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Steps to Finding the Best Equity Release Scheme

Sunday, December 7th, 2014

Best equity release schemeEach 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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!

 

  1. 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.

 

  1. 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.

 

Summary

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 – markrumney@equityreleasesupermarket.co.uk

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How Your Medical History Can Enhance the Maximum Equity Release

Saturday, November 15th, 2014

Enhanced lifetime mortgage lifestyle questionnaire

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:

  • Aviva
  • More2Life
  • Just Retirement
  • Partnership

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
  • Diabetes
  • Stroke
  • Angina
  • Cancer
  • Parkinson’s Disease
  • MS
  • 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 simon@equityreleasesupermarket.co.uk for further information. There’s no obligation and any information you provide is confidential.

Revealed – How the Bank of Mum & Dad use Equity Release to Fund 1st Time Buyers

Saturday, July 5th, 2014

Bank of Mum & Dad

 

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!

 

Next Steps…

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 cathy@equityreleasesupermarket.co.uk

Switch Equity Release from Papilio UK – Time is running out

Sunday, May 25th, 2014

Switch equity release from PapilioIn 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;

  1. To borrow additional funds & consolidate all old & new borrowings under one roof with a much lower interest rate.
  2. 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:

  1. 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.
  2. 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’.
  3. 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)
  4. 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 mike@equityreleasesupermarket.co.uk 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 mike@equityreleasesupermarket.co.uk

How to Get the Best Aviva Equity Release Deal

Monday, March 24th, 2014

Best Aviva equity release interest ratesWhile 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.

Practical Applications of the Pure Retirement Drawdown Plan

Saturday, March 22nd, 2014

Pure Retirement Drawdown PlanPure 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: –

 

  1. FREE valuation
  2. NO application fee
  3. Contribution of £600 towards legal costs
  4. 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: –

 

CASE STUDY

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

Valuation

Application

Legals

Advice

Legal Contribution

Advice Contribution

Net Costs

       Just         Retirement

FREE

£600

£600

£895

£0

£0

£2095

Pure Retirement

FREE

£0

£600

£895

£600

£500

£395

 

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: –

 

  1. Where they have an existing equity release plan & need further funds.
  2. 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.

 

Summary

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 mark@equityreleasesupermarket.co.uk.

 

 

Further Information

 Request Pure Drawdown Quote | Pure Product Specs | How Much Can I Borrow? | Contact Us

How Equity Release Schemes Can Help Generate Extra Income in Retirement

Monday, March 10th, 2014

How equity release can provide extra income in retirementThroughout 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 markrumney@equityreleasesupermarket.co.uk

 

New Plans, New Providers, New Horizons – Equity Release 2014

Friday, January 24th, 2014

Equity Release 2014 Having been in the equity release industry for the past 14 years, there has never been as much optimism & confidence in this sector as there is now. Against a backdrop of reductions & barriers to lending in retirement, the equity release marketplace is expanding faster than most other areas of financial services.

 

Equity release 2014 holds the greatest number of reasons why the over 55 age group are now considering equity release schemes as their route to financial freedom & lifestyle improvements.

 

But first we need to understand the issues arising in 2014 for many retirees and how the stress associated with managing retirement finances can be alleviated. Furthermore, we’ll discuss why there is a change in attitude towards equity release, people’s inheritance and how the equity release lenders are developing products to meet the future needs of today’s baby boomers.

 

So why now & what are the reasons?

 

Firstly, it looks like 2013 laid the foundations for the recovery of the equity release market. A record £106billion equity release lending took place, which was a 10% increase on the previous year and this takes us back to the halcyon equity release days of 2006. But the numbers do not explain the underlying reasons, only the resultant effect.

 

I believe the huge growth in demand is down to a number of factors as follows:-

 

 

1. Baby Boomers – Primarily there are a record number of so called ‘baby boomers’ who are reaching retirement age. It is estimated that up until 2018 record numbers of upto 700,000 people will turn 65 each year and begin to draw their pensions and purchase annuities.

 

At that point, once the new financial landscape is established, will it dawn on many that the difference that retirement has made to their disposable incomes & the sacrifices & cut backs that will need to be made. But surely retirement should be time to retire & relax & enjoy the fruits of one’s career?

 

The transition from a paid salary to a reduced fixed pension can be difficult and for some, one many never really come to terms with. There have been many cases at Equity Release Supermarket, whereby following the first few years of retirement we are arranging equity release for the consolidation of debts such as credit cards & loans. This was a result of continued spending following retirement without carrying out what should be a mandatory income & expenditure analysis.

 

 

2. Indebtedness – Many of these baby boomers reaching retirement have grown use to managing debt during their working lives. This generation have lived through vast fluctuations in the economy such as interest rates, inflation & the recent credit crunch. Having come through the worst of this & still showing such positive signs of equity, gives them the confidence of maintaining such debts into retirement. Afterall, this age group are probably the ones with the best repayment history, credit record, guaranteed incomes and all coming with security of tenure in their properties!

 

A recent study showed that one in six over 65’s expect to borrow money in retirement to meet their retirement goals. In fact in the last year alone, 16% of over 65’s applied for a loan or credit card. The issue nowadays is of course that credit is not as readily available and one in ten applications from over 55’s will be declined, as lenders become far less willing to lend into retirement.

 

This applies to mortgages also. Lenders are increasingly calling in mortgage balances from customers aged over 55. It’s estimated 1.3 million households over 55 are still paying their mortgage, of which 289,000 over 65 year olds are still saddled with a mortgage debt! These are the people who will be looking towards equity release solutions in 2014 & beyond.

 

 

3. Interest only Mortgage Prisoners – Worse still are the Financial Conduct Authority (FCA) figures confirming the size of the ‘interest only time bomb’ looming. Of the volume of interest only mortgages due for repayment by 2020, 1 in 10 of these mortgages have NO repayment plan and upto 1.3 million interest only borrowers face shortfalls averaging £72,000.

 

So how will these people find these shortfalls and where do they turn for advice?

 

Well as we mentioned, lending into retirement has been constricted by the FCA’s stance and with MMR (Mortgage Market Review) being implemented in April 2014, lenders are under further scrutiny as proof of affordability becomes entirely their responsibility.

 

Therefore, as we are already seeing by the upturn in the volumes of business, the equity release industry is becoming the saviour for the interest only mortgage short fallers. In providing an equity release safety net, many of these trapped borrowers have another option than having reluctantly to sell their homes to fund the shortfall.

 

However, the solution will only be made available should loan-to-values fall within lender criteria, which for lifetime mortgages are currently stand at a maximum of 30% at age 65, rising to a maximum of 54% by age 85. These calculations can be confirmed using the Equity Release Supermarket calculator.

 

However, two further factors could influence these results; health & lifestyle and incomes.

 

Firstly, should a history of adverse health be prevalent then a range of enhanced lifetime mortgage products are available which will release a greater lump sum than standard equity release schemes. Secondly, the signs are more retirement mortgages could be introduced during 2014. Already the Hodge Retirement Mortgage has been bravely launched against the tide of lenders withdrawing such products. Currently, the Hodge Retirement Mortgage will lend upto 50% of the property value at the current interest rate of 4.75% (5.1% APR), subject to income(s). Click here for details on the Hodge Retirement Mortgage or call 0800 678 5159.

 

 

4. House Purchase/Moving Home – we are seeing the data already in 2014 from mortgage lenders regarding the upturn in mortgage lending which has been due to the housing market improving significantly. With support from the government with its ‘Help to Buy’ scheme, this has stimulated the housing market from the bottom end and resulted in a knock on effect up the ladder.

 

We are seeing an increasing number of Equity Release Supermarket clients using interest only lifetime mortgage products to assist with their house purchase. We can advise on products from Stonehaven, Hodge Lifetime & more2life whereby the interest element & possibly more can be repaid back to the lender with no penalty, & are becoming a high percentage of our overall equity release plan recommendations.

 

Additionally, we are experiencing retirees at a critical point in their lives looking to downsize, or move nearer to their families. This could be for disability or financial reasons and moving into a retirement properties where less maintenance is required. Purchasing such property may still require finance to bridge any shortfalls, or create surplus funds for other financial/personal reasons.

 

 

5. Burgeoning Confidence & Optimism – There has been a silver lining to the issues of retirement finance…PROPERTY. Staggeringly, 69% of the over 65 year old population own their home outright & unencumbered. The most recent research has calculated the over 65’s own a combined £752 billion in housing wealth!

 

With this kind of security behind them and the changing attitude towards inheritance is beginning to shape the equity release landscape we are seeing & being developed as we speak. Traditionally, roll-up equity release schemes were the norm. Compounding of interest put many people off releasing equity. As a consequence, interest only lifetime mortgages have come to the fore. In being able to control the balance by making regular or ad-hoc repayments, one can now maintain a level balance, or even reduce it year-on-year. We have evidenced the growth in inheritance protection via lifetime mortgages and will become another of the factors affecting the growth in equity release for 2014.

 

Flexibility is key for many now entering the market. One major step forward for equity release mortgages came with the advent of drawdown lifetime mortgages. Here borrowers can withdraw tax free cash in stages from a pre-agreed facility. Drawdown equity release now accounts for over 64% of all plans written during 2013. Hence, another good factor to influence the popularity moving into 2014.

 

Finally, we have the latest news there will be a new equity release provider in early February – Pure Retirement will be entering the market with an initial 2 product launch, followed by more products they anticipate later in the year. This comes hot on heels of recent press murmurings over the weekend that L&G could soon be re-entering the equity release arena after originally departing in 2004 when they white labelled Northern Rocks equity release proposal. There is also much product development behind the scenes with Aviva revamping their lifetime mortgage. Details once known will follow on this website.

 

All this development and equity release press coverage stokes up the interest in a market that has previously been in the doldrums, but has listened to the consumer & now developing products to match retirement planning needs.

 

Summary – Equity Release 2014

Equity Release will take off in 2014 because providers have listened to their customers and they can be very demanding and rightly so. Customers want flexibility, they’ve got it, Customers want no early repayment charges, they’ve now got it, Customers want to repay capital without penalty, they’ve got it, Customers want to pay off the interest, they’ve got it, and customers want to partially repay the interest without being tied or committed, guess what? …they’ve got it!

 

There has never been a better time to consider equity release, so here’s to looking forward to 2014.

 

Call freephone 0800 678 5159 to discuss any aspects of this article or complete our contact form to register for 2014 updates as & when they are announced.

 

 

Can an Equity Release Adviser Provide Advice on Means Tested State Benefits?

Wednesday, December 18th, 2013

Claiming council tax benefits & pension creditDuring 13 years of giving equity  release advice, one of the first questions I ask new clients is whether they receive any means tested benefits or not. It’s a crucial part of the advice process as a professional adviser needs to check what impact, if any, equity release might have on vital state benefits that they receive.

 

It’s also really important to find out the exact income of every client to check for potential means tested benefit entitlement. I’ve interviewed equity release clients who didn’t even realise their entitlement and thereafter have subsequently made a successful claim which has led to extra available income.

 

How do I check to see if I’m eligible for benefits?

I would strongly recommend anyone who is about to retire, or is already retired, call the pension credit Freephone number to check for eligibility on 0800 991234 to get their situation individually assessed.  You can also click on the attached link: https://www.gov.uk/pension-credit-calculator to check your eligibility online.

 

Similarly, you should also call your local council tax benefit enquiry helpline number to check for council tax benefit. The telephone number will be on your last annual statement. Usually, if you qualify for pension credit you should also be able to get a reduction of some or all of your council tax benefit.

 

As a part of my recommendation process, I would fully assess your financial situation which would also include reviewing your means tested benefits during our meetings. As the initial consultation is free, I place no financial burden on you, so use my experience to the maximum & see if there are further entitlements you could claim.

 

Qualification rules and how much benefit can I receive? 

The earliest age you can qualify for pension credit was aged 60, but this is gradually increasing to age 66 from 2020. For tax year 2013/2014 pension credit should be available if a single person’s income is less than £145.40 per week, or £222.05 for a married couple. Your savings can also impact your eligibility for pension credit and council tax benefit but the relevant agencies do ignore the first £10,000 of savings that you hold. Savings between £10,000 and £16,000 can still mean that you receive some benefits but savings in excess of £16,000 normally mean you’re not entitled to any benefits.

 

From age 65 you may also be entitled to savings credit of up to £18.06 for single person and £22.89 for a married couple. You might be eligible for this as long as your income is less than £190 per week for a single person or £279 per week for a married couple.

 

Will I lose my benefits if I take a release of equity?

With advice from a skilled adviser at Equity Release Supermarket, you shouldn’t normally lose any benefits. If you’re already receiving means tested benefits and you’re thinking of equity release it’s best to have your situation analysed by finding a qualified equity release adviser. I also suggest that you contact the pension credit and council tax benefit helplines to discuss your situation. However, the rule of thumb is that if after releasing equity your savings are less than £10,000 your benefits shouldn’t be affected. Equity Release can be carefully planned to ensure that this this remains the case.

Let’s look at recent clients I’ve met and provided lifetime mortgage advice to:

 

Brian was aged 65 and his home was worth £200,000.  He wanted to release equity of £20,000 to buy a new car and bathroom but he was in receipt of pension credit and council tax benefit. As Brian was spending the money straight away there wasn’t any changes to his benefits, as he only kept his existing savings of £5,000 in the bank. He released £20,000 on the Aviva Lifestyle Flexi Plan and also had another £23,500 available in the reserve facility we created by recommending a drawdown equity release lifetime mortgage. Again, this money in his reserve doesn’t impact his benefits as it falls below the £10,000 limit imposed. He can thereafter take small amounts of at least £2,000 whenever it’s needed. This will mean that his savings are still kept below £10,000 and therefore not affect his benefits.

 

Terry & Margaret were both aged 67 and their home was worth £180,000. When they retired 2 years ago, Terry received a tax free lump sum from his pension which paid for a new car, a conservatory and they had a couple of holidays, but were left with less than £2,000 in the bank. They were in receipt of pension credit and council tax benefit. They could manage on their income but wanted funds to pay for a new kitchen costing £5,000 and wanted money for holidays over the next 10 years. Although they could release over a one off lump sum of around £50,000 from various equity release providers this would have proved catastrophic as they would have lost their entitlement to their much needed benefits. This is where careful planning by an equity release adviser can help. Instead they took out a drawdown lifetime mortgage with an initial loan of £10,000 to pay for their kitchen and for 2 holidays. They were also able to set up a reserve of capital of £41,000 with New Life and will be able to release regular withdrawals of at least £5,000 to fund their future holidays. This doesn’t have any affect on their benefits.

 

Additional lenders offering drawdown equity release schemes are Hodge Lifetime whom allow further withdrawals of £1,000, with Just Retirement, LV= and Aviva having a minimum of £2,000 cash reserve withdrawal limit.

 

Please remember that state benefits rules can change at any time. Special rules apply to making gifts with equity release. The benefit figures above relate to tax year 2013/14 & maybe subject to change.

 

How do I get more information on equity release and state benefits?

 

Whenever you consider equity release it’s important to get a fully authorised equity release adviser to carefully check your situation regarding means tested benefits, as well as checking overall suitability of the schemes.

 

Here at Equity Release Supermarket, we’re able to help you with this during our meetings. We do not charge for your initial consultation which can be conducted either in the comfort of your own home or over the telephone, to suit.

 

Please feel free to contact myself if you have any queries on equity release schemes and how they could affect your state benefits. My name is Mark Rumney & can be contacted on mobile 07957 974826 or email markrumney@equityreleasesupermarket.co.uk

Drawdown Lifetime Mortgages Offer the Key to Buying a New Static Caravan or Motorhome

Sunday, December 15th, 2013

Buying a Static Caravan with a lifetime mortgageOne the great advantages of Equity Release or Lifetime Mortgages is the ability to raise extra cash to enjoy in your retirement. Although a recent study showed that up to 42% of Lifetime Mortgages are taken out to pay off loans and mortgages, almost 30% are being used to enjoy holidays.

 

Equity Release Experience Counts

As an equity release specialist, I personally have had clients who have spent money raised to visit family and friends in the Far East, usually travelling in comfort as 1st class passengers on their long-haul flights. Some have taken the occasional Mediterranean cruise or a trip with the family to Florida. All these expenditures may seem extravagant. However, as a more down to earth extravagance has been the number of clients who have raised money to spend on something a little more permanent and closer to home – a Static Caravan.

 

The issues with purchasing a static caravan

Before anyone purchases a static caravan they must undertake research as to the implications & costs involved. With the cost of caravans and site fees often approaching £3,000 per annum, they have until now been out of the reach of many potential buyers, but things are changing.

Many people who own or looking to purchase a static caravan tend to be of retirement age & it’s now dawning on many who previously couldn’t afford, that they now have a financial opportunity to purchase the caravan of their dreams.

 

Case Study

I can refer to one particular couple, who until retirement had been able to afford to stay at a particular holiday site on the East Coast. With a reduced income and a smaller than expected pension they realised that they would no longer be able to do this. They missed being with their son and his wife and their grandchildren on what had been a regular holiday, an increasingly rare time when all the family was together.

 

A finance meeting with all the family took place to discuss how they were to fund the purchase of the static caravan, which was to cost, including fees a little over £25,000. Following a review of their current financial situation and understanding their objectives, I was able to make an equity release recommendation. To enable them to fund the purchase of the static caravan, it was decided that a drawdown lifetime mortgage would suit them best. This would allow them to borrow the initial £25,000 lump sum required and by creating a cash reserve, it would additionally provide access to more cash in the future to pay for annual maintenance and site fees.

 

The family who were present & involved by request at the meeting were all in agreement. During the meeting I would understand the lifestyle benefits the drawdown lifetime mortgage advice would create. For instance, he grandchildren would be able to stay for extended holidays, which pleased everyone and their children could see the advantage to themselves of sharing a place at the coast to get away for a few days. (free of charge of course!)

 

The on-going and future benefits were interesting. Not only did they spend more and more time at the caravan, away from the stresses of town life, but they found they increased their circle of friends, joining in social events arranged at the park and in the locality. This is something that many forget about the virtues of equity release schemes; how equity release can change one’s life.

 

They also had the opportunity to holiday with friends and former work colleagues which added to the sense of being part of a community, and they also found there was an element of camaraderie amongst owners as each owner kept a watchful eye on their neighbours caravan and there was always someone willing to inform them about the area and it’s facilities. Such as, where to get the ‘best cup of tea’.

 

In a similar situation, one item on their ‘bucket list’ for clients in the Peterborough area was to continue to take regular holidays in retirement. With the increased cost of holiday insurance due to health reasons and the problem of putting their two ageing dogs into kennels, holidaying abroad was becoming too expensive and impractical so they decided to buy a motor home and travel,  as and when they wanted.  They too were able to do so by taking a release of equity from their home to fund the purchase of their own static caravan.

 

Summary

In essence, equity release schemes come in various guises. Both lifetime mortgage and home reversion plans are designed to ultimately provide the tax free cash to effect life changing events. This can be for both lifestyle changes and life changing purposes.

 

As an Equity Release Supermarket adviser, I feel privileged to be able to offer this service to people over the age of 55.

Should you have an interest in purchasing a mobile home or static caravan and need assistance or advice then please contact Equity Release Supermarket on 0800 678 5159 or email admin@equityreleasesupermarket.co.uk

 

 
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