Will Equity Release be the next big mis-selling scandal?
There was a time when if a retired couple wanted to pay off their mortgage or release some capital from their family home, they would sell their property and buy a smaller one. This was called down-sizing.
These days many older property owners fall for something called equity release. This relatively new financial product is promoted relentlessly everywhere we look on an industrial scale by corporations intent on squeezing every penny of profit from vulnerable people. If you turn on the TV, listen to commercial radio, go online or read a newspaper it won’t take long before you’re bombarded with adverts for equity release. These products are promoted as magical devices which enable retired folk to have a much better financial life, free of debt, mortgage repayments and worry. They promise a life rich in long haul holidays, new kitchens and brand new cars. In reality they are just loans against your property with relatively high interest rates and punitive penalties if you decide, for whatever reason, to exit the loan. They are fine for people who have no interest in leaving any financial legacy but they are a disaster for families wishing to pass on wealth to future generations.
Most retired folk would be much better off financially biting the bullet and down-sizing rather than taking the rather easier, but in the long run costlier, equity release route.
Many older property owners who need to raise some cash but still want to remain in the family home would be much better off financially with a lifetime mortgage rather than equity release. Some lenders specialize in mortgages for people in their 60’s, 70’s and 80’s specifically for this purpose.
I can see that in the very near future we will see a spate of lenders being taken to the cleaners by the financial regulator over mis-selling of equity release products in much the same way as we have seen over PPI.