The Ethics of Equity Release: Over the Years and Why It Matters

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The Ethics of Equity Release: Over the Years and Why It Matters

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The Ethics of Equity Release: Over the Years and Why It Matters

why was this regulation introducedThe ethics of equity release has changed over the years and are an important part of releasing equity.

Equity release used to be seen as a way for retirees to keep their homes, but in recent years it has been used by people when they want to buy new property or move house.

The main reason for this change is that we had seen how much easier it is now than when it was first introduced. With news that equity release schemes are becoming more of a mainstream mortgage for the over 55’s, we look at how the equity release market regulates the protection of its consumers.

 

 

Why Was This Regulation Introduced?

The first form of equity release scheme was introduced in 1982. The idea behind it was that retirees could use their homes as a form of security for borrowing money.

Now:

The big difference between this type of lending and most other types is that borrowers don’t have to start paying interest on the loan until they move out or die, which means they can stay living there for free while repaying the debt over time with no extra charges.

You see:

When these schemes were first introduced, people thought they would be mainly used by older couples who wanted to keep their homes but needed help with monthly payments. Still, now we see more young single homeowners using them too – usually when moving house to buy new property.

This has changed because people find that releasing equity is a lot easier than it used to be. They don’t have to wait for a bank or building society to approve the loan.

Another change is that we can now use equity release as an alternative way of getting onto the housing ladder when buying our first property. In 2006 there were about 18,000 loans taken out with this type of borrowing, but by 2016, this had increased five-fold – in 2017 alone, it was at 69%.

One final change that has happened over recent years is that people are using these schemes more often as a mortgage insurance policy where they want their family home protected against any unforeseen circumstances like illness or redundancy1.

Significant Changes

The first change is that equity release schemes are now a lot easier to apply for.

The whole process used to take weeks, but now it can happen in just one day, which means we don’t need as much information or paperwork from people. Because of this, banks and building societies2 have offered loans without having to ask for any guarantees.

Best of all:

Another big difference over the years has been with interest rates – they were set at around 15% when these types of borrowing started back in 1982, but by 2017, the average rate was less than half that amount – about six percent.

This makes releasing equity more affordable because repayments are lower every month, even though the debt will be higher if you borrow more money.

As well as this, the rates have been going down at a faster pace since 2008, which means borrowing money will cost less over time.

The last big change is that equity release schemes are now offered by more than just one equity release provider and not exclusive to certain areas in the country like before.

What this means for people who want to borrow money with their homes as security is that they have more choice about where they can go, what type of property they buy, and how much debt they take out – it’s all up to them.

The Launch of SHIP

In 2017 the Equity Release Council (ERC)3 launched a new scheme called SHIP, which is designed to help people with equity release who may not afford home maintenance or have savings.

What does this mean?

This means they can get money from their home and use it for repairs without having any worries about how they will repay the loan – the part of their property that’s left after selling it won’t have to go towards paying back what was borrowed. This allows them some peace of mind because if anything goes wrong in their life, they know there are funds available should this happen.

It gets better:

The ethics around releasing equity has changed over time as more companies offer these loans, and borrowers don’t need as much information to apply for them.

The main reason is that it’s a lot easier and quicker to borrow money from your home. Still, as well as this, there are more different types of income you can use as security without worrying about future changes in life circumstances.

Arising Problems

Some people have experienced one problem when they borrow too much money because this can lead to more monthly repayments and higher debt in the long term.

What does this mean?

It’ll be difficult or impossible for them to release equity again, which means their family home could become trapped assets4 if there’s a change like redundancy.

Another possible risk is with interest rates – although they’ve gone down over time, we don’t know what might happen if these start is going up again. If banks were charging 15% on loans, someone borrowing £50,000 would need an extra £750 per month to keep pace with repayments.

The final ethical issue has been around who should get priority access to these types of loans as not everyone can afford them.

SHIP Update

Since the launch of SHIP (Safe Home Income Plans) in 2017, it has been seen as a success, with over 50% of people using this loan scheme to pay for home maintenance or other expenses.

One company even said that they were given $600,000 in equity release loans this year using SHIP.

The main change here is that people are finding it a lot easier to get access to their homes as security for other things without worrying about how or when they will repay the debt – if anything goes wrong, they know there’s money available.

It also means more choice because borrowers can use these schemes from different companies and not just one mortgage lender, which might have been unavailable before.

But wait, let me tell you something:

There was some controversy earlier this year with SHIP because of its name. Still, now over six hundred thousand pounds worth of homeowners who used the scheme don’t care what it’s called because it has helped them pay off debts and live freely again.

FSA Stepping Forward

In recent years the FSA5 has stepped in to regulate equity release schemes which means that they are now an approved way of borrowing money from your home.

Here’s why:

The main reason is that it’s a lot easier and quicker to borrow money than before. Still, there are more different types of income you can use without worrying about future changes in life circumstances.

The Financial Services Authority (FSA) has also stepped forward and said they have no issue with equity release as long as people take responsibility for the debt.

They won’t allow it to be used if borrowers don’t know what their plans are or where the money might go, but only in cases where there’s a strong possibility of financial distress.

It seems like the focus on releasing equity changed over time, with loans becoming available from more companies and borrowers not needing so much information when applying for them.

Now:

There were some issues earlier this year when people borrowed too much money using these schemes because their monthly repayments will be higher, but at least they know if anything goes wrong, then SHIP or other mortgage lenders will offer help.

The FSA has also stepped in this year to regulate these equity release schemes and make sure they are a fair way of borrowing money from your home.

Common Questions

In Conclusion

To sum it up:

It seems as though the focus of releasing equity changed over time, with loans becoming available from more companies and without having to go through so many hoops.

It also means that borrowers can use these schemes from different companies instead of just one mortgage lender, which might have been unavailable before.

The FSA has also stepped in this year to regulate these equity release schemes and make sure they are a fair way of borrowing money from your home.

You see:

There’s no need for people to worry, as long as they know their plans because if not, it might be better to find other ways of getting the cash you need.

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