Equity release products shall be lifetime products. The customers shall be able to live in their main homes for their whole life to enjoy and maintain.
If the customer is residing on the property and upholding its contractual obligations, the provider (which term henceforth in this document includes any creditor to which the loan is subsequently transferred) has the right to require repayment of the outstanding loan, rolled up interest and costs due, only upon the customer’s death or a move into permanent long-term care.
When an event occurs, which makes the loan due for repayment, the customer or the customer’s estate shall be given a reasonable time to arrange for the repayment, which includes time for estate inventory proceedings and/or sale of the property for the repayment of the amounts due with the proceeds. Unless the property is to be sold at a public auction, the provider shall have a contractual right to control that the property is professionally sold at market conditions.
If on the property’s sale on market conditions, the sales proceeds are lower than the amount due, and provided that the customer is not in breach of any substantial contractual obligations, the provider will not expect the customer or the customer’s estate or heirs to make up the shortfall with other assets. This commitment shall as a minimum be applied when the property is sold following the customer’s death or permanent move to long term care.
Providers should allow customers to transfer the loan to another suitable property, which meets the providers’ then lending conditions and criteria.
Early redemption of the loans should be permitted. Providers should at the outset make clear the likely cost impact to the customer for such redemption and ensure transparency of costs.
Product providers may offer a range of terms, including interest served, rolled up, fixed for life or a term, or variable. In case of variable interest customers should preferably be offered an option to have an interest rate cap and in any case be informed of the impact of not having such a cap.
In the pre-sales information pack, the impact of compounded interest shall be shown – in different interest rate scenarios if required – showing the growth of the total debt over time. A comparison between these calculations and the home-value development in different house price index scenarios shall also be included, showing estimated development of the customer’s net equity.
The providers are required to ensure that all information from the provider to customers and the contracting process are done by competent, knowledgeable and duly authorized persons.
The providers will require that a checklist has been completed before contract signing, showing that the customer has received the required relevant information. The checklist shall be signed by both the customer and the informer and a copy given to the provider and the customer.
Home reversion schemes are lifetime products. For the transfer of the ownership of their property, customers receive payment in the form of a one-off sum or a lifetime annuity or a combination of both, along with a lifelong exclusive right of residence and right of use (life servitude of habitation).
Outcome: Customer has the peace of mind that they will always be able to live in the property until they die.
The commitment to pay a lifetime annuity and a lifelong right of use must, to the extent legally possible, be properly secured as first-rank collateral and recorded through official registrations. Any loss of the life servitude of habitation without the consent of the client shall be categorically ruled out.
Outcome: Whether the customer obtains a lump sum or income for life, his/her ability to stay in the property is not at risk.
In order to determine a property’s fair market value at the time of the purchase, a valuation report must be prepared by a duly authorised and independent expert. An acquisition of the property below the fair market value shall be excluded.
Outcome: The starting point of the contract is based on fair property value, with subsequent fees and charges made clear.
The ongoing maintenance shall be conducted by the owner of the property (or in proportion to the ownership, if more than one owner) to ensure that the property is in a usable and serviceable condition. In this respect, the customer is, however, not entitled to require value-improving investments. The customer must be granted the right to carry out any conversions that are necessary for maintaining his/her own ability to live there, such as barrier-free modifications.
Outcome: The customer will know that they will be responsible for the day-to-day upkeep of their home, but the owner will be responsible for ensuring it is always habitable and in a reasonable condition. Furthermore, should the customer’s circumstances change, the customer would be allowed to make essential adaptations to cater for changes in lifestyle that would allow them to stay in their home.
The provider’s non-performance of its obligations to pay the annuity or its further obligation shall result in the customer’s right to foreclosure with regard to the sold property.
Outcomes: Customers can be assured that the fundamental elements will be met and the provider would risk losing their ownership, if found to be totally in breach of the agreed terms and conditions
The provider and owner of the property is not allowed to withdraw from its payment and other contractual obligations through the sale of the property to a third party without the consent of the customer.
Outcome: Consumers have some future protections should the current owner seek to sell on the property asset, without respecting the agreed terms and conditions.
In the event of a change in the customer’s life situation, which leads to the customer moving out of the property during his/her lifetime, the customer shall have an option to hand back the life estate to the owner, after paying the owner’s reasonable costs and expenses in connection therewith.
Outcomes: It is not possible to predict the future, so if the customer in extraordinary circumstances needs to move to a different property, then the owner will seek to offer a moving house option at reasonable costs.
Providers must include in their offer documents a full and transparent presentation of product variations and the basis for the offer calculation.
Providers of lifetime annuity routes should highlight the special risks in the event of an early death and strive to offer an option at the outset for securing these risks, at reasonable costs for the customer.
Outcomes: Customers will have the opportunity at the outset to have access to all the relevant information to make an informed decision, and to have the key risks highlighted. All this should ensure the customer will obtain the right product for them and that there are no unpleasant surprises in the future.
Providers are required to ensure that all information provided to customers during the contracting process is given by competent, knowledgeable and duly authorised persons.
Outcomes: To help customers in making a long term financial choice, they will be guided by competent persons and this process can also help the family (if desired) understand the product and terms. In the long run this should help reduce the risk of surprises.
Providers shall require that a checklist has been completed before the contract is signed, showing that the customer has received the required relevant information. The checklist shall be signed by both the customer and the informer and a copy given to the provider and the customer.
Outcome: Customers should have sufficient time, documentation and support to make an informed decision. The checklist should also consistently highlight the key areas for consideration, which as a permanent record, which allows the customer and provider to have a simple record of the transaction.