The Financial Ombudsman Service (FOS) has published a technical note on equity release schemes.
Equity release involves consumers (aged over 55) borrowing money against the value of their home, either via a lifetime mortgage or a home reversion plan, as a capital sum or a regular income, or both. The sums borrowed are subsequently repaid using the value of the property sale, after the borrower(s) dies or goes into care.
FOS receive complaints from consumers (often concerned family members) who feel their relative was vulnerable, and was essentially “talked into” equity release. Compounding this is the complication that, if someone wants to end an equity release agreement early, it is likely they will be required to pay an “early repayment charge”. Other comments frequently received by FOS surround disputes over whether someone needs to go into care, or, where a couple have released equity together, whether it is fair that the charge should apply if only one of the them dies or needs care.
FOS have confirmed that, in general, its investigations highlight that the majority of consumers do receive suitable advice about equity release. Questions that are likely to be asked in any investigation include questions about their personal and financial circumstances, and an assessment of whether the equity release provider followed the rules and guidelines that applied at the time. However, in the occasions where it discovers it was not a suitable option for the consumer to have considered, the equity release provider is asked to put the borrower – or, more likely, their estate – in the position they would have been in if they had received suitable advice. In resetting the borrower’s position in this manner, FOS will take into account any fees or charges someone has paid, and how the borrower used the money borrowed. It may be the case that the equity release provider is asked to pay compensation for any upset or inconvenience caused.