It fears the boom in sales is putting customers at risk of being stuck with unsuitable deals.
The FSA has warned financial advisers are failing to offer sufficient advice to elderly homeowners buying the schemes after a mystery shopping exercise revealed that in 70 per cent of cases they failed to gather enough information before recommending a lifetime mortgage. Figures from the Council of Mortgage Lenders show sales of schemes are now 25 times bigger than they were a decade ago.
Economic Lifestyle believes one of the biggest problems concerning some equity release schemes is their lack of “portability”. This can mean retired people being stopped from moving home if their circumstances or health changes after taking out a scheme.
Some companies boast about the “portability” of their products but in practice many retain a right of veto over where customers can move to or even if they can move at all once they have taken out a scheme. They can and do say ‘No’ if a customer wants, for instance, to move to a more suitable home if their health deteriorates.
Mark Neal, managing director of Economic Lifestyle, says: “The FSA’s warning is timely but it does not tell the whole story. Customers need the reassurance that a scheme will be flexible enough to adapt to their changing circumstances.
“The industry needs to take action to make products more flexible so people can move home if their health worsens. Portability is a real problem for retired people.”
Economic Lifestyle has already acted by adapting its Equity Release Plan to make it fully portable and challenges other providers to follow suit.
Research shows the average age for starting an equity release plan is 70. However Office of National Statistics figures demonstrate the average male at 65 will live for another 15.9 years but will only be healthy for 11.6 of those years. For women at 65 the comparable figures are 19 and 13.2 years.
Mark Neal says: “There are other ways of releasing capital from your home but firms tend to only focus on one product. Other methods can include trading down to a smaller house and investing the money released or selling your home and moving to a retirement complex. When choosing these options retired people should also be thinking about what the future might bring. Finance firms should be innovative and should give more advice to people releasing capital.”
Economic Lifestyle offers homeowners aged 65 and over a variety of specialist retirement homes, which can provide a range of security services. In addition to this, it offers retired homeowners a number of options for releasing some of the equity in their homes or to live in a property that they would not normally be able to afford.
1. Life Interest Plan
The Life Interest Plan allows people over the age of 65 to buy a home designed for retirement living at a fraction of its true value by selling their existing property then using part of the equity to buy a Life Interest in an Economic Lifestyle property. The retirement property then becomes their legal home for the rest of their life/lives allowing them to make the most of their retirement years with the remaining equity.
2. Find & Afford Plan
The Find and Afford Plan enables people to find a property that they want and Economic Lifestyle will buy it and lease it to them at a cost that is greatly below its market price. The property reverts back to the company on the passing away of the customer/s. It is also possible to opt for a part find and afford which allows them to release capital but also leave part of the property value to their estate.
3. Equity Release Plan
Perfect for those aged 65 and over who wish to remain living in their current home and release capital at the same time. The property is valued by a qualified, independent surveyor, and after formal acceptance, the tax-free funds are transferred within 10-12 weeks, including a full refund of the valuation fee. There are no restrictions on how the money should be spent.
4. Easy Move Part Exchange
For people taking out the Life Interest Plan or using the Find and Afford Plan, Economic Lifestyle can arrange a cash sale of their current home. This enables the retired homeowner to eliminate chains, stress, unwanted visitors and estate agents fees. Two free independent valuations are arranged from which the average is taken and an offer of approximately 90% is made.
For a free copy of Economic Lifestyle's factsheet relating to such issues , or to find out more about Economic Lifestyle’s range of services, please contact: 0845 345 9173. Alternatively, log on to www.economiclifestyle.co.uk