Posts Tagged ‘Drawdown Equity Release’
Saturday, March 22nd, 2014
Pure Retirement recently became the latest equity release provider to enter the lifetime mortgage market. Launched in January 2014, it signalled the re-emerging confidence & growing popularity in the equity release market.
However, it makes no sense for a new lender to enter the market without finding a niche for itself. So, over the past few months Equity Release Supermarket advisers have encountered practical experience of where the Pure Drawdown Plan has fitted in providing best advice scenarios. Here we help explain where we feel the Pure Retirement Plan wins, in an already competitive equity release marketplace.
First, the Pure Drawdown Plan in Detail
Before we enter the wheres & wherefores of how the Pure Plan fits in with equity release recommendations, let’s look at the Pure Retirement plan facts…
The Pure Retirement Drawdown Plan is the first offering from the new lender formed by funding assistance from equity release brokerage – Age Partnership. This follows the similar relationship that exists between more2life & Key Retirement Solutions and represents a growing trend where brokers have become equity release providers. This similarity is also evidenced from where the funding source is derived, in that Pure Retirement relies also on the same annuity backed insurer to give it the ability to fund its lending – Partnership Assurance.
The Pure Drawdown plan is a lifetime mortgage that starts later in life than most equity release schemes with a minimum age at commencement of 70. It’s aimed towards the higher end of the loan-to-value ratios without any medical underwriting, which the enhanced lifetime mortgage plans have the advantage of.
The starting percentage is 36% of the property value at age 70, which compares favourably with other high LTV products. Albeits not the highest maximum equity release plan out there, it has a neat trick up its sleeve with how it can still compete with these maximum lifetime mortgage plans. Details of how are explained later in this article.
As a member of the Equity Release Council, the Pure Drawdown Plan offers a free no-negative equity guarantee and 100% ownership of the home. Portability enables you to still move house once the plan has been set in force and the interest rate is fixed for life, launched at a reasonably competitive 6.74% monthly rate (7.1% representative APR).
The minimum loan is higher than most at £25,000, which is where Pure Retirement’s market lies and is available in England, Scotland & Wales.
This is a roll-up lifetime mortgage plan with the option of a cash reserve facility. Therefore, Pure Retirement will calculate the maximum release possible, from which an initial amount can be withdrawn. Any funds untaken, remain in a cash reserve held by Pure Retirement at no cost until needed in the future. Should it later be necessary to access these funds, they can be drawndown in minimum amounts of £5,000 with no further charges.
Where Pure Retirement Lifetime Mortgage Strengths Lie
As an independent equity release adviser, one of the most common reasons for client objection lies in the costs of implementing an equity release scheme. Here is where the Pure Drawdown Plan wins – set up costs!
Only one equity release company has previously offered a scheme whereby the standard terms dictate a cost effective route to market for any client taking out a lifetime mortgage, & that’s Partnership’s Enhanced Lifetime Mortgage. Some lenders will temporarily create pockets of time whereby a cashback exists or a reduced interest rate for a limited period, but these come & go.
However, Pure have created these features as a permanent fixture & all credit to them in seeing this gap in the market and understanding what the consumer requires. Afterall, many applicants want a release of equity to help them financially as they have limited funds in the first place. By asking them for more money up front, it makes the process more difficult for them to get the whole application underway. Pure Retirement alleviate these areas, both pre & post application stages, let me explain how and why.
Pure’s Set up Costs
Pure Retirement provide a two tier set up cost operation; one for equity release loans between £25,000 & £44,999, the other based on loans in excess of £45,000.
All equity release schemes will normally incur set up fees in four main areas – Valuation, application, solicitor & adviser charges.
Pure approach this differently in the sense they aim to cover the majority of costs; the more one borrows, the greater the help provided. For loans over £45,000 the cost is enhanced furthermore by them providing: –
- FREE valuation
- NO application fee
- Contribution of £600 towards legal costs
- Contribution of £500 towards the advice fee
Therefore, dependent upon how much the advice fee being charged is, which in the case of Equity Release Supermarket its £895; the net advice fee cost would only be £395. Bearing in mind we can source an ERSA equity release solicitor, for a reasonable £495 + VAT & disbursements (including home visit) the £600 contribution from Pure Retirement should cover this on a standard freehold property. This effectively means to implement a Pure Drawdown Plan with Equity Release Supermarket would only cost approximately £395!
Where Does the Pure Retirement Plan Offer Clients Best Advice?
As previously stated, Pure Retirement Drawdown Plan has been targeted to meet those clients looking towards a maximum equity release in order to assist them with their retirement needs.
A recent example of how the Pure Drawdown Plan can still offer a client a greater net amount, even though the maximum release is lower than a competitor, can be illustrated by a case I recently encountered: –
Pam, aged 79 was looking to move property & required a lifetime mortgage to help her with the purchase. She was in good health & needed the maximum release possible to not only help with the purchase but also the moving costs & legal fees.
The purchase price for the 3 bedroom flat in Cornwall is £140,000.
Pamela requires the maximum release possible which following extensive research would point towards the Just Retirement Lump Sum Plus plan which would release £64,400 at an annual interest rate of 6.75%. This comes with a free valuation, £600 application fee, legal costs & advice fee.
Looking further down our research table identifies the Pure Drawdown Plan with a 6.74% monthly interest rate. However, the maximum release Pure would offer would be a lower amount of £63,000. But upon delving deeper into this product & by analysing the charging structure it shows that the actual Pure Retirement net release could be higher.
Fee Type /Provider
| Just Retirement
Evidently, the Pure Retirement plan has £1700 reduced set up costs, compared to the Just Retirement plan. The next part of this calculation is then offsetting this £1700 advantage that Pure Retirement has against the £1400 extra that Just Retirement can release as their maximum.
The final result therefore shows that Pure Retirement will have a greater net release to Pam of £300 and therefore proceeds with the recommendation as the £300 would be more advantageous in her pocket.
The message therefore is never look at the top line maximum amount, but always to consider any incentives that may help improve the net offering.
Existing Equity Release Customers Looking for Additional Funds
Other areas where Equity Release Supermarket customers have already benefitted from the new Pure Retirement lifetime mortgage is under two scenarios: –
- Where they have an existing equity release plan & need further funds.
- If looking to obtain a lower interest rate, yet no lender can provide sufficient funds to enable the equity release remortgage
Following the routine check to see if any additional borrowings are available with their existing lender, it’s then our duty to research the whole of the market to see if any other equity release providers could assist.
One of the issues against switching equity release schemes is usually the set up costs that prohibit the transfer. Under the two scenarios, in the first the charges could swallow up any of the spare cash being targeted, and in the 2nd scenario the set up costs make any transfer non-profitable as these costs offset any future savings in interest.
Its therefore the case that set up costs can prevent future maneuverability with any home equity scheme.
This is where the Pure Retirement Drawdown Plan can come into its own with its lower set up costs. Under both scenarios, Pure’s reduced set up costs will help with the switching of equity release schemes. Under the 1st scenario it will lead to more funds being available to withdraw & secondly in obtaining a lower interest rate its helps bring forward the break-even point.
Set up costs are an important aspect in the consideration of accepting any equity release recommendation. However, your adviser should consider the whole picture and features necessary in your meeting your requirements. This is why any equity release adviser should be experienced, qualified and importantly independent too.
If you feel that the Pure Drawdown Plan could be of benefit to you, please contact Mark Gregory on 0800 783 9652 or email firstname.lastname@example.org.
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Wednesday, December 18th, 2013
During 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 email@example.com
Sunday, October 20th, 2013
With an ever increasing ageing population, more and more retired homeowners find that their properties are becoming too big to live in. In conjunction with this another significant financial burden is the ever increasing energy costs associated with heating larger properties.
This could mean that they make a choice whether to ‘eat or heat’. An old cliché yes, but a very apt and true one.
Specialist housing, or retirement apartments have been around for more than 30 years and just 1% of over 60’s are estimated to live in these types of properties. For most, moving to a retirement property can ease the pressure of excessive bills, plus give a new lease of life and community spirit.
For others though, a retirement apartment could be seen as not being financially prudent or comes with some uncertainty for a number of reasons:
- Location: Specialist retirement apartments may be more expensive than the value of your own home.
- Service charges: These are payable annually, and in line with inflation, they tend to be an increasing sum.
- Pension income: May suddenly be reduced upon the demise of an occupier.
If you already live in a retirement apartment, you may have the concern that with increasing costs and service charges, you may not be able to maintain your cost of living, and have the worry of potentially needing to sell.
Did you know however, that there could be a solution?
As an Equity Release Specialist, I have over the last 12 years been able to provide homeowners with an alternate way of being able to purchase a retirement apartment or to raise funds to cover on-going costs and services if you already reside in one.
Firstly, if you are looking to purchase a retirement apartment, by releasing equity, you could raise the shortfall between the sale of your current home and the purchase price of your proposed new property. The equity release could be raised on your new property and would complete at the same time as your sale and purchase. The equity release application could also be on a roll-up, or even interest only lifetime mortgage basis to fit in with one’s inheritance requirements, or household budget.
Secondly, if you are already residing in a retirement apartment, you could have the option of releasing equity to cover your annual service charges. This could be by way of a lump sum lifetime mortgage which additionally has the option of a cash drawdown facility. This would particularly suit those looking to take annual withdrawals to supplement their income & cover the costs of maintaining residence in their retirement home. The drawdown facilities with many equity release schemes can allow as little as £1000 withdrawals at a time to suit those not wishing to withdraw too much.
Case study 1
Mr & Mrs F lived in the West Midlands, but had always dreamed of retiring to the coast and live out their remaining years in the peace and tranquility of a property with a sea view. Their 3 bedroom house was worth £175,000.00 and they wanted to downsize. Mr F was not in particularly good health and he wanted to make sure that Mrs F didn’t have the financial worry or burden that their large home would have if he pre-deceased her. Downsizing though didn’t necessarily mean down-pricing. The purchase price of their dream apartment by the sea was £200,000.00, meaning a shortfall of £25,000.00 plus the associated moving costs.
By giving Mr & Mrs F full impartial equity release advice and recommendation, I was able to offer them a Lifetime Mortgage lump sum through a specialist interest only lifetime mortgage lender for £35,000.00. This allowed them to cover both the £25,000.00 shortfall to facilitate the purchase, plus £10,000.00 for moving costs. Overall, this not only assisted with the purchase of their retirement apartment by the sea, but also enabled them to live there in financial comfort.
Case study 2
Mrs S was already living in her retirement apartment when there was the untimely demise of her husband. Now just in receipt of her own pension, Mrs S was concerned that she would not be able to cover the on-going living expenses.
The service charges amounted to £2,704.00 per annum (£52.00 per week) and being on a reduced pension, Mrs S would struggle to maintain her standard of living plus pay her normal household expenses. Being a specialist in equity release, I was able to advise Mrs S of her options, including a full benefits check.
Mrs S was just over the threshold for benefits, therefore I could look at the option of a drawdown lifetime mortgage. Mrs S released an initial amount of £10,800.00 to cover four years’ service charges, leaving her with a remaining cash reserve of £21,600.00. The drawdown facility allowed Mrs S to release sufficient funds each year thereafter to pay her service charges on an annual basis.
How Equity Release Supermarket can help…
Over the years, I have helped many clients in the same or similar situation and have such pride in doing the job I love and being able to assist purchasers and homeowners alike. Being independent lifetime mortgage advisers Equity Release Supermarket have vast experience in assisting its clients with retirement apartment purchases or releasing equity on them.
In addition we have access to the best equity release deals including cashback, free valuations and specially reduced interest rates. We always offer a free initial consultation, to see whether we can assist the over 55’s with retirement mortgages and financial help.
If you would like more information on how these equity release plans work, please contact Marcelle on 0800 783 9652. Alternatively, please email firstname.lastname@example.org
Monday, October 14th, 2013
During my 10 years as a Lifetime Mortgage specialist I have come across a plethora of reasons to make genuine use of equity release schemes. There are the most obvious and popular reasons such as remortgaging and debt repayment; but there are also some that aren’t so obvious.
Equity Release Case Study #1
One that springs to mind is a case whereby I helped an individual back in 2007. This was a 74 year old male who lived in South Cheshire. The situation was terribly sad, but not without hope and possible happiness on the horizon.
His only child had been his son, who had unfortunately died a few years previous in a car crash. To compound matters further he had sadly lost his wife within the last 6 months of our meeting. Their greatest pleasure when they were together, was to go on cruises around the Mediterranean and Caribbean which they could fund from their regular income.
Following on from these unfortunate events, he re-evaluated his retirement plans with a positive outlook. He therefore decided that his life would now be split between 6 months at home and 6 months cruising, and it was now just a case of being able to finance his revised situation.
He decided he would like to raise a total of £150,000 by releasing equity after calculating that figure would cover his costs for the next 10 years.
I therefore arranged a flexible drawdown lifetime mortgage, with just an initial £15,000 and a large enough cash reserve facility that he could then draw upon, as and when required. This suited him perfectly and for a couple of years at least, I got postcards from around the world. The drawdown lifetime mortgage plan was his ideal plan and met his requirements not only now, but also into the future when further cruises and retirement expenses would be required.
That’s what we, at Equity Release Supermarket call an aspirational equity release case. That is one that helps someone to attain their goals in life and we are only too happy to help advise on such cases.
The other side of the coin is a needs based equity release case. This is where there is an urgent need to raise equity in order to stave off potential severe financial repercussions such as mortgage repayment, insolvency or even bankruptcy.
Equity Release Case Study #2
From my experience, such a case was with a 68 year old lady in North Derbyshire who had accumulated personal loans and credit card debts amounting to over £80,000. The strange part was that these were from gambling regularly on the Canadian Lottery of all things. Her family had contacted us to see if we could help which indeed we could. However, in order not to fall into a similar trap, I advised the family to remove or better still destroy her credit cards.
In circumstances like this, equity release schemes can act as an almost immediate relief from stress and worry and several times over the years I have had a letter from the client’s family. This provided me with personal satisfaction as they were thanking me for my considerate actions and telling me how not only does the client feel and look better, but I may have also added another few years to his life expectancy.
Being an lifetime mortgage adviser can sometimes transform people’s lives for the better and is one of the many reasons that I feel so passionately about the equity release marketplace I work in.
These are just two case studies whereby I have been able to assist retirees with their financial issues in retirement. Have it be known they are two relatively extreme cases, but I use them to show the diversity of reasons for using lifetime mortgages.
The reason I have been exclusively involved with equity release schemes for the last 8 or 9 years and intend to stay so until I retire, is because of the instant reaction to either attain the wherewithal to achieve ones goals, or to remove the stress and strains of financial problems in retirement.
About the author
Barry Adnams is the author of this article. Barry is one of the most experienced equity release advisers at Equity Release Supermarket, having previously worked as an adviser & manager at NatWest/Royal Bank of Scotland Equity Release.
Having worked with RBS Equity Release in 2005, Barry has much experience in dealing with retirees financial situations and is fully aware as to the importance that a release of equity can be. Barry endeavours to meet all his clients face-to-face, if not only for a cup of tea! Dealing with his many clients this way enables Barry to discuss both the pros and cons of equity release and is always open to family members being present at such meetings.
If you wish to discuss anything in relation to Barry’s articles or any general questions about lifetime mortgage or home reversion plans, then please contact Barry Adnams at Equity Release Supermarket, on 07989 281108 for a free initial consultation.
Alternatively, Barry can be contacted by email at email@example.com.
To evidence the quality of Barry’s advice & feedback from his clients please check his testimonials on the Feefo link on the homepage (bottom right corner).
Thursday, July 11th, 2013
The most common research feature that customers consider with regards to equity release schemes is the interest rate.
Over the past 12-18 months with increasing competitiveness in the equity release market, interest rates have reduced significantly & are now lower than 6%.
However, today Equity Release Supermarket have secured funds with one of the leading equity release companies to secure a fixed rate deal for its customers that is just 5.48% (5.6% APR).
The equity release provider is Just Retirement.
This is the first deal of its kind below 5.5%, whereby an equity release company can offer a single priced product for anyone between the ages of 60-75. This limited tranche of funds is available on a drawdown basis, with a minimum initial withdrawal of £20,000.
Just Retirement have been in the equity release market for 7 years now & provide a drawdown lifetime mortgage plan which enables an overall cash reserve facility from which you can take withdrawals as & when they are required. This flexibility means that you are only charged on the monies actually withdrawn, not on any funds left in the reserve facility.
The minimum withdrawal from the cash reserve is just £2000 & once the equity release plan has been set up, there are NO further charges for withdrawals. Properties situated in England, Wales & Scotland are eligible with a minimum property value of £70,000.
Additional perks of this limited offer is a FREE valuation & £500 cashback payable on completion. Therefore, there are no upfront fees to submit this Just Retirement application through Equity Release Supermarket.
To request a Just Retirement quote on the new 5.48% interest rate please click here or call one of the Equity Release Supermarket team on Freephone 0800 678 5159.
As stated these are limited available funds at this rate so please do not hesitate in contacting us.
Wednesday, March 27th, 2013
Equity release schemes have risen in the popularity stakes over the past 12 months. With regular articles in the tabloids, and increasing government awareness, lifetime mortgages have certainly raised the bar. But how does equity release actually work in the whole scheme of things, and why has it become such topical subject matter for those looking for a comfortable lifestyle in retirement?
Equity release workings
Primarily equity release is available to home owners where the youngest person on the deeds is at least aged 55. Equity release works by allowing eligible people to raise tax free cash from the equity tied up in their home. The amount that can be released is based on an age-related ascending percentage of the value of the home. In other words, the older you are, the more you can raise!
For example a single person in good health, aged 65, with a property value of £250,000 could raise a maximum of 30% of the property value. This would mean a maximum equity release of upto £75,000 with Aviva.
Even better, is the fact there are now impaired life schemes that offer ‘enhanced’ rates to people who are not as fit and healthy as they used to be and these schemes increase the percentage that can be drawn.
Therefore, if the same person was a smoker with high blood pressure, having diabetes & a history of heart attacks could now release upto £115,500 on the Partnership enhanced lifetime mortgage scheme.
Popular uses for equity release
The money raised from any equity release scheme can be used for any legal purpose from clearing credit card balances and existing mortgages, to helping children or grandchildren with deposits to climb onto the property ladder. However, many would be treating themselves to some lifestyle indulgences such as a new car, world cruise or home improvements.
Today’s equity release schemes
The modern format of Equity Release started in the mid 1990s with Hodge Lifetime (part of Julian Hodge Bank), Norwich Union (now Aviva) & Northern Rock (now Papilio UK) with a simple roll up lifetime mortgage.
Today there are three basic equity release schemes:-
1) Roll up Lifetime Mortgage
This type of scheme has a few variations but basically the borrower takes an initial tax free lump sum, makes no monthly payments and the accrued interest is added to the loan and compounds annually.
The main variation to this is the “drawdown lifetime mortgage“ scheme. This is where only the immediately required amount is drawn down and a reserve cash facility is then offered with the remainder. No interest is accrued on this drawdown facility until it is taken in the future. The advantage here by taking it in smaller amounts is that interest is compounded at a much slower rate, than if it had be taken all at once.
Another variation of a roll up plan is offered through Hodge Lifetime on a roll-up basis. Hodge’s flexible repayment plan has an option to repay up to 10% of the original amount borrowed annually without any early repayment charges. Hodge also offer a unique ‘downsizing protection’ option whereby after five years, if the property is then sold and the owner moves & downsizes house, then no early repayment charges apply. A great solution for many who cannot sell now, but may do so in the future.
2) Interest Only Lifetime Mortgage Plans
There are two lenders currently offering this type of interest only scheme – Stonehaven and more2Life. Both schemes are fairly simple whereby a lump sum is withdrawn and the monthly interest is paid in order to maintain the balance outstanding level throughout the term.
This method has proved appealing to parents who are keen to minimise any inheritance reduction for their children. In recent times, since the withdrawal of the Halifax Retirement Home Plan lifetime interest only mortgages have become increasingly popular. Both these Equity Release Interest Only schemes have the added safety feature that should the monthly payments become too much (one applicant dying and their pension income reducing) then it can revert to a roll up equity release plan, where no payments are required thereafter.
3) The Home Reversion Plan
This is now the least popular type of equity release mortgage. Nevertheless, it can prove to be the best advice in certain scenarios. The workings are that the homeowner(s) must have a minimum age of 65. They have the option of selling part, or all of their property to the reversion provider and then lives in that property, usually rent free, for the rest of their life. In truth, this is usually only appropriate when there are no beneficiaries to the estate, or they wish to leave a guaranteed percentage of the final value of the house to their children.
Home reversion schemes only account for less than 5% of the market these days. The market has seen a few withdrawals from the market by lenders such as Aviva and Retirement Plus. The three remaining home reversion providers are Hodge Lifetime, New Life & Bridgewater.
About the author
The author of this article is Barry Adnams, who is a senior equity release adviser at Equity Release Supermarket.
Barry is aware of what a monumental decision taking equity release can be. He is a traditional adviser that would always advocate a home meeting with family involvement. Barry offers an initial cost free ‘face to face’ appointment and likes to include as many family members as possible to be present to discuss whether taking equity release is the right option, or not.
If you want to benefit from the experience Barry has to offer and understand how equity release works further, then please contact Barry Adnams at Equity Release Supermarket, on 07989 281108 for a free initial consultation. Alternatively please email firstname.lastname@example.org.
Thursday, March 14th, 2013
Suddenly you’re approaching retirement and you’re left wondering – ‘where did the years go?’
Realisation is dawning on you all too clearly that from hereon in you will be reliant on a fixed income, your savings may start diminishing and your future anticipated costs are anything but guaranteed!
The question therefore is how do you protect yourself & family from those unforeseen costs that might suddenly arise? Well, there’s good news and bad news, and also a possible solution….so please read on.
Firstly, the good news.
The population of England and Wales is living longer than before and the most common age at death in 2010 was 85 for men and 89 for women, compared to 77 and 84 respectively in 1980. Thirty years ago there were 2,280 centenarians, today the figure is 11,610. Indeed this trend is set to continue and we are entering the age of the super centenarian (110). That’s the good news!
Now, for the bad news.
The basic state pension is currently £107.45 per week increased each April by the highest of either the average growth in wages, the Consumer Price Index or 2.5%. Yes, the new flat rate of pension of £144 per week will be payable from April 2017, but not for those already drawing the state pension.
And what happens to a surviving spouse or partner when they are widowed? Just the basic state pension and possibly the bereavement allowance up to £106 per week for the first year depending upon National Insurance contributions and the age of your spouse on death. Added to this is possibly a reduced private or occupational pension for the surviving spouse (usually the widow) if you are lucky enough to have contributed to a pension plan during your working lives.
So how will you cope with the cost of home improvements, car repairs, increasing utility bills, let alone any care costs? And how do you provide for the financial security of your spouse after you have gone? A widow could easily have in excess of a decade to support herself on a reduced income.
The Possible Solution.
This article might have given you the impression that my job is to go around depressing people, but in reality my job is to ensure that my clients are fully aware of how they can use their major asset – their home, as a form of insurance against future financial difficulties.
Most people are familiar with a mortgage. A Lifetime Mortgage applies the same principles, however instead of running for a fixed term, will actually run for the rest of your life. It therefore allows you to borrow until the remaining owner dies or goes permanently in to care.
Types of Lifetime Mortgage
The most common equity release plan is on the roll-up lifetime mortgage basis, whereby NO monthly interest payments are required and the full repayment of the mortgage is made from the sale of the home on the last survivor’s death.
However, with the latest innovation in the equity release market, more lenders will now allow you to pay off the full, or even partial monthly interest payments if you want to keep the eventual loan lower than would otherwise have been on a roll-up basis. The interest only lifetime mortgage provides a flexible option to carry into retirement and can now be obtained on a drawdown basis with more2life.
All these Lifetime Mortgages are portable if you want to move house in the future and, if leaving an inheritance is important to you, you can protect a percentage of the eventual sale proceeds of your home. All these lifetime mortgages provide a guarantee that you would never leave a debt to anyone by way of ALL lenders providing a ‘no negative equity guarantee’.
The Drawdown Lifetime Mortgage
The major attraction with a Lifetime Mortgage is the “drawdown” option. This feature will provide you with a lifetime borrowing limit but does not commit you to borrowing the whole facility immediately. The drawdown lifetime mortgage was therefore borne with flexibility in mind.
Before drawdown schemes became available from the likes of Prudential, Just Retirement & Hodge Lifetime, customers only had the lump sum option. Given this cash amount needed was to last them at least 3-5 years, many decided to opt for a larger amount than would otherwise have been necessary. Languishing in a bank account & receiving less interest than paying on the equity release scheme was not best advice. Hence, the introduction of the drawdown equity release plan enabling retirees to take a lower initial sum, but taking extra funds in the future whenever they required.
As an example, a husband and wife aged 78 and 72 with a property valued at £250,000 could have a maximum loan limit of £52,500 but only start with the minimum loan of £10,000.
Interest would only accrue on the initial £10,000 loan and the balance of £42,500 would be readily accessible if they needed it and could be taken in stages. This is an excellent way of providing security for future unforeseen expenditure and would be available for the surviving spouse to use should he or she be alone and on a reduced income.
In should be noted that certain equity release companies cannot guarantee the drawdown reserve facility for life. Companies such as Aviva do retain the right to withdraw the drawdown facility under certain major events which would render them unable to fulfil their drawdown requirements. However, there are still companies available that will guarantee the reserve facility. By opting for the guarantee, you may pay a slightly higher interest rate, nevertheless you may feel more secure knowing these funds are available for a minimum of 15 years ahead. With living in such uncertain times, this could be a blessing.
This ”Lifetime Mortgage Drawdown” option, which only commits you to borrowing a minimum of £10,000, is sensible insurance for the future and if you would like to discuss the matter in more detail then please do contact myself – Mike Vicary on 07795 195302 or email email@example.com
Sunday, October 7th, 2012
The equity release market is currently at its peak with a record number of applications. For those aged over 55 and are considering releasing equity, here we review how the equity release application process works, how long it takes and the involvement required.
The equity release sales process is now the most streamlined since the product was originally conceived. Increased competition in the marketplace from new providers has resulted in equity release companies looking at ways to steal an advantage. As better interest rates for customers are now also on offer and today’s equity release plans are much more flexible than those available until a few years ago, never has there been a better time to consider a release of equity for the over 55’s.
An equity release application usually takes somewhere between 6 to 8 weeks for a lifetime mortgage scheme and 10 to 12 weeks for a home reversion plan, assuming the title on the house is clear. The actual amount of time your equity release process takes, also depends largely on how efficient and experienced your solicitor is. Applying for equity release involves legal paper work, which needs to be handled by a solicitor and solicitors with expertise in equity release plans can help to avoid any potential delays in your application.
The First Steps
The whole process starts with completion of an application form which must come in conjunction with financial advice as NO equity release provider will accept an application without it. At this stage any fees required which would be clearly stated in the Key Facts Illustration (KFI) would need to be paid. Normally this would include the valuation fee made payable to the lender. Some equity release brokers do charge an advice fee on application; however Equity Release Supermarket would only charge their advice fee upon completion, so beware of paying unnecessary upfront fees.
On completion of the application form, it is then submitted to the equity release provider who will instruct a local surveyor to complete a basic valuation on the property. The role of this surveyor is to complete a report which will advise the current market value based on a relatively quick sale. The surveyor’s role will be to assess the local proximity to the property and establish similar properties and the price they had sold for within the last 3-6 months. Additionally, the surveyor will ascertain whether any essential repairs will be needed should the property have material defects that could affect the long term structure or re-saleability of the property.
At the same time as application submission, for speed of completion it is wise for the legal process to get underway. Unless a client specifically requests to use their own family solicitor, we would recommend an equity release solicitor from ERSA (Equity release Solicitors Alliance). One of the former members of ERSA is Goldsmith Williams, whose organisation offers a fixed fee agreement with Equity Release Supermarket clients of £395 +VAT & disbursements. Additionally, these solicitors will provide a ‘no completion, no fee’ agreement with our clients which should be considered for any future lifetime mortgage or home reversion application.
The solicitor’s role
Two sets of solicitors must be in place to carry out the whole process. Under Equity Release Council (formerly SHIP) rules different solicitors must be employed on behalf of the client and the lender. Once instructed by the client or broker, the solicitor acting on behalf of the client will send out an initial questionnaire requesting further information. This will include a request for information on whether any mortgage exists currently, the owners to the title, any restrictions, further tenants or major improvements that have been carried out with respective planning permissions. This questionnaire also provides the permission for the prospective solicitor to act on their behalf.
What about existing mortgages or secured loans?
Should any existing charges by way of mortgages or secured loans be present on the title deeds then they must be removed prior to, or upon completion. Any mortgage will usually be settled by the proceeds from the equity release scheme at funds release stage. However, another role of the solicitor will be to establish exactly how much will be required on the proposed completion date. This will be achieved by requesting a redemption statement from the mortgagee, who will provide the current balance and the daily accrual rate of interest being added during the interim period to completion date.
For an application to proceed through to completion, the lender will carry out certain checks to meet money laundering and the consumer credit act requirements. This will be proof of ID including passport, driving licence or government backed evidence such as your annual state pension letter or Inland Revenue tax code notification. Should none of these be available most lenders will also require a birth and/or marriage certificate as satisfactory proof of who you are. Additionally, proof of address will be required, so a recent utility bill or bank statement will be necessary.
Equity release and adverse credit
Some lenders will carry out credit checks. You may ask why this would be necessary as NO monthly payments are usually required with a lifetime mortgage scheme. The lenders view is that if someone has been negligent with previous credit payments, then there may be a tendency to not look after their property, thus affecting the lenders security.
Nevertheless, there would have to be severe credit problems for a lender to decline an equity release application due to adverse credit. Most lenders will accept previously missed payments, defaults and even CCJ’s (County Court Judgements) on their credit file, unless they are significantly large. Even then, most lenders such as Stonehaven will accept the application as long as the applicant has been forthcoming with an explanation as to why the CCJ’s had been applied. Undischarged bankrupts would usually be unsuccessful with any equity release borrowings.
Upon successful valuation and title checks, the solicitor acting on behalf of the client will set the completion date. Once your equity release scheme has gone through, you can receive the money by having it paid directly into your nominated bank account, or if you wish to save the telegraphic transfer fee (approximately £30), you can receive the funds in the form of a cheque. Depending on the particular scheme, money can be borrowed either as a one-off capital lump sum or by taking ad hoc withdrawals from a cash reserve set up from the outset.
An equity release plan can be a great way to turn the equity tied up within your estate into something tangible and usable. But like any large loan, it has its own risks. Therefore, before you decide to release equity from your home, make sure you speak to your solicitor or independent financial adviser first.
Companies such as Equity Release Supermarket provide the ‘complete equity release service’ whereby we provide guidance to clients from the start to finish of the application process. If you have any questions with regards to the equity release application process please call 0800 678 5159 where a qualified adviser can discuss your requirements.
Friday, May 4th, 2012
There are many reasons why you should sit down & review your existing equity release mortgage. Like any financial undertaking, products do evolve and change, hopefully for the better over the years, & equity release schemes are no different.
Here we look at the reasons for reviewing an older equity release mortgage, understanding the benefits & how to go about ascertaining whether you can remortgage your existing equity release scheme, or possibly staying put with your current provider.
Reasons for considering an analysis of your existing equity release plan
Let’s first have a look at the factors for consideration in the transfer, switch or remortgage of your current plan: –
- Could it be because your existing scheme has now exhausted its maximum lending limits with your current equity release provider?
- Maybe you now require additional tax free cash due to change in circumstances or a financial emergency has arisen.
- Simply because you require a more competitive equity release deal than at present as you are concerned about the effect the roll-up & the compounding of interest that is affecting your equity release balance.
- Finally, there could be better equity release plans available in today’s marketplace that were not available many years ago and you wish to take advantage of this to save your children’s inheritance over the longer term.
What has changed since you took out your original plan?
Dependent upon when your original plan was taken out, many lenders are now offering better, more flexible and more secure plans. The main influence though will be the fact that interest rates have dropped so significantly. Having experience of advising on the older Norwich Union equity release plans, I have evidenced the fact that around 10 years ago their rates were in excess of 8%! How times have changed.
Not only that, but my team of equity release advisers have similar experience of the older schemes which is invaluable in the decision making process & analytics of whether to transfer your existing lifetime mortgage or not. Having worked for the likes of Norwich Union equity release, Prudential, NatWest, Key Retirement Solutions & Aviva, we have the experience & knowledge to conduct a full analysis of the equity release pros and cons relating to a potential remortgage situation
How low have equity release interest rates fallen?
The fact is, if you already have an equity release plan, now is as good a time as any to re-evaluate it and shop around. Although not as low as conventional mortgage rates, equity release interest rates have fallen recently, but mainly due to competition in the equity release market. With their aggressive stance presently Aviva have become the darlings of the lifetime mortgage market with their lowest interest rate of just 5.92%. But it doesn’t just stop there. With a free valuation thrown in & £500 cashback this represents the deal of the century!
When considering a remortgage, interest rate alone is not the factor that determines your decision. The costs involved in setting up the plan are essential & these should be minimised in order to make the transition ads costs effective as possible. Therefore, the current Aviva Flexi drawdown lifetime mortgage plan is possibly the one plan that would be a viable proposition to switch over to.
What other factors must be considered other than interest rate?
It is important to make sure that any new potential equity release scheme is flexible and can be modified whenever your circumstances change. Equity release schemes must meet immediate needs, but equally, it must also be able to adapt to the future. Many new equity release schemes are much more flexible than their previous counterparts. For instance, drawdown lifetime mortgage schemes are now the most popular form of equity release mortgage currently available. This is opposed to the mainly lump sum mortgages that were available in the past, which were inflexible, could only be reviewed every 5 years & you had to budget on this basis accordingly.
When reviewing clients existing equity release mortgages, I may find several better and more suitable products on the equity release market today. However, it is not simply a case of switching lenders. Many existing equity release schemes may have clauses that make it quite binding in the long term and may incur additional charges such as an early repayment charge. This factor could be the sole reason whether to switch equity release lenders or not and deter offsetting any savings made from switching to a new plan.
It is important to consider several factors while comparing the existing equity release plan to a new one. Current interest rates, the current value of the property and the amount that needs to be borrowed. A switchover can take up to 60 days, so it becomes important to take into account interest rates over 60 days, setting up costs and the current redemption figure to work out the amount that can actually be borrowed.
What action should I take now?…
To review your existing equity release mortgage, you will need to consult an independent equity release adviser who can provide impartial, unbiased and experienced advice on different options that are available. A careful and detailed comparison needs to be made, considering various costs that will be incurred during a switchover, including setting up costs, application fees, solicitors’ fees and advice fees.
From significantly lower interest rates, to more flexible terms, switching to a new plan may have several advantages for yourself…and your beneficiaries. As a company who is remortgaged many older equity release mortgages we can speak and practice from experience.
For a free equity release analysis of your existing lifetime mortgage, contact the Equity Release Supermarket team on 0800 678 5159 or complete the online contact form today.