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Archive for the ‘Hodge Lifetime’ Category

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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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

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.

 

 

Equity Release Schemes Available In Scotland

Thursday, March 28th, 2013

It’s been a long time coming, as the song goes but Scotland is at last catching up with the rest of the UK when it comes to the uptake of equity release schemes.

 

The reason the Scottish equity release market has not grown as quickly in the past as the rest of the UK is that a lot of Scottish homeowners have very close family ties and traditions and want to leave their property and estate as inheritance for their families and have been happy in the past to either down size or make do.

 

One of the common objections to equity release in Scotland was the loss of inheritance for the family. However, with the new range of equity release mortgages this loss of potential inheritance can be resigned to the past.

 

In the last year alone, many changes have taken place within the equity release market. All equity release schemes Equity Release Supermarket recommend still have the ‘SHIP’ standard – a ‘no-negative equity guarantee’ built into them. SHIP has now come under the auspices of the Equity Release Council in maintaining this important protection feature.

 

Latest equity release schemes

In addition to the no negative equity guarantee, new innovative plans have been introduced with options such as the Inheritance Protection Guarantee, where a percentage of the property value can be ring fenced to protect the family inheritance. This provides peace of mind in protecting a fixed final amount of the property value to be left as an inheritance for the family at the end of the day.

 

Hodge Lifetime have recently brought out a roll-up lifetime mortgage plan where they will allow up to 10% of the capital borrowed to be repaid each year by cheque, again a way to protect the loan from the effects of the roll up of interest. Not only can the interest be repaid, but additionally a proportion of the capital by paying the maximum 10%pa in repayments. Effectively this renders the Hodge Lifetime scheme a capital & repayment equity release mortgage!

 

Stonehaven have also moved into Scotland with an interest only lifetime mortgage. The Stonehaven Interest Select plans operate on an interest only basis with a balance that remains constant throughout the mortgage term. This continues so as long as the monthly payments are made, resulting in a loan that will never be more than the initial amount at the start of the plan.

 

These Stonehaven equity release schemes in Scotland are eventually repaid from the sale of the property. The interest rates are currently the lowest we have seen from Stonehaven since they started over 6 years ago at just 5.99%.

 

Scottish interest only mortgage enquiries

From the number of interest only lifetime mortgage enquiries Equity Release Supermarket now receive in Scotland, many people have also noticed this, and taken advantage of these low interest rates which are then fixed for life. Providing security, not only for inheritance purposes, but also in fixed lifetime monthly payments is something that the over 55’s in Scotland are looking for.

 

Equity release plans are not only weathering the economic downturn, they are offering a much needed lifeline to homeowners in this time of austerity. It may not be the best option for everyone in Scotland and by seeking independent financial advice it is important you also consider any alternatives beforehand.

 

Nevertheless, if you are sitting with a lot of equity in your home and you are over 55 years of age why deny yourself a good lifestyle in retirement, when unlocking some of the equity in the home could help make life a lot more comfortable for you, or your loved ones.

 

In this growing equity release market with new providers and new plans coming along it is more important than ever to get the correct advice from a specialist dealing in equity release such as the Equity Release Supermarket.

 

If you wish to find out more about any of the plans mentioned then do not hesitate in making contact with the author of this article – Nigel Hall who would be more than happy to help.

 

To request a free initial consultation on the range of equity release schemes available in Scotland call Nigel Hall on 07553 408010 or email nigel@equityreleasesupermarket.co.uk

 

 
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