Equity release: handle with care

Age UK shop © Alamy
Age UK prefers its own provider

Make sure you are getting the right equity release product and are choosing from all the available options.

The charity, Age UK, does all sorts of good work. It provides a wealth of information and advice, and generally tries to make life better for the elderly. But apparently it also makes money by directing you to an equity-release advice service, Hub Financial, which is weighted towards products offered by Hub’s own parent company, Just, says The Daily Telegraph.

Note that when people are sent to the advice service, they go through Age UK’s commercial arm, Age Co. This was formed in the wake of criticism from the Charity Commission in 2016, which pointed out that the charity was channelling people towards an energy tariff that wasn’t the cheapest option in the market; it emerged that it had formed a partnership with provider E.ON. While this separation seems right and necessary, it’s doubtful whether many people would draw the distinction between a charity and a commercial body whose websites have very similar branding.

As far as the equity-release arrangement is concerned, when someone takes out an equity-release loan (borrows money against their property), Age Co gets up to 0.75% of the value of that loan. Although Hub discloses that it only compares deals from five companies, “the way its advice process is structured means that in most cases a customer will be offered a deal by just one panel member – Just”, says Adam Williams in The Daily Telegraph. “Hub’s staff follow a methodology that prompts them to offer Just for the most common consumer needs.”

The story, while also casting Age UK in a rather unfortunate light, underlines the importance of making sure that you get the right equity-release product for you. As we’ve discussed in MoneyWeek many times over the past decade, equity release used to have a terrible reputation for ripping people off, and not without reason. Many people took out loans where the interest payments were rolled up to be paid off at the end. If the loan ended up being worth more than the value of the property associated with it, people’s heirs found themselves saddled with massive debts to repay.

Thankfully, the industry has cleaned up its act in recent years, largely because it is now regulated by the Financial Conduct Authority. And it has become increasingly popular. Equity-release loans worth a record £935m were taken out in the first three months of this year, up 8% on 2018, according to the Equity Release Council. If you’re considering equity release, make sure you’re as well-informed as possible before signing up. You will have to take financial advice on the decision, and must use a specialist broker when choosing a product. Ensure you factor in the combined cost of this advice, legal services and the required property valuation. Depending on the type of plan, expect to pay between £1,500 and £3,000 in arrangement fees, warns the Money Advice Service.

Watch out for plans that include hefty exit fees, which fall due if you want to pay back the loan early. If you think you might move in future, you will probably want a product that allows you to “port” your loan to another property. You should also consider potential complications, such as whether the money you receive will affect your benefit entitlements. Finally, note that reputable providers will offer a no-negative equity guarantee, which means you or your estate should never have to pay back more than the value of your property.