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AVIVA Equity Release - Latest Changes To Interest Rates & Lending Limits

Sunday, June 6th, 2010

This article provides information on the latest interest rates & changes that Aviva are making to their product range.

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With the current shortage of equity release lenders, additional pressures are mounting on the remaining companies providing equity release schemes.

These lenders are now experiencing larger than normal business volumes as the number of providers has dwindled over the past 12 months. As a consequence some servicing issues are of concern, of which the biggest provider is now addressing.

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Of these equity release companies; Aviva are the first to change their lending criteria & this post provides details of this in advance.

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Come the 14th June, Aviva will be increasing their interest rates & lowering their loan-to-values (LTV) & details of these changes are detailed later in this article.

This is a negative step for the market given that Aviva’s Maximum Cash Release plan offers the highest cash release in the lifetime mortgage market at present.

Therefore, clients looking for financial relief by releasing the maximum possible after this date now have a reduced cash sum available. Couple this with Aviva’s recent reduction in loan-to-values on flats & maisonette’s & there is a definite swing away from higher loan values.

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Aviva will now only lend on 75% of property values on flats & maisonette’s, which is a dramatic move away from lending on these abodes. Couple this with the reductions in loan-to-values which are being announced on the 14th June, means a significant shift in their lending criteria.

This will affect in particular clients looking at debt consolidation or potential other requirements that demand the maximum possible.

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Equity Release Supermarket as independent financial advisers have witnessed firsthand the demand for larger advances this year alone. Predominantly, this has been for debt consolidation purposes whereby clients in retirement are now experiencing income shortfall issues as their investment returns have fallen significantly.

This has resulted in financial pressures meeting these monthly liabilities including mortgage payments, personal loans or more commonly, credit card debts.

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Nevertheless, there are fresh signs within the market indicating that external forces are construing to develop new plans & ideas to drive this stagnant market forward.

We heard last week that More2 Life is introducing an impaired life roll-up equity release scheme. This is welcoming news for the market & hopefully the sign of things to come.

In the meantime the current crop of lenders can dictate in a market having little competition from other providers.

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Part of the result of this is Aviva’s impending equity release scheme changes.

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Aviva have announced an increase of 0.1% to the interest rates for new business on the Lifestyle Flexible Option, Lifestyle Lump Sum and Lifestyle Lump Sum Max.

Equity Release Supermarket receive an exclusive interest rate lower than that offered directly by Aviva themselves.

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The new Aviva interest rates wef 14th June are therefore 6.70%, 6.55% & 7.40% respectively. On paper this doesn’t represent a large percentage increase; however given the roll-up nature of these products, this will result in £1000’s difference in the future balance.

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Additionally, Aviva equity release are reducing the loan-to-values on the Lifestyle Lump Sum Max by 2% for customers aged 60 or below, and by 1% for those over 60.

Even with this decrease, they currently still offer the best LTV scale in the market on all properties (apart from flats & maisonettes).

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The LTV rates for the Lifestyle Flexible Option and Lifestyle Lump Sum will stay the same.

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Example LTV’s on the Lifestyle Lump Sum Max are now: -

Age 55                        -           19%

Age 60                        -           23%

Age 65                        -           29%

Age 70                        -           35%

Age 75                        -           40%

Finally, there are transitional arrangements in place which anyone considering the Aviva equity release schemes should be aware of;

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Applications on the Lifestyle Flexible Option, Lifestyle Lump Sum and Lifestyle Lump Sum Max dated prior to 14th June and received by the 18th June will receive the old interest rates. Also, any Lifestyle Lump Sum Max applications will be on the old LTV scale.

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Applications on the Lifestyle Flexible Option, Lifestyle Lump Sum and Lifestyle Lump Sum Max dated before 14th June and received after 18th June will receive the new interest rate. Lifestyle Lump Sum Max applications will be on the new LTV scale.

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Applications dated after 14th June will receive the new interest rates. Lifestyle Lump Sum Max applications will be based on the new LTV scale.

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To request an Aviva illustration or further advice on any of the issues discussed above, please contact Mark Gregory on 0800 783 9652 or email mark@equityreleasesupermarket.co.uk

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Equity Release Early Repayment Charges – The Truth

Tuesday, May 4th, 2010

Anyone considering taking out equity release has many choices to make.

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One of the biggest & most expensive if not advised correctly could be on early repayment of an equity release scheme.

However, before we delve into the main differences between current equity release schemes we briefly look at why early repayment charges exist & how they can arise.

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Primarily, equity release is designed to run for the rest of your life.

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There is no fixed term & the scheme will continue to run until the second person has died or moved into care.

At that point the property is usually sold, with the equity release provider being repaid first from the proceeds & any remaining balance is passed into their estate.

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With the earliest age of starting one of these schemes being 55, the total term could well be in excess of 30 years. For this reason lenders hedge their bets in order to recover any potential early repayment which may cost them significantly.

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Obviously life expectancy for everyone differs.

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The Financial Services Authority (FSA) use average life expectancy data in order to provide the basis of a lenders key facts illustration (quote).

It is with this same information that lenders will also formulate their early repayment charge structure.

We can relate such charges with a conventional mortgage, whereby upon early repayment within a specified term the borrower will incur an early repayment charge.

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So, upon what circumstances would an early repayment charge exist?

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This could be for a number of reasons: -

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1.       Sale of property

2.       Inheritance

3.       Death

4.       Moving into long term care

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However, not all the aforementioned would incur a penalty upon early repayment.

Equity release providers would not invoke a penalty on death or moving into long term care. Additionally, where some lenders invoke a charge for a set period of time, once this term has expired there would be no penalty thereafter.

However, there would potentially be a penalty if the property was sold during the lifetime of the owner for example if an inheritance was received or downsizing occurred & the scheme was repaid as a consequence.

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In addition to the early repayment charge the lender could also levy an administration fee which can vary from zero to £300.

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How do lenders calculate the early repayment charge & how much can it be?

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The answer to this varies significantly & this can be evidence with the following simplified table: -

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LENDER

TERM

BASIS

MAXIMUM CHARGE

Aviva

Remainder of the plan term

Charge linked to performance of gilts.

Maximum 25% initial advance

Hodge Lifetime

10 years

Percentage penalty based number of years

5%

Just Retirement

Remainder of the plan term

Depends on FTSE UK 15 year gilt yield

Maximum 20% of total advances

LV=

10 years

Percentage penalty based number of years

5% yrs 1 to 5, 3% yrs 6 to 10

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As you can see, all equity release schemes have the inclusion early repayment charges & if you are considering early repayment it maybe a case of damage limitation or manipulation of repayment date that could avoid potential penalties.

From experience, this aspect of equity release penalties I will cover in a separate article to follow & can provide advice on methods of alleviating these penalties from lender to lender.

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This will also include topics such as: -

  • Options on downsizing
  • Gilt rates & where to find current gilt yields
  • Information on repayment to existing equity release borrowers who are looking for additional funds or achieve a lower interest rate
  • Possible avoidance of early repayment charges - lender by lender

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If you have any questions or require further information on the subject of equity release early repayment charges, please email mark@equityreleasesupermarket.co.uk or contact mark on freephone 0800 783 9652.

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Stonehaven Suspends New Equity Release Lending

Thursday, March 11th, 2010

Stonehaven, the innovative equity release lender that sourced its funding from Santander is the latest provider to withdraw from the lifetime mortgage market.

Stonehaven have now become one of many finance houses to pull back from the sector & whom say the move is hopefully only temporary & may return to the market when funding improves.

After the shock withdrawal of Prudential at the end of 2009, Stonehaven was one of only a number of remaining providers including Just Retirement, Aviva & LV= who expressed commitment to the sector.

Georgina Smith, sales and marketing director at Stonehaven, said it has been forced to suspend lending after banking giant Santander, decided it no longer wanted to fund the equity release mortgages.

Georgina stated “We are in discussion with a number of potential lenders and we do hope to start lending again in the near future. We believe in equity release as a product,”

Stonehaven’s existing lifetime mortgage customers will not be affected with continued good servicing & they have pledged to meet all the existing terms and conditions

Stonehaven have placed deadlines on existing business applications based on KFIs generated before 10th March 2010.

New applications, supported by relevant Key Facts Illustration must be received by close of business on Wednesday 7th April 2010. Applications must include a cheque to cover the valuation fee.

Thereafter, offers made by Stonehaven are normally valid for a period 3 months; however they are extending this deadline to 6 months from the valuation date

We look forward to their return.

Mark Gregory CeMap CeRER

0800 783 9652

mark@equityreleasesupermarket.co.uk

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