By Mark Gregory on September 26th, 2015
Equity release specialists are crying out for greater innovation in its product range to lenders at a time when the lifetime mortgage market potentially enters the biggest growth phase of its history. Failure to do so could result in products such as the new Marsden Building Society Retirement Mortgage & the Vernon Interest Only Retirement Mortgage shaping retirement lending to the over 55’s in the years to come.
Here I would like to share my views on why the equity release industry needs a major rethink of its products, understands more of its consumer requirements & how some of the smaller lenders such as Marsden & Vernon may have an impact on this thought process, even future product design.
Is Equity Release Innovating Sufficiently?
The launch in September 2015 of the Marsden Retirement Mortgage could represent a wake up call to equity release companies, which until now have offered little in the way of sweeping changes, consistent with driving the post retirement lending market forward.
Until now, lending into retirement has been hampered by the after effects of MMR (Mortgage Market Review) and how lenders gauge affordability for pensioner mortgages. This has seen terms ‘interest only time bomb’ being banded about as high street lenders start reigning in their mortgage book, when normally then would have renewed or extended mortgage terms. This has left mortgagors stranded with the dilemma of having to decide whether to sell & downsize, or find alternative lending such as lifetime mortgages.
These mortgage prisoners have been one of the main reasons why the equity release industry has seen major growth recently & should not be fooled somewhat into thinking it itself has played a part in its own expansion. Equity release must not become Mr Complacency. People looking to offload their traditional mortgages in favour of a voluntary repayment lifetime mortgage or interest only lifetime mortgage has been clearly evident at Equity Release Supermarket. This market has still not reached its peak, yet innovative products are still out of reach for this purge in demand awaiting redemption & rebirth.
The Corridor of Uncertainty that exists between Residential Mortgages & Equity Release
With some recent relaxation in retirement lending rules, some residential mortgage lenders are set to take advantage by introducing retirement mortgage products that can fill the ‘corridor of uncertainty’ between the traditional mortgage market & equity release schemes. This void exists due to the gap in both distribution and the advisory process, but mainly the lack of products that can fill this area.
For instance people looking to borrow at age 60 over say a 20 year term looking for a 40% release of equity would struggle currently to raise such an amount. The reason being mortgage lenders are frowning upon lending beyond 70-75 and equity release providers have loan-to-value ratios at 60 that are insufficient to release this amount. So where can these people go?
Their prospects are currently limited to several companies, one of which is only accessible via advisers with lifetime mortgage permissions. This is the creditable Hodge Retirement Mortgage. Several smaller, local building societies will lend on an individually underwritten basis, but are obscure in research and not looking for large mortgage books for this kind of product. We saw this effect when the Halifax Retirement Home Plan eventually had to be withdrawn due to demand in July 2011.
The future of the equity release market lies in the hands of the lenders who define the products on offer to the over 55 lifetime mortgage brigade. 2015 for me is the landmark year that could evidence how these products are to be aligned in the years to come. With the upheaval to annuity sales and the new pension freedoms in place, equity release has remained too rigid in concept, yet has seen buoyancy, despite its many detractors in the press. Yes this is positive news, yet does not address the underlying issues within the equity release industry.
How Non-Traditional Equity Release Companies Can offer Equity Release
Recent news & industry talk is that smaller traditional building society’s are set to move in to the retirement lending space, which effectively could throw a spanner in the works of some equity release lenders and advisory firms who do not embrace these products. The term ‘equity release’ is generic, yet advisers & product providers alike, associate this term with either a lifetime mortgage or home reversion scheme.
Wrong! Equity release simply attributes itself to any form of mortgage vehicle then enables the release of equity from a homeowner’s property. The industry needs to move away from the stigma of historic equity release terminology & move into a new era of flexibility, innovation & a market not defined by just 9 lenders offering copycat products. If these lenders do not embrace the changes needed, other traditional lenders could spot their opportunity & move in.
This has started already. With news of two new bold retirement mortgages from what would be classed as two of the somewhat ‘smaller’ building societies. The first to launch was the Vernon Building Society’s Interest Only Retirement Mortgage with two rates dependent upon whether a LPA (Lasting Power of Attorney) was in place & registered with the Court of Protection; an unusual move, but clever thinking behind this. The Vernon’s non-LPA rate at 4.45% (4.9% representative APR) is actually higher than the Hodge Retirement Mortgage at 4.39% (4.7% representative APR), so a welcome addition, but not groundbreaking.
Why the Marsden Retirement Mortgage is Competitively Advantaged
The launch of the Marsden Retirement Mortgage plan is significantly different to the Hodge Retirement Mortgage. The Marsden has no affiliation with the Equity Release Council and therefore no constraints with regards to no negative equity guarantees and membership. This can provide greater freedom & the passage of savings in interest, clearly evident on this products launch interest rates of either 2.79% or 2.99% discounted rates, dependent on whether the interest only, or capital & interest route is selected.
The Marsden Building Society have made this semi exclusive retirement mortgage plan only available only through qualified intermediaries. This is not a direct to consumer product and is a move commensurate with ensuring best advice is given to a potentially vulnerable age group.
The Marsden Retirement Mortgage Product in Finer Detail
The minimum age at application for this mortgage in retirement product is age 55, with a maximum term being 30 years, hence this is not a lifetime mortgage. It is available to anyone looking to make a new house purchase, remortgage away from an existing mortgage provider, maybe due to expiry, or even general capital raising purposes where no mortgage exists currently. This could be for home improvements, gifting to children/family or any other lifestyle choices that make an improvement to their standard of living in retirement.
This Marsden pensioner mortgage is available on an interest only retirement mortgage basis or even capital & repayment. The option selected will be reflected in the interest rate which at launch in September 2015 are discounted until 31.01.18 at which point it will revert to the Marsden standard variable rate currently 5.95%. At this point no early repayment charges will exist.
The minimum release of equity is £50,000 and the maximum loan that would be considered is £500,000. Properties are accepted in England & Wales only & must be valued at least £200,000.
Set up costs are competitive priced compared to equity release schemes. There is a free valuation on properties upto £500,000 and booking fee & arrangement fees of £299 each. For remortgages a fee assisted package is available where standard legals fees are covered along with free valuation fee as previously mentioned.
Other essential features of this retirement mortgage are as follows: –
- Income multiples are 4.5x single & joint incomes, subject to affordability checks
- Minimum income levels are £20,000pa, either single or joint.
- Only pension income can be accepted, but rental & investment income can be considered
- Maximum loan-to-values are 40% for interest-only & 60% for repayment mortgages
- For interest only a sensible repayment method must be in place at the end of the term
The way forward for the post retirement lending arena is a swathe of flexible, transparent mortgage plans that meet the varied need of retirees. Whether this be a lifetime mortgage, retirement mortgage or interest only lifetime mortgage the key word is CHOICE. The Marsden Retirement Mortgage is just the start of new lenders filling the void between equity release plans & standard residential mortgages.
For more information & advice on which form of equity release is best for you, or to request a Marsden Retirement Mortgage quote, please contact Mark Gregory on 07966 889597 or email firstname.lastname@example.org
By Mark Gregory on May 29th, 2015
Further evidence of the progress & changes within the equity release industry has been witnessed this week after Stonehaven rebranded its name to ‘Retirement Advantage’. With effect from 26th May 2015, all Stonehaven’s equity release plans will come under the umbrella of Retirement Advantage.
Who are Stonehaven?
Stonehaven equity release was formed in 2006 as a provider of not just traditional lump sum lifetime mortgages, but innovative interest only lifetime mortgages with a difference. Their concept of being able to service the interest, thus rendering a level lifetime mortgage balance outlived the more conventional mortgage products such as the Halifax Retirement Home Plan which was withdrawn in August 2011.
Stonehaven = Innovation
To date, the Stonehaven range of interest only lifetime mortgages have stood the test of time. It is only recently that new hybrid versions of the Stonehaven Interest Select plans have been developed & now introduced. These voluntary repayment plans from the likes of Hodge Lifetime, Aviva, Newlife & now following suit – Stonehaven, have revolutionised the way equity release is perceived. It is now just the general public & journalists who need to take note of the new wave of flexible lifetime mortgages that can be tailored to any client’s requirements.
Stonehaven’s Recent history
Stonehaven’s success resulted in the company being taken over by MGM in 2014 and slowly their products have been redesigned & renamed accordingly, with a simplification of their offering – Interest Select, Lump Sum & Voluntary Select. Each product now has two further options depending on the level of borrowing required (loan-to-value) & ultimately also affects the interest rate applied. Board level changes have since occurred and the people who were at the core of their initial operation and built their model around the wider distribution model of using mortgage intermediaries as a source of referral business, have since departed.
The New Retirement Arena
We now have a new era in retirement planning & finances. With the demographics of the UK changing, longevity & health factors all combining to make insurers change the way the retirement landscape is evolving. The recent annuity changes have impacted severely on annuity providers of which MGM Advantage has been a major player in this market. These annuity & life insurance companies have had to rethink how retirees will need to manage their finances and stretch them further into retirement. This is probably only the start of what is to come for the over 55’s in the new retirement arena as new products are developed to cater for their needs.
MGM and Stonehaven Together = Retirement Advantage
Bringing together two successful retirement companies should lead to a complement of retirement products that can provide retirement solutions. Both MGM Advantage’s annuity and Stonehaven’s lifetime mortgage products are therefore suited to this retirement solution goal. The new retirement brand of Retirement Advantage will further strengthen their retirement proposition with a new retirement account launching soon.
Retirement Advantage is therefore one of the first significant mergers we may see in the retirement arena as equity lenders & insurers vie for the ever more lucrative retirement space. Equity release and annuities are changing for the better, hopefully the sign of more innovative thinking ahead.
For details on Retirement Advantage product range visit our website here where all their lifetime mortgage deals are listed along with a quote request facility.
Alternatively, please call Mark Gregory on 07966 889597 or email email@example.com to discuss this further.
By Mark Gregory on March 16th, 2015
When many equity release providers are competing directly in using their lifetime mortgage interest rates, Stonehaven have decided to compete in a different field by taking the bold step of moving away from Gilt-based early repayment charges (ERC’s) & introducing a fixed penalty basis covering the first eight years of the equity release loan.
With effect from 16th March 2015, Stonehaven will move its whole lump sum & interest only lifetime mortgage range of plans over to an 8 year fixed early repayment charge of 5% in the first 5 years, 3% in years 6-8 and none in the 9th year & thereafter.
Background to Equity Release Early Repayment Charges
Due to the nature of the product – ‘Lifetime’ Mortgage, the plans have been designed to run for the rest of the homeowners life. This can create uneasiness for some people taking out equity release schemes in retirement as they cannot always say with certainty what their future plans entail with regards to their property.
Equity release early repayment charges have historically been a mixture of fixed penalty, gilt based, Bank of England base rate related and even long term interest rates called SWAP rates. The majority of equity release schemes across the market today is predominantly linked to government gilts. This can be in the form of an individually selected gilt such as Aviva’s, which is based on the age of the youngest homeowner, or follow an index of gilts such as the FTSE UK Gilts 15 Year Yield Index with Just Retirement.
These gilt related penalties on paper can look extreme given that Aviva can charge upto 25% of the amount repaid dependent upon the gilts yield falling from inception. Additionally, companies such as Just Retirement & Pure Retirement can charge a maximum of 20% of the fall in the FTSE UK Gilts 15 Year Yield Index. Therefore, the nature of gilts leads to uncertainty of their future levels & consequently any prediction regards their future level is unknown & cannot therefore be relied upon for early repayment purposes.
Currently, only one equity release company offers the certainty of knowing exactly what the future penalty could potential be; this company is LV= (Liverpool Victoria). Charging 5% for the first 5 years of the amount repaid & then 3% in the next 5 years, they actually have no early repayment charges after 10 years. This have given them a niche position within the equity release marketplace.
Stonehaven’s Move to Fixed Equity Release Early Repayment Charges
However, LV= equity release now have fresh competition and this is the beauty of where the equity release industry is right now. Competition is driving this market forward and its with such innovations & product development that is going to extend the volume of lending in 2015, to beyond the £14 billion released in 2014.
Stonehaven have been considering this move previously, however with their takeover by MGM, its plans were put on hold. With a new team behind Stonehaven now, they have obviously decided the time is now right to introduce fixed penalty equity release plan to the market. It will be interesting to see how these new fixed ERC’s are perceived. Historically, applying fixed rate early repayment charges can come at a cost and this is usually borne in the equity release interest rate with an extra levy on it.
At present Stonehaven have not indicated any changes to their interest rates with the lowest currently being the Stonehaven Interest Select Lite plan at 5.46% monthly (5.87% representative APR). Therefore, the fixed penalty charges look to have been absorbed into the current equity release deals on record.
So for anyone considering the equity release & uncertain regards whether an equity release scheme will be required over the longer term, the new equity release early repayment charge from Stonehaven could be a viable option to consider. Providing fixed, transparent & easy to understand ERC’s with just 5% penalty in the first 5 years, 3% for the next two & zero after the end of the 8th year, Stonehaven have taken over LV=’s mantle of potentially the best early repayment charging system available in the equity release market today!
To learn more about Stonehaven’s range of products attracting the new 8 year fixed penalty, please contact the Equity Release Supermarket team on 0800 783 9652 or email firstname.lastname@example.org.
By Mark Gregory on January 25th, 2015
Having been advising on Equity Release since the halcyon days of Norwich Union, I have seen a continual, albeit gradual decrease in the level of equity release interest rates. The latest news has it that Aviva will be aggressively reducing their interest rates today – Monday 26th January 2015 to an unprecedented lowest rate ever, starting from just 5.13%!
So what are the factors behind this interest rate drop, given the rest of the equity release companies trail so far behind Aviva in competitiveness?
History of Equity Release Interest Rates
Equity release interest rates historically don’t tend to move that regularly, or by very much. It tends to be market forces that dictate how competitively they wish to be & where they wish to be positioned in the market. Going back the early days of equity release schemes, particularly plans from Northern Rock (now Papilio) and Norwich Union (now Aviva), their early interest rates were in excess of 8%. However, comparatively mainstream mortgage rates were also higher at that time and therefore equity release plans were not considered as expensive as they look today.
Time to Consider Interest Rate Diversification?
However, the difference between mainstream mortgage rates and equity release interest rates is the fact that equity release schemes historically have a fixed interest rate for life. Residential mortgages don’t & therefore can be re-appraised frequently which enables the best interest rate to be achieved each time.
Perhaps it’s time that equity release providers took time to consider this fixed lifetime interest rate offering? Afterall, the reason that traditional equity release schemes have a fixed rate is to act as a safety net due to the compounding effect of interest as no payments are normally necessary, or permitted. This also aides the protection of their insurance policy, which is the ‘no negative equity guarantee’.
How Can Equity Release Lenders Reduce Interest Rates Further?
New Voluntary Repayment Plans from the likes of Aviva, Stonehaven & Hodge Lifetime accept repayments of upto 10%pa with NO penalty and therefore if managed correctly cancel out the potential compounding effect of interest. Therefore, would it not make sense for these lifetime mortgage lenders to offer a reviewable interest rate every so many years? A reviewable interest rate could have a bearing on the nature of early repayment charges where so many equity release companies use the unpredictable nature of government gilts as their barometer. Retirees are looking for greater flexibility these days and a change in structure could certainly assist.
Catering to the New Silver Surfer Generation
More retirees are becoming financially savvy, particularly those arriving at retirement still owning interest only mortgages. This crop of mortgagors have experienced the variances in interest rates & the different types of rates available during their mortgage years. For instance, is it not time for a standard variable equity release interest rate, or a tracker equity release interest rate? Why not, if the interest or upto 10% of the original capital is to be repaid each year, then why is it necessary to have a lifetime fixed interest rate?
If the equity release market is set to expand it needs further innovation & development of its equity release schemes. Therefore, should the forecast for future interest rates be historically low, then it would make sense to consider the options of tracker, discounted or variable interest rates. Perhaps the future of the no negative equity guarantee can be questionable given this has an effect of increasing the interest rate by upto 0.5%?
Why not have the option of choosing whether to include the no negative equity guarantee, or not. With that would come the choice of two representative interest rates; one including the guarantee & a lower interest rate without it. These options could all help to reduce the future interest rates of equity release plans & help the market move forward & expand.
A strong case in question for the optional inclusion of the no negative equity guarantee would be where retirees are committed to making repayments & managing the future balance of their lifetime mortgage scheme. Clearly advice of the consequences of not including this guarantee should always be provided, but we shouldn’t be treating the majority of equity release consumers with kid gloves. Equity releasers can themselves make informed decisions based on the facts & advice provided. As long as the adviser is giving quality impartial equity release advice then why can’t the industry open up & start becoming more diverse in its thought process & product innovation!
New Aviva Flexible Lifetime Mortgage Interest Rate
As stated earlier Aviva are to significantly reduce their minimum interest rate on their Flexible Lifetime Mortgage Plan. Equity Release Supermarket is able to obtain a lower interest rate than mainstream equity release advisers. This is set to continue from 26th January 2015 with the reduction in the minimum interest rate as calculated by the Aviva flex tool calculation. The lowest equity release interest rate with Aviva is determined by personal criteria, such as age, property value & also health.
Consider the following equity release scenario: –
Mr & Mrs Chambers are aged 67 & 64 respectively & own a property valued at £250,000 which is unencumbered. Unfortunately, Mrs Chambers had cancer last year and they now realised how important it is for them to enjoy their retirement. They wish to go on a cruise, carry out home improvements and release approximately £30,000 with access to a future cash reserve facility.
After conducting research with Equity Release Supermarket they were recommended the Aviva Flexi Plan with an interest rate of just 5.13%pa (5.33% representative APR). This recommendation was borrowing £30,000 & having a further cash reserve facility of £33,000 for possible future use.
Aviva’s Lowest Ever Equity Release Interest Rate To-Date
This 5.13% enhanced lifetime mortgage rate is the lowest ever equity release interest rate that any home equity release company has made available in the history of equity release & presents many opportunities for retirees to consider their future finances: –
- Those people with interest only mortgages – where lenders are demanding repayment as the end term has been reached & they are not prepared to extend can benefit from these interest rate reductions. By switching onto the Aviva Flexi Lifetime Mortgage Plan they could consolidate onto a mortgage for life, at a low fixed interest rate, thus enabling them to budget accordingly knowing the interest to be charged in the future.
- Existing equity release customers – who are on interest rates that are over 6%pa should consider whether to remain with their existing lender or switch equity release plans. By taking a lower interest rate would mean less interest charged & hence either a lower future balance, or less interest payments to maintain control over the balance. There are factors to consider such as potential early repayment charges & set up costs, however this is a calculation your Equity Release Supermarket adviser can arrange & analyse for you.
- Anyone over the age of 55 – who has been contemplating taking a release of equity, but maybe waiting for the optimum interest rate or occasion to apply for it. With the various lifetime mortgage schemes available now including interest only, drawdown & voluntary repayment schemes, the equity release market has never been so competitive.
So why have Aviva aggressively reduced their interest rates?
Word has it there are new lenders set to enter the equity release marketplace. With new names entering the market such as L&G and Santander, plus More2life have new funding available, Aviva are sure to find new competitors in their space. Perhaps they are trying to gather as much momentum & market share as possible now before they come under pressure?
We have already seen unprecedented movements in equity release interest rates so early in 2015. More2life’s Enhanced Lifetime Mortgage & Interest Choice plans have seen rate reductions, followed by Stonehaven’s Interest Select range in response to keep their market position above More2life. Whatever equity release 2015 has to hold its going to be exciting time and one for any future lifetime mortgage customer can benefit from with the lowest equity release interest rates ever seen.
Should you wish to request an Aviva Flexible Lifetime Mortgage quote & find out how low your equity release interest rate could go, please contact Mark Gregory on Freephone 0800 783 9652 or email me at email@example.com
Further information on equity release –
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By Mark Gregory on December 15th, 2014
Equity Release Supermarket is delighted to announce the appointment of Gary Webster as the new Head of Business Partner Channels.
Mark Gregory Director at Equity Release Supermarket commented: “Gary’s wealth of industry experience and approach to developing new business channels fits perfectly with the continued growth plans for not only our business, but the equity release market. More detail of our plans will be revealed in the new year”
Gary Webster added: “I was hugely impressed with the fresh and straightforward attitude to doing business here and really look forward to bringing this approach to partners and their clients to get the best outcomes for all”
Gary’s role will involve developing new equity release referral & introducer partnerships for Equity Release Supermarket, an area that will consolidate the business further moving into 2015.
Using Gary’s previous experience in this role, Gary feels he can help build on the success Equity Release Supermarket has already developed with its strong brand & online presence, an area the two can work side by side.
More news will follow in early 2015 including the launch of a new Equity Release Partners website whose functionality will lead the way in this growing B2B market.
If you have any queries in the meantime, please contact Gary on 07908 521038 or email firstname.lastname@example.org
By Glen Pike on December 11th, 2014
Here at Equity Release Supermarket we occasional experience children and attorney’s contacting us asking whether they can take out equity release on behalf of someone they hold an Enduring or Lasting Power of Attorney over? The answer is yes.
However, there are systems in place from equity release companies to protect the homeowner and ensure that any release of equity is being utilised for the correct reasons and correct legally. Looking after someone else’s affairs financially is a big responsibility, not only in looking after the homeowner, but also the responsibility to their beneficiaries.
Being an independent equity release adviser with Equity Release Supermarket, I recently dealt with an Enduring Power of Attorney case which was being utilised to meet ongoing long term care costs that were being provided to enable the homeowner to remain in her home. The following case study illustrates the steps involved in helping the attorney take equity release on behalf of someone they were looking after, due to the onset of Alzheimer’s and the inability for the homeowner to contract themselves.
Equity Release & Power of Attorney Case Study
Initially, I had a call from a solicitor who held an Enduring Power of Attorney over a frail lady in her late 80’s. The lady had nominated the solicitor to be Power of Attorney over 15 years ago as the only family she had was a son living abroad. The solicitor contacted me as the lady had now developed Alzheimer’s and needed 24 hours a day care and was concerned that the lady was about to lose her home and be forced into a care home.
The homeowner was unable to live on her own and the cost of paying for full time carers to stay in the property was costing over £2,500 per month. Due to the ongoing nature of these costs and the fact her income was insufficient to cover much of these expenses, her savings were rapidly reducing and apart from the bungalow, she had no other assets. The attorney, who was also the solicitor had looked into all other options including help from the state, alas none were available.
Additionally, moving home was not a viable option due to the lady’s poor health and she did not want the upset of leaving her bungalow of 20 years and she still had something recognisable to her which was her Labrador. Therefore, with only £15,000 left in savings, time was running out to find a solution as to how to finance the remainder of her years.
The Equity Release Advice Process
I basically dealt with the solicitor as if they were my client taking out the equity release scheme. After taking suitable identification for both the homeowner & the attorney I was able to gather the background to the older lady’s finances. This gave me an insight as to how much was required monthly in order to meet the ongoing long term care costs. My job then was find a suitable equity release scheme that would fulfil the needs of maintaining the payments for the long term care for the first 12 months and then beyond.
After conducting my initial equity release research I advised that a guaranteed lifetime mortgage drawdown scheme was the best option. One particular lifetime mortgage meeting these requirements was from Liverpool Victoria. LV= offer an equity release scheme with a guaranteed drawdown facility, so no matter what happens in the next 15 years money can still be taken from the creation of a cash reserve facility, to guarantee money for future care costs would be available.
This is the advantage of taking completely independent equity release advice as we can research the whole of the marketplace to find the correct scheme to fit with clients individual circumstances. The LV= Flexible Lifetime Mortgage scheme ticked all the right boxes to meet the Attorney’s requirements as a concern of hers was that money would be need to be guaranteed in the future to guarantee the future of her care.
The next step to save time & possible heartbreak later was to check the legal paperwork of the Enduring Power of Attorney was suitable from the lenders perspective. Therefore, I sent a copy of the Enduring Power of Attorney document to LV= legal department who checked over & made sure it was registered with the Court of Protection. It was & met their requirements which enabled me to pass on the good news to the solicitor which gave the green light to continue the process to application.
Not only were LV= happy that the Power of Attorney was registered with the court of protection, but also that there was no conflict of interest between the attorney and the homeowner with the Alzheimer’s. The only other concern for LV= was that there was full time carers living in the property, but who rotated their shifts on a weekly basis. The carers were employed by an agency and after seeing a copy of the agency employment agreement, LV= were happy to proceed as long as the agency would sign a letter to state that upon the death of the homeowner they would cease to remain in the property. This they had no issue agreeing to.
Why Should Equity Release Clients Take out a Power of Attorney?
I always recommend Lasting Power of Attorney to my clients (changed from Enduring Power of Attorney in 2007) as you can nominate someone you trust; family member, friend or solicitor to make decisions on your behalf if needed in the future. However, most people think they will never need it and do not want to think about it is reassuring to know as in the above case that your best interests are being looked after by someone that you trust.
There are two elements to this in England and Wales – the Property and Financial Affairs & the Health and Welfare. This enables attorneys to provide cover for permanent or temporary control of finances and also medical treatment consent. The attorney also has the power to make the decision as to whether the homeowner should be taken into care, or stay in own home & be looked after there.
It is not compulsory with equity release, but is recommended that a Lasting Power of Attorney (LPA) is taken out, so if you get to a stage either through Alzheimer’s or any other reason if you cannot make financial or medical decisions then someone you trust can be nominated on your behalf to make decisions for you. LPA’s can even be used on a temporary basis where then can be utilised if a situation arises and you are unable to sign documents due to a temporary event such as illness, holiday or even broken wrist!
In the above equity release case the advantage of having Power of Attorney in place ultimately enabled the lady to stay in her own home in the first instance and with a guaranteed lifetime mortgage drawdown scheme from LV= it enabled her to stay in her own home for the foreseeable future. This would be via an initial lump sum covering the first 12 months costs, with the option if still required a cash drawdown facility, sufficient to cover a further two years costs, subject to any changes.
My name is Glen Pike & I am a specialist in equity release case studies such as this involving Power of Attorneys.
If you have a similar decision to make on behalf of a parent, or someone close to you and would like a free initial equity release consultation, please contact me on 07510 835613 or email email@example.com
By Mark Rumney on December 7th, 2014
Each year the equity release industry celebrates its achievements at the Merchants Taylors Hall with its version of the Equity Release Awards 2014. This year in particular, equity release schemes have been taken out in record amounts & have led to unprecedented growth. This has been for a number of reasons, but primarily the innovation of new equity release plans from the likes of Aviva, Hodge Lifetime & lately Stonehaven.
However, it is the Aviva Flexible Lifetime Mortgage Plan that here at Equity Release Supermarket has seen the greatest impact & has helped many of our clients achieve their retirement goals. It was therefore no surprise that Aviva won the category of Best Lifetime Mortgage provider in 2014. This followed a series of enhancements to their lifetime mortgage plans this year, coupled with the lowest equity release interest rates, currently starting as low as 5.63% (5.83% representative APR).
These successful changes include:
- Allowing clients to voluntarily repay up to 10% of the original capital borrowed each year, in up to 4 installments with a minimum of £500 a time.
- On joint life equity release cases they now allow the surviving partner to sell their home and repay the scheme without penalty as long as it’s within 3 years of the first person dying or entering long term care.
Thanks to these extra features, Aviva has increased their market share even further but despite winning their equity release award it would be wrong to view their product as the best on the market for everyone. In order to find the best equity release scheme for you it’s important to get independent, whole of market advice from a company like Equity Release Supermarket.
Equity Release Supermarket’s philosophy is to spend valuable time to find out exactly what you’re goals are so that we can recommend the most appropriate scheme based specifically on these requirements. So, once we’ve gathered sufficient information based on your current situation, identified no alternative solutions exist, it is only then that we would enter the realms of recommending equity release schemes.
But how do we work out which equity release scheme is the ‘best’ plan for my clients? We consider a range of factors, such as:
- Equity release interest rates
- Maximum equity release calculation including maximum cash reserve facility
- Early repayment charges
- Set up costs
- Flexible repayment options
- Health and lifestyle factors for enhanced lifetime mortgage plans
- Future retirement plans
- Inheritance plans – attitude to risk
Seven Factors to Help Find the Best Equity Release Plan
Equity release schemes are constantly innovating and keeping up with their progress can be a minefield for those looking for the best equity release plan today. To help provide guidance on understanding the various aspects of equity release plans that can influence this decision, I have provided seven features and areas of research that Equity Release Supermarket advisers would analyze and discuss with you.
- Best Interest rates:
There are some excellent online comparison websites such as www.EquityReleaseSupermarket.co.uk where you can compare the best equity release deals in the market at any given time. The equity release comparison sites will currently highlight Aviva as offering some of the lowest interest rates for both drawdown lifetime mortgages and their lump sum counterparts.
However, simply offering the lowest lifetime mortgage interest rate may not make their scheme the ‘best’. Aviva do charge a higher interest rate to access the funds in any cash reserve facility than the initial rate and they cap the reserve amount if you initially release less than 50% of the overall loan amount. This may not therefore be suitable if you are looking to have a maximum cash reserve facility for your future retirement needs.
Therefore, it is down to your equity release adviser to assess & understand what your priorities are in leading to their recommendation of the best equity release scheme for you.
For instance, if you need to take the maximum equity release loan from your property, interest rates tend to be higher than the drawdown lifetime mortgage schemes. Hence, the ‘best’ scheme could depend on any of the other factors names above. The possible reason for the higher interest rate for the maximum equity releases could be the potential of invoking the no negative equity guarantee is likely to be greater the higher the release borrowed. This cost being passed on by way of the higher interest rate to compensate.
Currently, at the time of writing, the lowest lifetime mortgage interest rate is 4.75% (5.10% representative APR) which is the Hodge Retirement Mortgage. If you want to make monthly payments of interest to maintain a level balance, this scheme is excellent but it wouldn’t be the ‘best’ scheme if you don’t want to make any interest payments. As you can see, the lowest equity release interest rate alone does not determine it being the best scheme.
- Maximum Equity Release Plans
Equity Release Supermarket would always recommend that you only release the capital that you need, rather than releasing the maximum loan. This one area alone, in assessing the best equity release scheme, can have the greatest influence on the final inheritance for your children or beneficiaries. In fact, this aspect we find is where clients need to be guided carefully by their adviser, as many do not understand the consequences of taking too much equity from their home.
In fact, drawdown lifetime mortgage plans are now the most common form of equity release taken in 2014 & will surely be for equity release 2015 aswell. By taking the home equity plan funds in small staggered amounts, rather than all upfront makes practical sense for your own future balance & the inheritance for your beneficiaries. These drawdowns can be taken in little amounts as an initial £10,000, and then followed by smaller £1,000 tranches from the likes of Hodge Lifetime. This can be utilised to suit any future spending plans as & when they arise.
During my 15 years of advising clients on equity release, one of the most common queries I receive is ‘Can I access further funds?’
Let’s look at an example:
Margaret and Graham are both 70 and live in a bungalow worth £300,000. They want to be able to take regular holidays and buy a new car. In the future they’d like to gradually improve their property and supplement their income. My advice was to take an initial loan of £25,000 and set up a reserve facility. In order to work out the ‘best’ scheme for them we discussed whether the interest rate or the size of the reserve was more important to them. They opted for a larger amount of money on reserve. Therefore, after the initial loan – Pure Retirement offered a cash reserve of £83,000, while the Aviva Flexi Plan with a lower interest rate only offered a reserve of £48,000.The clients therefore opted for the Pure Retirement Drawdown Plan based on the future reserve facility.
Another important factor to a recent client was that she wanted the certainty that the funds available on reserve were guaranteed to be in place. Many lenders do not ‘guarantee’ the future of their drawdown facilities in case of change of circumstances, economic reasons or they just decide not to lend again in the future.
My client was concerned in case the lender withdrew her cash reserve funds in the future. In her circumstances LV= proved to be the best equity release scheme for her as they’re the only company to offer a guaranteed drawdown reserve, which is guaranteed to be in place for a minimum of 15 years.
- Best Early Repayment Charges (ERC’s)
Equity release schemes are designed as a lifetime commitment and are not aimed for short term borrowings or people who wish to repay the balance before the plan ends; on death or the last person moving into long term care. That said, there are a growing number of people who would possibly repay their equity release scheme early; due to change in circumstances, future health reasons or maybe family reasons. Therefore the ‘best’ scheme would be one that offered flexibility on early repayment charges over a limited number of years, either none at all or the lowest fixed rate possible if acceptable to the client.
An equity release company plan that has considered the topic of early repayment charges has been Hodge Lifetime. Two of their lifetime mortgage plans have been carefully thought out on this particular subject. The Hodge Lifetime Mortgage Plan allows homeowners the ability to downsize after 5 years of taking their plan & repay their lifetime mortgage with NO penalties. In fact even leading upto this 5 year period, should one downsize the penalty reduces by 1% each year; from 5% down to 0% over this duration.
The second Hodge product that assists with early repayment charges is the Hodge Retirement Mortgage. This product is an interest only lifetime mortgage and has a fixed interest rate for a period of 5 years. The Hodge Retirement Mortgage therefore mirrors this time by aligning the early repayment charges (ERC’s) to match the same term. Subsequently, the early repayment charges are just 5% for the first 5 years of the retirement mortgage term.
Most equity release lenders use government gilts as a measure in working out any potential ERC’s. This means that the early repayment penalty is variable and could be as high as 25% of the initial loan amount. For the standard lifetime mortgage plans, LV= are currently the only company who offer a fixed early repayment charge, which is 5% for the first 5 years and 3% from years 6 to 10. After the 10th year you can repay the scheme without penalty, so this may prove to be the ‘best’ scheme for some clients knowing what their future holds, or the Hodge Lifetime schemes should they have plans for moving house after 5 years.
- Equity Release Set Up Costs:
Typically the lowest set up costs doesn’t necessarily mean the ‘best’ plan, although keeping a check & comparing equity release set up costs is important for a number of reasons, particularly to save money! Why pay more to a broker for their advice fee when another company can advise on exactly the same plan, but for a lower cost.
Equity releases set up costs are made up of a series of fees levied by different parties to the equity release process. These consist of the valuation fee, lenders application fee, solicitors’ fees & your adviser’s advice fee.
Valuation fees vary between lenders, however through certain specialist brokers such as here at Equity Release Supermarket there are now many lenders that will offer ‘free’ valuations by process you application through us.
Lender application fees can also vary, with some either being added or deducted from the release. Remember if the application fee is added this will cost more over the long run if the interest is to compound with no repayments made. The Hodge Retirement Mortgage application fee is the highest at £995, but they do offer the lowest interest rate. Pure Retirement offer a cash-back on some of their plans which can cover all of the set up costs, but their interest rate isn’t the lowest. Just Retirement offer one of the lowest admin fees at £500, but not necessarily the lowest interest rate either. As you can see this is an area where careful advice is needed to find the best equity release plan.
- Interest & Capital Repayment Options
The major change to equity release schemes in the past few years has been the ability to pay either monthly interest or voluntary interest payments in order to cover some or all of the accruing interest. Again, the lowest interest rate might not equal the best plan.
We have already identified that the Hodge Retirement Mortgage offers the lowest rate, but you need to maintain a fixed monthly payment throughout its whole term. However, companies such as Stonehaven & More2life will offer an interest only lifetime mortgage too. However, rather than the concern of possible repossession should payments not be maintained, both Stonehaven & More2life will allow the switch from monthly payments to roll-up (ceasing payments), thus removing the concern of repossession.
Schemes which offer voluntary repayments, such as the Aviva Flexi, Hodge Lifetime and with effect from 1st December Stonehaven Interest Select range all allow upto 10% capital repayments. They all charge a higher interest rate, but they do include greater flexibility with regards to permitting these 10% voluntary payments.
The Hodge Flexible Lifetime Mortgage Plan & Aviva offer these schemes, and have now been joined by Stonehaven. Having a flexible approach has proved a popular way forward for many that wish to retain control over their future balance. These voluntary repayment lifetime mortgages can be planned so that either just the interest is repaid, thus keeping the balance level, or repaying the full 10% and actual seeing the mortgage balance reducing & even repaid over a period of 16-17 years!
- Health & Lifestyle Factors
Your health & lifestyle won’t affect your eligibility for equity release but can actually improve the amount you receive, or the interest rate you obtain! There are currently four equity release companies that offer enhancements to their schemes.
More2life & Partnership Assurance specialise in enhanced lifetime mortgages, however they may not be the ‘best’ plans as the interest rates are often higher. However, this for some retirees interest rates may not be priority, but the maximum equity release lump sum is. Aviva also offer enhanced lifetime mortgages and can either offer a higher maximum release on its Lump Sum Max plan or alternatively reduce their interest rate, if the maximum is not required & taken on their drawdown flexi plan. Depending on your health criteria, some lending may not accept certain ailments. However, certain enhanced lifetime mortgage companies such as Just Retirement, will go deeper into their health & lifestyle questionnaire & consider illnesses the others won’t accept.
- Inheritance guarantees
It’s sometimes important that my clients can leave a set inheritance for their families and some lifetime mortgage providers, such as More2Life, Aviva & New Life offers such guaranteed inheritance features. The inclusion of these guarantees can impact the interest rate and the amount of capital available, so careful consideration is needed to work out the ‘best’ scheme.
On forgotten equity release scheme that is over looked by many advisers are home reversion plans. Companies such as Bridgewater, New Life & Crown still offer this older form of equity release. Its popularity has waned considerably over the years, however the major benefit of home reversion plans is their ability to guarantee an inheritance at the end of the day. This works by selling a percentage of the property to the reversion company in exchange for a cash lump sum. The proportion of the property not sold is guaranteed to be passed on to the heirs once the house is eventually sold.
Overall, equity release advice is a specialist area of retirement planning. As we’ve seen there isn’t one scheme which is the ‘best’ on the market or fits all. There are far too many features & personal issues to consider that could have relevance to your recommended equity release plan. Thankfully, there are plenty of different options from many different providers. By receiving quality, bespoke advice from Equity Release Supermarket we can work out the ‘best equity release scheme‘ for you, without any obligation.
If you are looking to source the best equity release scheme for your particular circumstances & in need of specialist advice then please contact me – Mark Rumney on 07957 974826 or email – firstname.lastname@example.org
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By Simon Bates on November 15th, 2014
While equity release schemes have been available for many years, the concept of the enhanced equity release seems to have been a more recent addition. However, the history of the impaired equity release has been around for almost a decade.
Companies back then such as Partnership & Hodge did offer enhanced or impaired life home reversion schemes. In fact Hodge themselves did have an enhanced lifetime mortgage that was withdrawn only pre credit crunch era. These plans were not sold a great deal and their impact was minimal.
More recently enhanced lifetime mortgages have seen a resurgence in popularity as they have been redesigned & improvements made to the underwriting process. Enhancement to an equity release mortgage means that the amount of equity available to you can be increased based on your current or pre-existing health conditions. It works similar to the impaired rates offered from annuity providers whereby based on a medical questionnaire, the lenders underwriters will assess the maximum equity release available.
Equity Release providers who currently offer Enhanced Lifetime Mortgage rates are:
- Just Retirement
Aviva equity release offer 2 plans; the Aviva Lump Sum Max offers a higher loan amount if you qualify for impaired terms. Alternatively, you could benefit from being charged a lower interest rate on the Aviva Lifestyle Flexible Option, with rates starting as low as 5.63% (5.7% representative APR).
More2life & Partnership offer a lower qualification threshold than Aviva for qualification on their enhanced lifetime mortgage schemes. Where Aviva offer one enhanced lifetime loan-to-value ratio, More2life & Partnership provide different levels of maximum release based on how serious the impairment is.
Just Retirement being specialists in the enhanced annuity market take a more scientific approach & will consider more illnesses including COPD. Their actuaries will individually assess each Lump Sum Plus case to determine the maximum equity release available.
What illnesses qualify for an enhanced lifetime mortgage?
Most of the impaired health conditions, which can qualify for enhanced terms, are similar with all of the above lenders and include-
- Height and weight
- Smoking details
- High blood pressure
- Heart attack
- Parkinson’s Disease
- Early retirement due to ill health
- Even whether prescription medication is being taken
The amount of extra money that you can release depends on three factors; age of the youngest applicant, the value of the property & which conditions you have & the level of severity of each impairment.
You may simply qualify for an enhanced lifetime mortgage based on your height and weight which is represented by your BMI (Body Mass Index). Typically, the greater the number of conditions you have, the higher the maximum equity release loan amount that is available.
What are the qualifying criteria for an enhanced equity release?
The minimum age is 55, which out of the four equity release companies only Aviva will accept and additionally there is no maximum age. Joint life customers can also apply although it’s usually the health of the younger person which affects any enhanced rate. The minimum property value can be as low as £60,000 from More2life while properties must be located in England, Scotland & Wales with Aviva also lending in Northern Ireland. The lowest enhanced equity release available is £10,000 with no upper limit from the likes of Aviva.
How much more tax free cash does enhancement provide?
A recent client of mine, age 69 had a property valued at £250,000. Based on standard terms he was able to release a maximum equity release loan of £86,250. However, he suffers with high blood pressure and diabetes. Based on his ill-health & completion of a health & lifestyle questionnaire, the loan amount was increased to £104,500 by More2Life, so he was able to release an extra £18,250.
He set the More2life enhanced lifetime mortgage plan on a drawdown basis. This enabled them to release an initial £30,000 and still leave a reserve facility of £74,500 with More2life which he can access in the future without incurring further fees. This meant he has the flexibility of a drawdown lifetime mortgage but with the benefit of an enhanced drawdown facility.
Will I need to have a medical?
The good news is that you won’t have to attend a medical to qualify for enhanced terms. Lenders ask you to complete a health & lifestyle questionnaire and sign to confirm that your medical details are correct. Following submission of the equity release application, each lender may simply write to your doctor to confirm that your conditions are accurate, so that you qualify for the best terms possible.
If you are a smoker, they may ask you to undergo a simple non-invasive test and require you to confirm your consumption and the extent of your smoking habit. The test, which they arrange and pay for, is carried out by a qualified nurse in the comfort of your own home.
How do I find out if I qualify for enhanced terms?
You should always to seek advice from an independent equity release specialist. As part of the process of checking whether equity release is suitable for you or not, we will always ask clients for details of their medical history to ensure that we can tailor any advice to their fit their circumstances. At the end of our initial meeting we would then conduct research from the whole of the equity release market to find the most suitable plan. If you do qualify for an enhanced rate, we can then produce an equity release key facts illustration to explain how the lifetime mortgage works.
Where can I get more information?
We have information on all the enhanced products in the compare equity release deals section of our website along with the useful enhanced equity release calculator.
If you wish to speak directly with me, please feel free to contact me direct on 07415 275669 or email email@example.com for further information. There’s no obligation and any information you provide is confidential.