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January 26, 2009 4:54 pm
Homeowners considering equity release loans to ease a cash crisis are being urged to have an independent laywer check over their plans, considered higher risk by the City regulator.
Equity release allows those aged 55 and above to release a cash lump sum from their home secured against the value of their property.
The deals are considered higher risk by the Financial Services Authority (FSA), compared with mainstream mortgages, due to the potential impact on the value of the borrower’s estate and entitlement to state benefits.
Businesses which sell equity release deals and are members of Safe Home Income Plans (Ship), the industry group, insist that customers obtain independent legal advice before a contract is signed to the product is suitable.
However, businesses which are not Ship members, including the household names, Scottish Widows and NatWest, will allow the deals to proceed without the added safeguard of an independent legal check.
Now the Equity Release Solicitors Alliance (ERSA) has joined calls for those taking out equity release deals to first obtain an impartial legal review of their plans.
“Solicitors have to remain independent to ensure that homeowners only take out an equity release product once they have carefully considered the pros and cons of going ahead from an unbiased third party,” says Claire Barker, chairman of the ERSA.
“This will also help to ensure that the future reputation of the industry remains in tact.”
The ERSA has launched a 12-point charter which sets out what clients should expect when using a specialist equity release lawyer against a non-specialist solicitor.
This includes a promise to provide an independent level of service in plain English, not legalese, with guarantees including a personal consultation. All ERSA should offer a guarantee of a no-completion, no-fee service.
Ship said the development was a “show of confidence from the legal sector”.
Separately, industry figures release on Monday showed a slump in year-on-year sales of equity release plans, which include Lifetime Mortgages and Home Reversions.
The figures, compiled by Ship, which accounts for about 90 per cent of all sector business, showed a 9 per cent fall in the total value of new deals written for 2008, compared with 2007, and a 4 per cent drop in the the number of new deals signed to 28,000.
Sales of Home Reversions, where the lender takes a stake in the property in return for the release of a cash lump sum, were down a third year-on-year.
Sales of Lifetime Mortgages, which are the more popular type of equity release, were only down 2 per cent in 2008 compared with the previous year.
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