members of the Equity Release Council. If you are considering equity release we have a calculator you can use to work out how much you could potentially release.