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Posts Tagged ‘Aviva Lifestyle Flexi’

Now Aviva Accept Voluntary Repayments – Does this Change the Future of Equity Release?

Tuesday, May 27th, 2014

Aviva equity release voluntary partial repaymentsAviva equity release plans have proved the most popular form of lifetime mortgage scheme over the past 15 years.

The reason for their popularity has been down to a combination of brand name, simplicity and the fact that Aviva have regularly provided the lowest equity release interest rates.

 

However, during that time there has been a cloud hanging over their lifestyle flexi mortgage range and that is the issue over the maximum early repayment charge & the lack of a partial repayment facility. It’s always been a case of all, or nothing with regards to paying off Aviva’s equity release schemes – now we have a choice.

 

Aviva – time for change

In the past few weeks Aviva have bravely taken steps to alleviate these issues with some bold amendments to their lifetime mortgage range. In fact the impact these changes could make, will dramatically alter the way equity release schemes will be used & managed in the future. Other equity release companies will undoubtedly take note of these new features & it can only signal the start of further innovation in lifetime mortgage industry.

 

Aviva have introduced three new approaches to equity release: –

  • new voluntary repayment features can be used to actually clear the equity release loan over a set number of years
  • Aviva apply a different approach to enhanced equity release rates by actually reducing the interest rate on offer (see later article)
  • An early repayment charge exemption can be applied on first death for any new joint equity release lifetime mortgage (see later article)

 

Why Aviva needed to up the ante

Monday 28th April heralded the start of swinging changes to the Aviva Lifestyle Mortgage range. All Aviva’s new equity release applications from this date forth would have the ability for partial repayments to be made back to Aviva.

 

However, from our company perspective during 2013, Equity Release Supermarket had seen its share of applications move significantly towards the Hodge Flexible Lifetime mortgage range. This has been due to Hodge Lifetime’s two pronged attack on becoming the most popular & flexible lifetime mortgage product. Their innovative move towards being able to repay upto 10% of the original capital borrowed & the ability to downsize after 5 years & repay the loan with NO penalty has captured a large market share.

 

Aviva has now responded to the popularity of the Hodge Flexible Lifetime Mortgage plan by matching the 10% repayment option & additionally providing more beneficial features!

A new dawn for the equity release market has started.

 

How does the Aviva Voluntary partial repayment option work in practice?

From inception of the new Aviva equity release plan there is the inherent ability to make repayments of an ad-hoc nature back to Aviva. Aviva do have a cap of 10% of the original capital borrowed that can be repaid in any one year. Additionally, the earliest date that the first repayment can be made is 12 months from the commencement date of the plan. So some forward planning needs to be made & this ideally would have been made with the involvement of your equity release adviser at recommendation stage.

 

Consideration needs to be borne in mind that interest will be added to the plan in the meantime for calculation purposes. For example, if a sum of £40,000 equity was initially released at an interest rate of 5.68%, the balance before any repayment could be made would be £42,272.

 

This is where the first decisions on how much to pay back need to be made, and there are three options available:-

  1. If only a fixed budget is available, then a contribution towards the interest accruing could be made. Should this be less than the annual amount of interest charged, then the balance will still increase, albeit at a lower rate than would otherwise have been should nothing have been repaid.
  2. Should a level future balance be the choice moving forward, the sum of £2,272 could be annually sent back to Aviva, thus reverting the balance back to its original starting point of £40,000. This process could theoretically continue infinitum until the plan ends, which would be upon death of the last borrower or them moving into long term care. The balance would always flicker between these two figures, dependent at what point the repayments of £2,272 were made.
  3. If total repayment of the £40,000 is required, then a repayment strategy could be put in situ which would see this whole amount repaid over a set number of years. Dependent upon how much is initially borrowed & assuming maximum repayments of 10%pa can be maintained for the duration, Equity Release Supermarket can calculate at what point the plan can be fully repaid with NO penalty!

 

As an example Equity Release Supermarket have calculated someone borrowing £40,000, on the popular Aviva interest rate of 5.68%pa, & repaying the maximum £4,000pa could repay their Aviva lifetime mortgage shortly after the end of the 16th year.

Could this be classed as the first capital & interest equity release mortgage?

 

Please contact us on 0800 678 5159 for your personalised Aviva repayment calculation or click this link.

 

How do I physically make voluntary repayments back to Aviva?

A reminder to make repayments will begin with the receipt of your first annual Aviva equity release mortgage statement. This will evidence the amount of interest that has been added to your plan. It is at that point that the first repayment can be made back to Aviva. The question is how much to pay & this will be down to an individual’s personal preferences.

 

Aviva have cleverly side stepped the issue of MMR (Mortgage Market Review) here. Whereas companies such as Stonehaven & more2life have had to adapt their interest only lifetime mortgage process to the new MMR regime, Aviva due to their ad-hoc approach to repayments have avoided the MMR obstacle. Regular payments cannot be set up to repay the Aviva equity release schemes. Although Aviva do permit upto 4 payments each year, subject to a minimum amount of £500, the repayment process has to still be managed through their head office.

 

This repayment process would initially involve a phone call to the Aviva offices advising them of the fact a repayment is due to be sent to them. In reply they will provide a verbal form of quote which acts as confirmation. This can be confirmed in writing to you & optionally your adviser aswell so they are aware of your intentions.

 

The next step would be to send the money which can be in the form of a cheque, credit or debit card or a bank transfer for which Aviva will provide their details & reference number to track. They will not accept payments without this process having been accomplished, or contact being made beforehand. In fact they could return the funds should this process was not followed.

 

Important repayment points to note

As previously stated, repayments can only commence after 12 months from inception of the loan. However, Aviva have imposed further 12 month conditions on when repayments can be made following certain events: –

 

  1. Following withdrawal of cash funds from the drawdown facility of the flexible lifetime mortgage
  2. Should any additional borrowing be taken in the future

 

In both situations, no repayments can therefore be made for 12 months following these two events also.

 

Additionally, the same applies in reverse;

Should a customer have made repayments and has an available cash reserve under their drawdown plan, they cannot gain access to the reserve or additional borrowing until 12 months following their last repayment has been made.

Aviva may consider requests for a further release of equity in exceptional circumstances outside of that rule.

 

These rules are effectively to prevent to the to-ing & fro-ing of cash funds within the plan which would undoubtedly have made the Aviva equity release plans unmanageable and unprofitable.

 

Functional planning ideas for managing voluntary repayments & retaining a cash reserve

Although it’s still early days in the life of the new flexible repayment options, some ideas on managing the Aviva voluntary repayments have already sprung to mind.

 

Unlike Hodge Lifetime, Aviva do not impose a £10,000 lower capital threshold by which no further repayments can be made without penalty. In fact Aviva will allow the continued repayment of interest & capital with NO minimum amount down to zero, or even almost zero.

 

This could be beneficial for those who want to see the equity release balance to be reduced to a minimum level (e.g. £100 or less), yet still maintain the option of keeping their drawdown lifetime mortgage cash facility for the future. Bear in mind the small outstanding balance will accrue interest (albeit minimal), yet for many the comfort of retaining a cash reserve may have massive benefits should cash be required still in the future.

 

Summary

Aviva have responded well to the changing needs of the baby boomer generation as equity release moves into the next stage of its development. Retiree’s financial needs are becoming more complex with almost 75% of pensioners owning their own property, even carrying debt into retirement & living much longer than previous.

 

Aviva’s latest changes will therefore appeal to both advisers and consumers alike who are looking for more flexible loan terms on the long road ahead.

 

To request an Aviva Flexible Lifetime mortgage quote with voluntary repayments please click here.

Click the following link for your FREE Aviva capital repayment calculation.

 

To discuss any of the points raised in this article please contact Mark on 0800 783 9652 or email mark@equityreleasesupermarket.co.uk

 

Can Equity Release Schemes Prevent you Becoming an ‘Interest Only Mortgage Prisoner’?

Sunday, December 22nd, 2013

Can equity release schemes help unlock interest only mortgage prisoners?It seemed such a sensible thing to do at the time. Perhaps you were just starting out on the property ladder or you wanted to move up market to afford that dream home and as a result your income was stretched?

 

Back then an interest only mortgage was a perfectly reasonable option for a few years until your earnings increased and then you could switch to a full repayment mortgage. Or perhaps, very sensibly, you set up a repayment vehicle such as an endowment plan or you relied on the anticipated growth of your pension fund to take care of the mortgage in the dim and distant future?

 

Reaching retirement with an interest only mortgage

Life never quite works out as expected and here you are, approaching or beyond retirement, with a mortgage still outstanding and with a mortgage lender demanding to know how you intend to repay. Either you never got around to switching to a repayment mortgage or, by reason of poor investment performance or poor advice, your repayment fund has fallen woefully short of target.

 

You are not alone! Earlier this year the Financial Conduct Authority report that that almost half of those borrowers with interest only mortgages, approximately 1.3 million people, may not be able to repay their mortgage. And the average shortfall is estimated to be £71,000.

 

Can the high street lenders help?

So how have high street mortgage lenders responded? Mainly by applying higher interest rates to existing interest only mortgages or by forcing borrowers into repayment plans, usually very short term for borrowers over 60, with little regard to affordability or even existing and adequate savings plans.

 

So how do you break free from this “mortgage prison”?

Firstly, you must consider your options for the future;-

  • If you have savings, do you want to use them to reduce the outstanding mortgage, bearing in mind that the cost of the mortgage will certainly outweigh any return you are making on your savings?
  • How much of your savings do you want to retain as a cash emergency fund?
  • Do you intend to move now or within the next few years and, if so, will this allow you to repay the mortgage, cover all the moving costs and leave sufficient finds to re-house yourselves?

 

Secondly, if these options are not available to you and you want to remain in the family home, then you could consider an equity release mortgage, preferably after eliminating all other possibilities and following consultation with your family.

 

How can equity release schemes help?

There are two types of equity release plans approved by the Equity Release Council and they come with the following written guarantees:

  • You can stay in your home for life or until you go permanently in to care. In the case of joint applicants, this is until the survivor dies or goes in to care.
  • The plans are portable to other acceptable properties if you want to move.
  • No further monthly interest payments to make, unless you elect to do so.
  • You will never leave a debt to anyone due to the inclusion of a ‘no negative equity guarantee’

 

The two types of equity release mortgages are

  1. Home Reversion Plans – where you sell a percentage share of your home in exchange for a cash lump sum or regular income.
  2. Lifetime Mortgage Schemes – where you release funds secured on your property with the option to either roll-up the interest with no monthly payments, or to pay monthly interest in full or part.

 

Case Study example

A couple aged 66 and 65 living in their home valued at £300,000 and desperately wanting to repay an interest only mortgage of £60,000. The maximum they could raise from a standard lifetime mortgage would be 29% of the property value, i.e. £87,000. They have options and the following are examples of mortgage products currently available:-

 

a)      They can choose to borrow £60,000 (plus more to cover fees) to repay the existing lender and have the interest rolled-up for life with no further monthly payments. The valuation fee could be free with some of the current equity release deals available. The other costs taken by lender, solicitor and adviser could amount to approximately £2,000 which could be deducted from the loan. The interest rate fixed for life on equity release plans such as the Aviva Lifetime Flexi could be as low as 5.62% (5.80% representative APR) and, in addition, they could have ready access to a cash reserve if they wanted to borrow more in the future.

 

b)      They can choose to borrow the £60,000 (plus more to cover fees) and pay the monthly interest for life or for a fixed number of years. Dependent upon income, the lifetime fixed rate could be fixed as low as 4.75% (5.10% representative APR) resulting in a maximum monthly interest payment of £238pm. However, if this is too much for their budget they could elect for alternative plans such as Stonehaven’s Interest Select range & opt to pay a lesser sum each month (minimum of £25). The remaining unpaid monthly interest would be rolled up and repaid at the end. The fees are approximately the same, but a valuation fee of £252 would be payable with the Stonehaven application form. Hence, we have interest only lifetime mortgage options to suit.

 

A new breed of lifetime mortgages

Recently, a new form of lifetime mortgage has been developed to help those looking for the maximum possible release. The enhanced lifetime mortgage, or ‘ill-health equity release plan’ has been developed with the maximum release in mind.

 

Although the maximum equity release isn’t suitable for everyone, it has its place for those who desperately want as much as they can release for either health reasons or a ‘needs must’ basis.

 

They differentiate from standard lifetime mortgage schemes by assessing someone’s medical history. Essentially, the worse one’s health has been, the greater the potential release. These plans are underwritten & are offered by actuarially based companies with experience in the field of pension annuities where similar principles are employed.

 

Therefore, an enhancement can make the difference between be able to repay that interest only mortgage, or not, so enhanced lifetime mortgages should always be considered with your adviser.

 

Summary

Equity release is a sensible option to escape becoming a “mortgage prisoner” but expert advice from a qualified equity release adviser is always essential. Explore the alternatives first and discuss matters with your family to obtain a second opinion.

 

If you would like a free initial consultation to assess your interest only mortgage options, please contact Mike Vicary of Equity Release Supermarket, on 07795 195302.

 

Mike has successfully helped people make the interest only remortgage transition, thus enabling retirees to remain in their home & avoid becoming an ‘interest only mortgage prisoner’.

 

Aviva Announce News of the First Sub 6% Equity Release Interest Rate for over 5 years!

Tuesday, February 7th, 2012

Aviva today announce an exclusive 5.92%pa interest rate to Equity Release Supermarket on its Lifestyle Flexi plan.

News had it that 2012 was going to be a breakthrough year for the Equity Release Market. Today this statement was confirmed.

The first sub 6% annual interest rate for over 5 years will have a major impact on the equity release market & confidence in general.

Ironically enough, this followed news earlier in the day from Just Retirement that it had just reduced its own rate in reaction to Aviva’s a week earlier. The new Just Retirement rate of 6.15% pa was considered extremely competitive until Aviva gatecrashed their party later on in the day.

Today’s groundbreaking news on the Aviva Lifestyle Flexi plan has come hot on the heals of my previous news items of 27th January  & 30th January in announcing earlier Aviva and LV= rate reductions.

 

So why is there such an equity release interest rate war currently?

We need to look at the market as whole, the recent economic factors & how these companies are funded.

Both Aviva & Just Retirement are big annuity providers & companies with the backing of annuities have been able to ride the storm, ever since the credit crunch began a few years ago. You may be aware that most equity release companies with bank funding such as Saffron, Coventry Building Society & Hodge Lifetime to some degree, have dropped out of the market. Longer term funding has been an issue for them.

 

However, this doesn’t answer the whole story, so lets look a bit deeper…

We have mentioned the credit crunch. It is evident first hand from our Equity Release Supermarket data that a significant element of equity release loans are for financial, rather than lifestyle factors. This means there is a greater emphasis on ‘need’ rather than ‘wants’.

Retirees in general are finding retirement a financial struggle in trying to make ends meet. Overall attitude towards retirement & their legacies has also changed over the years with a more ‘live for today’ motto. With drawdown equity release plans becoming increasingly popular, this lends true to our analysis.

People are taking just enough for today to clear debts, help the kids & have a small amount behind them to provide that ‘cushion’ that provides them with a feel good factor.

 

 

The Aviva Lifestyle Flexi Deal in Finer Detail

Market leading fixed interest rate of 5.92%
£500 cashback on completion
FREE valuation upto £1 million
Drawdown equity release scheme
Earliest age for application of 55 years
Minimum £10,000 initial loan
Minimum property valuation of £75,000

 

In addition to the great news on their lowest interest rate for years, now is as good time as any to take out an Aviva Equity Release Plan. With both a £500 cashback & free valuation offer, the net set up costs for an equity release application are now minimal. With Equity Release Supermarket’s advice fee being lower than its major competitors, then now is the time to seriously considering taking out an equity release plan with Equity Release Supermarket, if you have strong intentions to do so anyway.

 

Early Repayment Advantages with Aviva

With GILT rates at a current all time low, it would also favour equity release lenders who use gilts to govern their early repayment charges. Aviva use an individual government gilt to measure whether a future early repayment charge will apply. The yield of this gilt is noted on the day the equity release plan starts. Upon redemption, the yield is noted at that point & gauged to see whether it has it increased or fallen during that period.

 

Should the gilt yield have increased or stayed the same then NO penalty will apply. Aviva will even permit a reduction of 0.12 basis points before even applying a penalty. Therefore, with gilt rates currently being so low, there is less likelihood of the yields falling today than ever previously. However, this cannot be guaranteed & if you are considering early repayment then please speak to our team of advisers first.

With a national team of equity release advisers who can provide both face-to-face & phone based financial advice, we are only a telephone call away from offering you a market leading equity release deal.

If you would like to take advantage of a free initial consultation regarding the Aviva or any other equity release mortgage, please call the Equity Release Supermarket team on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

The following links provide further equity release information: –

Request an Aviva quote  | Request a Just Retirement quote  | Find a local adviser |

Equity Release Calculator

 

 
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