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 In fact Hodge themselves did have an enhanced lifetime mortgage that was withdrawn only pre credit crunch era.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 protected] for further information. There’s no obligation and any information you provide is confidential.
By Cathy Miller on July 5th, 2014
It has recently come to my attention, having watched my own daughter attempt to buy her 1st property, how difficult it has become for 1st time buyers to fulfil their dreams of becoming a homeowner.
It also occurred to me that EQUITY RELEASE could in fact play a significant role in assisting the “Bank of Mum and Dad” and others in providing funds to enable these dreams to come true.
First some FACTS:
- The average age for 1st time buyers is now 29
- 2/3rds of 1st time buyers now turn to the Bank of Mum and Dad (BoMAD) for help
- 30 years ago 12% of income was needed for a deposit on a property. Today this is staggering 82%!
- The cost of an average house in the UK is 10 times bigger than the average salary rising to 14 times in London
- In all but 2 regions in the UK, prices are 7 or more times the average salary for that area (Office of National Statistics)
- More than 3.3 million 20-34 year olds were still living with their parents in 2013
Although these figures clearly indicate it is becoming almost impossible for 1st time buyers to get on the property ladder, help could be at hand – YES, from the “Bank of Mum and Dad”
Parents are an obvious first point of call. However with rising living costs, low interest rates and diminishing savings pots, it has become increasingly more difficult for mum and dad to find surplus funds to gift to their children, grandchildren or loved ones, to assist in fulfilling the dream of property ownership.
However, there could be a way to take an early inheritance from parents now in order to benefit 1st time buyers when the money is needed the most!
A special type of retirement mortgage commonly known as Equity Release could potentially unlock cash tied up in a parent’s property. This can enable mum & dad to generate sufficient funds to gift as a deposit on a property purchase for their loved ones.
What is equity release?
Equity release schemes are available in two formats – home reversion & the more popular lifetime mortgage. Both of these equity release schemes enable people who own their main residence to release a percentage of its value in return for a tax-free cash lump sum. These two types of equity release mortgages then run for the rest of your life & only repaid once upon death or moving into long term care.
The equity release scheme known as a lifetime mortgage has proven the most popular due to its flexibility. This has been strengthened this year with providers such as Hodge Lifetime & Aviva both providing an option to repay upto 10% of the original capital borrowed each year. Therefore, control over its final balance, or even repayment of the whole scheme over the longer term could represent a serious possibility, for either parents to pay, or the children themselves!
Lifetime mortgages are available to those aged 55+, with a minimum property value of £60,000. The amount that can be borrowed is not always based on affordability, but on factors such as age & property value. Effectively, the older you are, the greater amount of equity you can release.
Following a release of the equity, the lifetime mortgage company places a first legal charge on the property. This is exactly the same as any conventional mortgage and 100% legal ownership is still retained by the client providing peace of mind.
Typically, someone age 60 could release equity of between 18-25.5% of the value of the property, dependent on the lender concerned. These equity release funds can be spent on anything you like, however a sensible & cautious approach is always advised. Therefore, parents looking to assist their children onto the property ladder, a lifetime mortgage could prove an effective mortgage vehicle to achieve this goal.
Which equity release schemes can help 1st time buyers?
Equity release schemes have become a lot more flexible and innovative these days. You can choose to make NO repayments and have the interest added to the loan which is known as a roll-up lifetime mortgage. The amount borrowed plus any interest accrued is repaid upon sale of the property. This would happen on death (last death if joint plan) or having to go into long term permanent care. Thought must be given here should there be more than one beneficiary. With an increasing balance & possibly reducing net equity figure, consideration must be afforded to any remaining beneficiaries as to what they may potentially receive at the end of the day?
However, there are new repayment versions of equity release schemes that have proven even more popular with parents looking to securely gift money to their children to help with a property purchase.
Interest only lifetime mortgages from Stonehaven & more2life will allow the repayment of just the interest only element. By repaying interest charged each month prevents the loan from increasing and thus remains level for the rest of the mortgagor’s life. This is a great idea when there is more than one child involved. The problem has always been how to separate the gift now, from the overall inheritance at the end of the day if more than one child is involved?
The solution is having an interest only lifetime mortgage. By knowing in advance what the balance will be, this loan amount can be deducted from that child’s share of the inheritance at the end of the day. This would be even fairer for the other siblings, should that child also pay the monthly premiums on behalf of the Bank of Mum & Dad!
NEW -Voluntary partial repayment plans
Equity Release Supermarket now has access to specialist equity release schemes where there is the option to repay up to 10% of the original capital released each year without any early repayment charges. These equity release schemes through Aviva & Hodge Lifetime have proved popular for those not just looking to repay the interest, but also the opportunity to repay the equity release scheme in full over approximately 16-17 years. These voluntary partial repayment equity release schemes are proving to be the next generation of the equity release market.
How is the Bank of Mum & Dad protected?
All the equity release schemes we recommend are members of the Equity Release Council, which means that there are certain guarantees built into them for consumer protection. As a minimum the Equity Release Council will ensure the following guarantees are included:-
- The schemes are portable and can be transferred to another qualifying property should you wish to move in the future
- There is a no-negative equity guarantee which means a debt cannot be left to your estate even if the value of the property becomes less than the balance of the loan outstanding
- You can live in your house for as long as you wish and with a lifetime mortgage you retain full ownership
- They can be repaid at any time, subject to potential early repayment charges
Benefits of using Equity Release
Contrary to directly gifting your property to your children, by using equity release to gift instead, would avoid any Capital Gains Tax as the main residence is retained by the client. There could still be a potential Inheritance Tax liability, but only if the client died within 7 years of the gift.
The lifetime mortgage would be a deductible liability against the client’s estate, reducing the value being taxed and although interest would have to be paid on the loan; this could still prove beneficial to both the client and those receiving the gift. Always consult a tax expert on these matters in conjunction with your independent equity release adviser.
Of course let’s not forget the best part of this!
The potential to fulfil the dreams of our loved ones in an age where quite frankly, property purchase is almost becoming nothing more than just a dream for some. The joys of parenthood!
I would be delighted to offer a FREE initial consultation to discuss any of the above matters relating to how equity release can help your children step onto the property ladder.
Please call me on 07788 605620 or 0203 7517228 or email [email protected]
By Mark Gregory on May 27th, 2014
Aviva equity release plans have proved the most popular form of lifetime mortgage scheme over the past 15 years.
The reason for their popularity has been down to a combination of brand name, simplicity and the fact that Aviva have regularly provided the lowest equity release interest rates.
However, during that time there has been a cloud hanging over their lifestyle flexi mortgage range and that is the issue over the maximum early repayment charge & the lack of a partial repayment facility. It’s always been a case of all, or nothing with regards to paying off Aviva’s equity release schemes – now we have a choice.
Aviva – time for change
In the past few weeks Aviva have bravely taken steps to alleviate these issues with some bold amendments to their lifetime mortgage range. In fact the impact these changes could make, will dramatically alter the way equity release schemes will be used & managed in the future. Other equity release companies will undoubtedly take note of these new features & it can only signal the start of further innovation in lifetime mortgage industry.
Aviva have introduced three new approaches to equity release: –
- new voluntary repayment features can be used to actually clear the equity release loan over a set number of years
- Aviva apply a different approach to enhanced equity release rates by actually reducing the interest rate on offer (see later article)
- An early repayment charge exemption can be applied on first death for any new joint equity release lifetime mortgage (see later article)
Why Aviva needed to up the ante
Monday 28th April heralded the start of swinging changes to the Aviva Lifestyle Mortgage range. All Aviva’s new equity release applications from this date forth would have the ability for partial repayments to be made back to Aviva.
However, from our company perspective during 2013, Equity Release Supermarket had seen its share of applications move significantly towards the Hodge Flexible Lifetime mortgage range. This has been due to Hodge Lifetime’s two pronged attack on becoming the most popular & flexible lifetime mortgage product. Their innovative move towards being able to repay upto 10% of the original capital borrowed & the ability to downsize after 5 years & repay the loan with NO penalty has captured a large market share.
Aviva has now responded to the popularity of the Hodge Flexible Lifetime Mortgage plan by matching the 10% repayment option & additionally providing more beneficial features!
A new dawn for the equity release market has started.
How does the Aviva Voluntary partial repayment option work in practice?
From inception of the new Aviva equity release plan there is the inherent ability to make repayments of an ad-hoc nature back to Aviva. Aviva do have a cap of 10% of the original capital borrowed that can be repaid in any one year. Additionally, the earliest date that the first repayment can be made is 12 months from the commencement date of the plan. So some forward planning needs to be made & this ideally would have been made with the involvement of your equity release adviser at recommendation stage.
Consideration needs to be borne in mind that interest will be added to the plan in the meantime for calculation purposes. For example, if a sum of £40,000 equity was initially released at an interest rate of 5.68%, the balance before any repayment could be made would be £42,272.
This is where the first decisions on how much to pay back need to be made, and there are three options available:-
- If only a fixed budget is available, then a contribution towards the interest accruing could be made. Should this be less than the annual amount of interest charged, then the balance will still increase, albeit at a lower rate than would otherwise have been should nothing have been repaid.
- Should a level future balance be the choice moving forward, the sum of £2,272 could be annually sent back to Aviva, thus reverting the balance back to its original starting point of £40,000. This process could theoretically continue infinitum until the plan ends, which would be upon death of the last borrower or them moving into long term care. The balance would always flicker between these two figures, dependent at what point the repayments of £2,272 were made.
- If total repayment of the £40,000 is required, then a repayment strategy could be put in situ which would see this whole amount repaid over a set number of years. Dependent upon how much is initially borrowed & assuming maximum repayments of 10%pa can be maintained for the duration, Equity Release Supermarket can calculate at what point the plan can be fully repaid with NO penalty!
As an example Equity Release Supermarket have calculated someone borrowing £40,000, on the popular Aviva interest rate of 5.68%pa, & repaying the maximum £4,000pa could repay their Aviva lifetime mortgage shortly after the end of the 16th year.
Could this be classed as the first capital & interest equity release mortgage?
Please contact us on 0800 678 5159 for your personalised Aviva repayment calculation or click this link.
How do I physically make voluntary repayments back to Aviva?
A reminder to make repayments will begin with the receipt of your first annual Aviva equity release mortgage statement. This will evidence the amount of interest that has been added to your plan. It is at that point that the first repayment can be made back to Aviva. The question is how much to pay & this will be down to an individual’s personal preferences.
Aviva have cleverly side stepped the issue of MMR (Mortgage Market Review) here. Whereas companies such as Stonehaven & more2life have had to adapt their interest only lifetime mortgage process to the new MMR regime, Aviva due to their ad-hoc approach to repayments have avoided the MMR obstacle. Regular payments cannot be set up to repay the Aviva equity release schemes. Although Aviva do permit upto 4 payments each year, subject to a minimum amount of £500, the repayment process has to still be managed through their head office.
This repayment process would initially involve a phone call to the Aviva offices advising them of the fact a repayment is due to be sent to them. In reply they will provide a verbal form of quote which acts as confirmation. This can be confirmed in writing to you & optionally your adviser aswell so they are aware of your intentions.
The next step would be to send the money which can be in the form of a cheque, credit or debit card or a bank transfer for which Aviva will provide their details & reference number to track. They will not accept payments without this process having been accomplished, or contact being made beforehand. In fact they could return the funds should this process was not followed.
Important repayment points to note
As previously stated, repayments can only commence after 12 months from inception of the loan. However, Aviva have imposed further 12 month conditions on when repayments can be made following certain events: –
- Following withdrawal of cash funds from the drawdown facility of the flexible lifetime mortgage
- Should any additional borrowing be taken in the future
In both situations, no repayments can therefore be made for 12 months following these two events also.
Additionally, the same applies in reverse;
Should a customer have made repayments and has an available cash reserve under their drawdown plan, they cannot gain access to the reserve or additional borrowing until 12 months following their last repayment has been made.
Aviva may consider requests for a further release of equity in exceptional circumstances outside of that rule.
These rules are effectively to prevent to the to-ing & fro-ing of cash funds within the plan which would undoubtedly have made the Aviva equity release plans unmanageable and unprofitable.
Functional planning ideas for managing voluntary repayments & retaining a cash reserve
Although it’s still early days in the life of the new flexible repayment options, some ideas on managing the Aviva voluntary repayments have already sprung to mind.
Unlike Hodge Lifetime, Aviva do not impose a £10,000 lower capital threshold by which no further repayments can be made without penalty. In fact Aviva will allow the continued repayment of interest & capital with NO minimum amount down to zero, or even almost zero.
This could be beneficial for those who want to see the equity release balance to be reduced to a minimum level (e.g. £100 or less), yet still maintain the option of keeping their drawdown lifetime mortgage cash facility for the future. Bear in mind the small outstanding balance will accrue interest (albeit minimal), yet for many the comfort of retaining a cash reserve may have massive benefits should cash be required still in the future.
Aviva have responded well to the changing needs of the baby boomer generation as equity release moves into the next stage of its development. Retiree’s financial needs are becoming more complex with almost 75% of pensioners owning their own property, even carrying debt into retirement & living much longer than previous.
Aviva’s latest changes will therefore appeal to both advisers and consumers alike who are looking for more flexible loan terms on the long road ahead.
To request an Aviva Flexible Lifetime mortgage quote with voluntary repayments please click here.
Click the following link for your FREE Aviva capital repayment calculation.
To discuss any of the points raised in this article please contact Mark on 0800 783 9652 or email [email protected]
By Mike Vicary on May 25th, 2014
In my last article on this subject in February 2013 I drew attention to the ease with which borrowers could escape the higher equity release interest rates charged by Papilio UK, the successor to Northern Rock. I also reminded Papilio equity release borrowers that the option to take further loans from Papilio UK, an option Northern Rock originally considered, was no longer available.
Since my original Papilio article, Equity Release Supermarket have been inundated with enquiries leading to many satisfied clients switching to cheaper lifetime mortgages. And with many lifetime mortgage lenders currently offering free valuations and cashbacks, the costs of such transfers rarely exceed £1,500 – a sum that could soon be recovered through cheaper borrowing or funded by increasing the new mortgage.
Indeed, with fixed interest rates as low as 5.63% (5.83% representative APR) we have achieved savings for our clients of over 1.3% on their loans. With such low equity release interest rates, now is an excellent time to consider a remortgage from Papilio UK to a new provider.
Reasons to switch equity release plans
This could be for one of two reasons;
- To borrow additional funds & consolidate all old & new borrowings under one roof with a much lower interest rate.
- To simply swap equity release schemes on a like-for-like basis, but obtaining a much lower interest rate for the long term.
As an example in real terms, assuming that you remortgage a lifetime mortgage of £50,000 onto a fixed rate of 5.68% from a Papilio UK equity release mortgages rate of 6.99%, then after just 10 years the saving in interest charges would be in excess of £15,000. This would be not only beneficial for you if you require further borrow in the future, but also your beneficiaries who would now receive a larger inheritance.
Obviously, the larger the loan is, the greater the potential savings. This in turn would make large savings for your ultimate beneficiaries. Think of switching equity release schemes like any residential remortgage; you want to obtain the best rate for your outstanding debt, so as not to pay any more interest than necessary to the mortgage lender. The equity release switch principle works in exactly the same way.
New equity release schemes have greater benefits
In addition to the cheaper cost of borrowing, many lenders with whom you can swap equity release schemes to have now developed much more flexible lifetime mortgage plans.
For example, you could select a new lender with various penalty free options. The most recent innovations in the lifetime mortgage market are:
- Lifetime mortgage plans with Hodge Lifetime & Aviva where voluntary repayments of upto 10% per annum can be made each year. These ad-hoc repayments enable you to ‘control’ the future balance of the loan. This could be to maintain a level balance or even use it as a capital & interest mortgage by repaying the whole balance over a set number of years.
- Downsizing protection option from Hodge Lifetime which allows full repayment of the plan after 5 years by “trading down” your home. Therefore, if you move house & downsize you have the option to clear the whole mortgage debt & end up equity release ‘free’.
- Depending on the value of your property, you could remortgage to a new drawdown lifetime mortgage where a cash reserve facility could be established for ready access to further loans in case of future need ( a great way of protecting a surviving spouse on a reduced income)
- The option to protect a percentage of the eventual sale proceeds of your home with a guaranteed inheritance protection option for your children and beneficiaries.
So why consider switching from Papilio UK now?
The present economic conditions will not last for ever. Long term interest rates have started to creep up and the recent increase in property values in certain parts of the country might not be sustained. The Governor of the Bank of England warned over the weekend about the danger of the property “bubble” bursting, and this could remove from those with larger loans the opportunity to escape the higher interest rates charged by Papilio.
In our opinion, the time to act to escape Papilio UK equity release mortgages is NOW before interest rates increase and property values fall. And if you intend to take action then swapping equity release scheme from Papilio could be your recommended ‘escape route’
For further information, or to receive a FREE initial consultation, please contact me, Mike Vicary, on 07795 195302 or if you prefer email [email protected] where I would be more than happy to discuss your options.
The Papilio UK remortgage process
In the meantime it would be advisable to write to Papilio UK to obtain an up to date redemption statement to include all fees and the ongoing daily accrual of interest. Their address is:-
PO Box 1003, Ipswich, Suffolk, IP1 9UZ (Tel: 0844 8464716).
Armed with this information, I can then discuss with you your financial position and future plans and make a formal recommendation, if appropriate. You would receive clear details of the benefits to you of the Papilio UK remortgage and a full breakdown of costs.
Assuming you accept my recommendations, then we would complete the application paperwork at a mutually convenient home visit (preferably with family members present) or by post.
Following that Equity Release Supermarket would then oversee the valuation of your home by the new lender and we would instruct your solicitor on your behalf.
(We would strongly suggest appointing a specialist solicitor from our recommended panel to ensure that the transaction is completed as quickly and efficiently as possible.)
Our new business administration department would then manage your equity release application through to a successful completion by liaising with your new provider, solicitors & yourself. Once arranged, the Papilio UK equity release mortgage would have been repaid & the outstanding balance transferred to your new lifetime mortgage company & taking full advantage of the new lower rate &/or additional borrowing.
The time to take action is now.
Please do contact me for a free consultation on 07795 195302 or email [email protected]
By Mark Gregory on May 20th, 2014
Anytime housing values begin to increase, it is time to assess the home buying situation. Retirement has been a topic of some concern for those heading into their 60s. In fact, over 55s are starting to realise while they have worked hard, they may not have enough in their pension portfolio to live on. The reason is all down to living longer – longevity. The average life is no longer to 70, but closer to 90 for females. Even in London families are cash poor, but property rich. Take advantage of new housing statistics and use a UK equity release calculator to determine if there is an equity release solution for you. London equity release schemes are being called upon because of their ability to help those who need cash, but own large amounts of equity in their property.
Equity Release Defined
Equity releases most popular form is the lifetime mortgage. This mortgage comes in various guises and can either come with or without a method of monthly repayment until the property is sold, either because the homeowners move, pass away or end up in long term care. The mortgage can be taken out from the age of 55. These lifetime mortgages do collect interest based on a fixed APR that adds up each year until the mortgage is repaid.
The London Housing Market
London housing prices have increased by 17.7 per cent in the last year. New and pre-owned homes in London are continuing to increase rather quickly. While housing prices are increasing, mortgage interest rates have actually decreased in the last few years, however storm clouds are on the horizon with news that early 2015 could see an interest rate rise. The monthly cost even on equity release is lower than in previous years. Now with lifetime mortgages it is true you do not make a monthly repayment; however, it is important to use an equity release calculator to compare the cost of your lifetime product against a standard mortgage.
By comparing the two you can determine if the low monthly cost stacks up against the equity lifetime release. Standard mortgages in London offer a loan to value of 75 per cent, meaning the other 25 per cent has to be a down payment for the purchase of the property. Even the LTV has been increasing over the last few years and markedly in the last few months. What this means for lifetime equity release is a higher percentage of lump sum tax free cash available for homeowners.
The increase of housing prices means more value is in the home, thus more money can be released with any form of available equity release product. Even though there is a potential for more money to be available, it does not mean all homeowners will take the larger lump sum. It is just important to know it is available and there as a back-up should anything untoward happen.
Agenda – Lifetime Mortgage
Lifetime mortgages are defined and the London housing sector is ripe for the picking. You have an idea of the solution, but why might lifetime mortgages continue to rise in popularity even in the Big Smoke?
Younger generations tend to spend more during an average week than older generations, say those in their 80s. Many retirees are in their 60s, which means they are still spending money as if they were working.
If you add the expenditures that occur each week to the recession issues of the past couple of years, there is a detriment to retirement funds for most individuals, even those in London. Especially people living in London, considering the expense of daily living without being overly effusive with spending.
Housing costs to run a large home, food purchases, travel, and entertainment are all going to be more in the capital city. As retirement pensions and other retirement investments lost a great deal with stock market troubles, it has left many retirees without enough funds to sustain their retirement life.
More so has been the fundamental flaw in endowment mortgage schemes whereby large shortfall are being evidenced upon maturity of the endowment plan. This has left many London homeowners with shortfalls on the repayment of their interest only mortgage. Therefore, London equity release schemes have come to fruition with the likes Of Stonehaven, more2life & Hodge Lifetime whom can provide an escape route via remortgaging onto their London lifetime mortgage schemes.
It puts lifetime mortgages on the agenda because they are a way to gain cash for mortgage repayments, general living, extravagant holidays, and any other type of entertainment retirees might wish to enjoy. The cash poor situation suddenly becomes obsolete as the property rich gain a little of that hard earned money back to use as they grow older.
Inheritance Factors are Imperative
As you consider whether a lifetime mortgage is right for you, it is imperative to think about inheritance, especially with the associated property values in London borough’s. A large estate when provided to family all at once is subject to inheritance tax over & above the £325,000 allowance for each party. This tax can be so large that it wipes out the entire inheritance. It is the reason those with a huge estate set up trusts and other tax planning instruments which can alleviate some of the IHT burden.
A lifetime mortgage can work in one of two ways, both as detrimental to any inheritance you may want to leave behind, but can also be used as a successful vehicle for mitigating IHT issues. Even in London, equity release can threaten an inheritance depending on the type of loan. For instance, the roll-up lifetime mortgage has the interest compounding as long as the mortgage is outstanding. On the other hand it is an opportunity to disperse inheritance without fear of taxes. By using a UK equity release calculator, can help you calculate the percentage of loan to leave as an inheritance.
Before entering into any equity release contract, you must seek independent equity release advice from a reputable company. For a full list of equity release brokers visit the Equity Release Council website, where using a postcode search can identify a London equity release brokerage near to you.
By Mark Gregory on March 24th, 2014
While you might think that going direct to the biggest brand name in the equity release market would be your cheapest option when looking to unlock the equity in your home, you’d be wrong.
The leading name in the equity release market is Aviva. Through Aviva Direct they had provided the services of their own dedicated field based sales force to both advise you on clients options and sell you their products. But the direct sales team needed paying for, and those costs were to be met in sales. This sales force needed wages, pensions, company cars, holidays, benefits, a mobile phone. All of this costs and Aviva needs to find that money from somewhere. Their only real option is for all of that to be costed into the direct product.
Saving through independent equity release services
In contrast to the Aviva tied-in sales model, an independent equity release brokerage such as Equity Release Supermarket costs the company much less. They don’t have to pay any of those costs or expenses, and those savings can be passed onto you, the consumer. Aviva also want to encourage those independent advisers to send them more business. This is how independent companies can offer more competitive deals and rates. They have no obligations to the lenders.
For instance, Equity Release Supermarket can obtain rates on the Aviva Flexible Lifetime Mortgage Plan, starting at 5.68% (5.88% APR). If you get the same deal directly by making the enquiry at Aviva now, even though it won’t be Aviva whom you deal, the rate would be much higher. Beware.
This is the reason that Aviva closed down their direct equity release offering as of 1st July 2013. Today over 80% of all equity release deals are coming in through independent firms. Customers have discovered that the best deals could only be found this way. Aviva was the last big company to still provide the direct service, but now they have realised that they can offer the best service to their customers through independent companies.
How Do Aviva deal with their enquiries now?
Since Aviva Direct was disbanded, enquiries still filter through from the general public. Not only that, Aviva have still continued with their direct marketing as can be evidenced on their paid listing on Google. But why would they continue marketing when they have no advisers to deal with their Aviva equity release enquiries?
Aviva made the unusual decision to use independent equity release brokers to handle the new business & any Aviva additional borrowing enquiries. However, even more unusual is the fact that these independent brokers are unable to deal with these enquiries on an independent basis. They must handle these Aviva potential consumer enquiries by only recommending Aviva’s own lifetime mortgage products. Not only that but this doesn’t come with the independent & best Aviva equity release UK interest rates. Yes, a premium would be paid.
So where do you find the best Aviva equity release interest rates?
As with any purchase to be made, the safest option is to always shop around. Therefore, if an Aviva referral to an outsourced company has been made ascertain their independence and whether this constitutes the best equity release deal. Once the quote & recommendation has been made, it then time to research the whole of the equity release market & compare deals. Using comparison tables such as prepared by CompareEquityRelease.com, you can see where the lowest rates relating to drawdown lifetime mortgages, lumps sum plans or even interest only lifetime mortgage scan be found.
The message is to understand your needs first. Don’t just plump for the first recommendation, especially if the company providing the advice can only recommend an Aviva plan. Aviva do have a very competitive offering, but this must come from an independent source, not a tied representative arrangement. This tool they use to get the best Aviva interest rate is called the Aviva Flex Tool.
What is the Aviva Flex Tool?
Independent equity release brokers have access to a unique quotation tool called the Aviva Flex tool. This is the pre-quotation tool that helps design the customer’s rate & product, whether it be an enhanced lifetime mortgage or maximum lump sum or the Aviva flexible drawdown plan. Based on criteria surrounding the clients ages, property value, health & loan-to-value will determine the lifetime mortgage rate offered. The higher the loan-to-value, the higher the interest rate usually becomes. Additionally, for drawdown lifetime mortgages, the greater the reserve facility required, the higher the interest rate becomes. There, is also the option of choosing certain offers, such as free valuation or a £500 or £1000 cashback.
Therefore, by using a combination of tactics with the size of the cash lump sum, the reserve facility and the cashback/valuation offers can manipulate the interest rate in the clients favour. This is something that only a specialist equity release adviser with access to the Aviva Flex Tool can provide & by contacting EquityReleaseSupermarket.co.uk, this access can be made available.
Work these extras into your Aviva plan
You can build these cash extras to the Aviva plan through Equity Release Supermarket. You might wish to include a free valuation of your property before deciding, or add £500 or £1000 cash back. These are deals that you can only obtain by using one of the top equity release firms in the UK. And the best price on those deals can only be found when using independent advice through companies such as Equity Release Supermarket rather than going through the equity release firm directly.
For a free initial Aviva quotation, call the team on 0800 678 5159 or alternatively complete this Aviva quote request form.
By Mark Gregory on March 22nd, 2014
Pure Retirement recently became the latest equity release provider to enter the lifetime mortgage market. Launched in January 2014, it signalled the re-emerging confidence & growing popularity in the equity release market.
However, it makes no sense for a new lender to enter the market without finding a niche for itself. So, over the past few months Equity Release Supermarket advisers have encountered practical experience of where the Pure Drawdown Plan has fitted in providing best advice scenarios. Here we help explain where we feel the Pure Retirement Plan wins, in an already competitive equity release marketplace.
First, the Pure Drawdown Plan in Detail
Before we enter the wheres & wherefores of how the Pure Plan fits in with equity release recommendations, let’s look at the Pure Retirement plan facts…
The Pure Retirement Drawdown Plan is the first offering from the new lender formed by funding assistance from equity release brokerage – Age Partnership. This follows the similar relationship that exists between more2life & Key Retirement Solutions and represents a growing trend where brokers have become equity release providers. This similarity is also evidenced from where the funding source is derived, in that Pure Retirement relies also on the same annuity backed insurer to give it the ability to fund its lending – Partnership Assurance.
The Pure Drawdown plan is a lifetime mortgage that starts later in life than most equity release schemes with a minimum age at commencement of 70. It’s aimed towards the higher end of the loan-to-value ratios without any medical underwriting, which the enhanced lifetime mortgage plans have the advantage of.
The starting percentage is 36% of the property value at age 70, which compares favourably with other high LTV products. Albeits not the highest maximum equity release plan out there, it has a neat trick up its sleeve with how it can still compete with these maximum lifetime mortgage plans. Details of how are explained later in this article.
As a member of the Equity Release Council, the Pure Drawdown Plan offers a free no-negative equity guarantee and 100% ownership of the home. Portability enables you to still move house once the plan has been set in force and the interest rate is fixed for life, launched at a reasonably competitive 6.74% monthly rate (7.1% representative APR).
The minimum loan is higher than most at £25,000, which is where Pure Retirement’s market lies and is available in England, Scotland & Wales.
This is a roll-up lifetime mortgage plan with the option of a cash reserve facility. Therefore, Pure Retirement will calculate the maximum release possible, from which an initial amount can be withdrawn. Any funds untaken, remain in a cash reserve held by Pure Retirement at no cost until needed in the future. Should it later be necessary to access these funds, they can be drawndown in minimum amounts of £5,000 with no further charges.
Where Pure Retirement Lifetime Mortgage Strengths Lie
As an independent equity release adviser, one of the most common reasons for client objection lies in the costs of implementing an equity release scheme. Here is where the Pure Drawdown Plan wins – set up costs!
Only one equity release company has previously offered a scheme whereby the standard terms dictate a cost effective route to market for any client taking out a lifetime mortgage, & that’s Partnership’s Enhanced Lifetime Mortgage. Some lenders will temporarily create pockets of time whereby a cashback exists or a reduced interest rate for a limited period, but these come & go.
However, Pure have created these features as a permanent fixture & all credit to them in seeing this gap in the market and understanding what the consumer requires. Afterall, many applicants want a release of equity to help them financially as they have limited funds in the first place. By asking them for more money up front, it makes the process more difficult for them to get the whole application underway. Pure Retirement alleviate these areas, both pre & post application stages, let me explain how and why.
Pure’s Set up Costs
Pure Retirement provide a two tier set up cost operation; one for equity release loans between £25,000 & £44,999, the other based on loans in excess of £45,000.
All equity release schemes will normally incur set up fees in four main areas – Valuation, application, solicitor & adviser charges.
Pure approach this differently in the sense they aim to cover the majority of costs; the more one borrows, the greater the help provided. For loans over £45,000 the cost is enhanced furthermore by them providing: –
- FREE valuation
- NO application fee
- Contribution of £600 towards legal costs
- Contribution of £500 towards the advice fee
Therefore, dependent upon how much the advice fee being charged is, which in the case of Equity Release Supermarket its £895; the net advice fee cost would only be £395. Bearing in mind we can source an ERSA equity release solicitor, for a reasonable £495 + VAT & disbursements (including home visit) the £600 contribution from Pure Retirement should cover this on a standard freehold property. This effectively means to implement a Pure Drawdown Plan with Equity Release Supermarket would only cost approximately £395!
Where Does the Pure Retirement Plan Offer Clients Best Advice?
As previously stated, Pure Retirement Drawdown Plan has been targeted to meet those clients looking towards a maximum equity release in order to assist them with their retirement needs.
A recent example of how the Pure Drawdown Plan can still offer a client a greater net amount, even though the maximum release is lower than a competitor, can be illustrated by a case I recently encountered: –
Pam, aged 79 was looking to move property & required a lifetime mortgage to help her with the purchase. She was in good health & needed the maximum release possible to not only help with the purchase but also the moving costs & legal fees.
The purchase price for the 3 bedroom flat in Cornwall is £140,000.
Pamela requires the maximum release possible which following extensive research would point towards the Just Retirement Lump Sum Plus plan which would release £64,400 at an annual interest rate of 6.75%. This comes with a free valuation, £600 application fee, legal costs & advice fee.
Looking further down our research table identifies the Pure Drawdown Plan with a 6.74% monthly interest rate. However, the maximum release Pure would offer would be a lower amount of £63,000. But upon delving deeper into this product & by analysing the charging structure it shows that the actual Pure Retirement net release could be higher.
Fee Type /Provider
| Just Retirement
Evidently, the Pure Retirement plan has £1700 reduced set up costs, compared to the Just Retirement plan. The next part of this calculation is then offsetting this £1700 advantage that Pure Retirement has against the £1400 extra that Just Retirement can release as their maximum.
The final result therefore shows that Pure Retirement will have a greater net release to Pam of £300 and therefore proceeds with the recommendation as the £300 would be more advantageous in her pocket.
The message therefore is never look at the top line maximum amount, but always to consider any incentives that may help improve the net offering.
Existing Equity Release Customers Looking for Additional Funds
Other areas where Equity Release Supermarket customers have already benefitted from the new Pure Retirement lifetime mortgage is under two scenarios: –
- Where they have an existing equity release plan & need further funds.
- If looking to obtain a lower interest rate, yet no lender can provide sufficient funds to enable the equity release remortgage
Following the routine check to see if any additional borrowings are available with their existing lender, it’s then our duty to research the whole of the market to see if any other equity release providers could assist.
One of the issues against switching equity release schemes is usually the set up costs that prohibit the transfer. Under the two scenarios, in the first the charges could swallow up any of the spare cash being targeted, and in the 2nd scenario the set up costs make any transfer non-profitable as these costs offset any future savings in interest.
Its therefore the case that set up costs can prevent future maneuverability with any home equity scheme.
This is where the Pure Retirement Drawdown Plan can come into its own with its lower set up costs. Under both scenarios, Pure’s reduced set up costs will help with the switching of equity release schemes. Under the 1st scenario it will lead to more funds being available to withdraw & secondly in obtaining a lower interest rate its helps bring forward the break-even point.
Set up costs are an important aspect in the consideration of accepting any equity release recommendation. However, your adviser should consider the whole picture and features necessary in your meeting your requirements. This is why any equity release adviser should be experienced, qualified and importantly independent too.
If you feel that the Pure Drawdown Plan could be of benefit to you, please contact Mark Gregory on 0800 783 9652 or email [email protected].
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By Mark Rumney on March 10th, 2014
Throughout our working lives, retirement always seemed a distant destination. Plans to ensure that financial security is bestowed upon us are often postponed, while more pressing needs are fulfilled. Yes, the date to start a pension or retirement planning was always the proverbial ‘tomorrow’.
Unless you were fortunate enough to become a member of an employer’s final salary scheme, which even today are becoming a rarity, then it’s likely that the penny has dropped and there will ultimately be a reduction in income, once state pension age is reached.
However, all is not lost & although many people haven’t necessarily funded a pension or savings contract for their retirement, they may have inadvertently been savings via their biggest asset…their property!
Should any of these comments strike a chord, then please read on. Using my wealth of financial services & the last 14 equity release experience, I want to explain how your property can become your pension & take you down the road of enhancing your pension in retirement.
The inevitable expense of retirement…
First let’s start by establishing what the perception of retirement is & the future expenditures that maybe incurred during its reign.
These could encompass simple lifestyle costs such as any of the following: –
- A new car?
- Regular holidays?
- Home improvements?
- A caravan or motorhome?
- More leisure time for golf or bowls?
- Enjoy days out?
However, for many the reality of meeting these expenditures becomes a pipe dream as once retired, they could find their income severely reduced. In fact in some cases, pensioners have seen a reduction of two thirds of the income that they enjoyed whilst working. The danger of this becomes apparent. From experience many retirees DO NOT curb spending habits to realign their expenditures following a reduction in income.
This situation has led to a dramatic increase in post-retirement debt counselling, with many building significant credit card debt, which then spirals out of control. During times of employment debt can usually be easier to manage, with the ability to repay using extra hours, bonuses, overtime or even a 2nd job. These options are somewhat reduced for the silver surfer generation, albeit more retirees are considering working, & actually are filling vacancies that once were not considered unnecessary in retirement.
So what are the options, should the over 55’s find themselves with an income shortfall & need advice on their retirement solutions?
Well as stated earlier, your home may have become an extremely valuable asset with potential escalation its value over the decades. So let’s look at how your house could become your pension and provide a level of financial security.
Home equity plans have been around many years, but have never been as popular as they are today, so here I attempt to explain the pros and cons of equity release schemes.
Why do people take out an equity release plan?
More and more people are turning to equity release to fund home improvements, pay off debts and to enjoy holidays, but the underlying reason for this is that their income has reduced so much since they retired, they’re no longer able to save for larger purchases.
Similarly, many retirees are spending their tax free cash from their pensions on larger purchases, such as a new car and conservatory, but are finding that their disposable income has reduced to the extent that there’s hardly anything left each month having paid their household bills and bought their groceries etc.
We’ve all seen in the news that pensions aren’t producing the expected level of income that people hoped for: some final salary pension schemes have closed; annuity rates are historically lower as life expectancy improves; interest rates on savings have flat lined since the economic downturn, with even the highest instant access cash ISA rate only offers 3.02% variable (Newcastle Building Society).
Explore potential sources of additional income
Assuming that you’ve spent your lifetime savings, don’t wish to move or downsize yet, and have exhausted all other alternatives upon discussion with an equity release specialist like Equity Release Supermarket, there’s a number of other alternatives for you to consider:
- The first step should be to check if additional income could be sourced from elsewhere such as local government? Always check whether any means tested state benefits or such as pension credit, or local authority benefits now labelled ‘Council Tax Reduction’ may be available. Please see my recent article on this – ‘Can an Equity Release Adviser Provide Advice on Means Tested State Benefits?‘
- Finally, if you’ve got any existing debts, these could be refinanced & consolidated, potentially leaving you with one lower monthly payment. These savings can then be used towards providing extra income in retirement.
What’s the best way to get an income from equity release?
No current lifetime mortgage providers actually offer a monthly income equity release plan. In fact only one provider ever has; Northern Rock offered an income producing lifetime mortgage. This was pulled once Northern Rock Equity Release (now Papilio UK) was closed to new business during the credit crunch. Even during its lifetime, the Northern Rock Cash-Plus plans were fairly inflexible in the sense that once income was arranged, it was fixed for life and could not be amended.
Nowadays, the majority of equity release applicants would rather have the flexibility of deciding when the take the tax-free cash, not to be dictated to with a fixed income for life. The most prudent & popular way is to use a drawdown equity release scheme. This is available from most lifetime mortgage providers and I can carefully assess which scheme is most suitable for you. By accepting a cash reserve facility from the equity release company, the applicant can then decide how much of this reserve facility they need to spend initially. The remaining balance untaken, is then held by the lender until such time the customer requires further cash drawdown. The beauty of the drawdown lifetime mortgage is that NO interest is charged whilst monies are left with the provider.
Let’s look at a couple that I met recently and witness how a drawdown equity release scheme works in practice:-
Case Study – ‘asset rich, income poor’
Jim & Mary, both aged 70, own a property worth £250,000 and are both retired. They manage reasonably well from their pension income, but this only pays for their normal day to living expenditure and they’re unable to afford the small luxuries in retirement that they’d always dreamed of. They’d like an extra income each year to pay for regular meals out, a cruise each year plus they like exploring National Trust type properties and country villages.
The solution: They’re able to release the minimum loan of £15,000 which will easily cover their first 2 years of expenditure as they also need to use £5,000 for a new bathroom. In order to supplement their on-going income needs they’d like £4,000 ‘spending money’ each year. With the versatility of the Hodge Flexible Lifetime Mortgage Plan, they’re able to achieve this as Hodge would set up a reserve of £55,000 that can be accessed at any time, with a minimum withdrawal amount of £1,000. These extra withdrawals attract NO further charges.
Jim described this as ‘like having a bank account with £55,000 in it.’ The benefits to Jim & Mary are that none of this £55,000 reserve facility attracts any interest until it’s actually taken. They plan to withdraw around £4,000 a year for approx. 10 years, whilst they’re fit and healthy to enjoy it. The Hodge Lifetime Flexible Mortgage Plan comes with a free valuation offer currently.
When equity release should NOT be used to create an income!
Some equity release customers in the past have been advised to release the maximum lump sum from their property and reinvest into an investment product. Problems have arisen, as the income has reduced and the investment has often dropped in value, while interest on the equity release has rolled up and provided poor value for money.
Similarly, some customers previously released a lump sum to buy an annuity but it has proved difficult to get a good income from a relatively small lump sum. It normally takes considerable time to benefit from a pension annuity, but interest will have been charged on the full amount of equity that you originally released from your home.
Other customers have taken the maximum lump sum from their home and invested into deposit accounts or investment bonds, but have been dismayed with plummeting interest rates. With interest rates on equity release loans currently averaging over 6%, yet the best savings rates currently only 3%, this obviously represents poor value for money & certainly not best advice.
These are NOT ways that equity release mortgages should be utilised and why the drawdown lifetime mortgage scheme is the correct vehicle to use.
What are the main advantages of a drawdown scheme versus a maximum lump sum plan?
- Interest isn’t charged on the reserve amount, until you decide to take it
- You can withdraw money from the reserve at any time
- No further charges for each withdrawal made (except New Life & more2life)
- Limiting your savings in the bank, can help eligibility for means tested benefits
- The less money you borrow, the less interest your beneficiaries will need to repay when the plan ends
How much can I release under a Drawdown equity release scheme?
The amount depends on a number of factors, including property value, age of the youngest applicant and property type. With recent innovations in equity release schemes there is now an enhanced drawdown lifetime mortgage plan which can offer a greater cash reserve facility for those with a history of poor health, yet requiring the maximum cash facility available.
Equity Release Supermarket’s free equity release calculator found here our website can certainly assist in helping to ascertain the maximum equity release possible. This will provide a guideline which can then be qualified further by myself dependent upon your financial requirements, both now & in the future.
Therefore, please contact myself, Mark Rumney for your personalised illustration. Your request can be discussed over the telephone & once I have identified your requirements & checked eligibility. Following that, I can conveniently post or email out the best recommended scheme for your needs.
To follow up any aspects of this article, please contact me via my mobile 07957 974826 or email [email protected]