Although the equity release market holds huge potential, and consequently presents great sales opportunities for mortgage brokers and IFAs, it is also one of the most controversial and complex areas of mainstream personal finance.
Brokers are taking on board the complexities of equity release, but there are still instances of poor practice in this field. To ensure that brokers protect themselves and cannot be accused of mis-selling at any time in the future, they should, as a matter of good practice, follow this simple checklist when dealing with a possible lifetime mortgage:
Be conscious of and respectful of the clients age. Elderly clients are often anxious before entering into major financial obligations. Patience, plain language (no jargon), a full explanation and time are essential in reassuring clients in these cases.
Ensure that any products you sell are SHIP (Safe Home Income Plans) approved schemes.
Ensure the lenders quotes are clear and that the illustrations show how the outstanding loan balance increases over time.
Ensure that the clients involve their children and other beneficiaries of their estates from the beginning. The children/beneficiaries need to be fully aware of what is happening so that no misunderstanding arises in the future. Such schemes inevitably result in the value of the clients estate being reduced.
Inform the client of the likely impact on future welfare benefits on entering into such a scheme (the CML has published a useful practice leaflet on this issue which is available from its website).
Ensure that the client instructs an independent solicitor experienced in equity release cases. The lender will require the solicitor to sign a SHIP certificate (confirming compliance with SHIPs Code of Practice etc), before any funds are released. As such, the solicitor instructed should have the specialist knowledge necessary to conduct such a case and be able to provide the clients with clear, unambiguous advice.
Ensure the client seeks advice from the solicitor on whether or not to make a will.
Be realistic when discussing timescales. Most remortgages will complete within 10 days of the solicitor receiving the offer of mortgage. This is not likely to happen in a lifetime mortgage case. The nature of the transaction and the involvement of two sets of solicitors will result in a longer completion period. However, four weeks from receipt by the clients solicitor of the offer of loan should be more than enough time.
Build a good working relationship with the lender and the clients solicitor to ensure a smooth progression from start to finish. As always, good communication is essential.