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Posts Tagged ‘Enhanced Lifetime Mortgage’

How Your Medical History Can Enhance the Maximum Equity Release

Saturday, November 15th, 2014

Enhanced lifetime mortgage lifestyle questionnaire

While equity release schemes have been available for many years, the concept of the enhanced equity release seems to have been a more recent addition. However, the history of the impaired equity release has been around for almost a decade.

 

Companies back then such as Partnership & Hodge did offer enhanced or impaired life home reversion schemes. In fact Hodge themselves did have an enhanced lifetime mortgage that was withdrawn only pre credit crunch era. These plans were not sold a great deal and their impact was minimal.

 

More recently enhanced lifetime mortgages have seen a resurgence in popularity as they have been redesigned & improvements made to the underwriting process. Enhancement to an equity release mortgage means that the amount of equity available to you can be increased based on your current or pre-existing health conditions. It works similar to the impaired rates offered from annuity providers whereby based on a medical questionnaire, the lenders underwriters will assess the maximum equity release available.

 

Equity Release providers who currently offer Enhanced Lifetime Mortgage rates are:

  • Aviva
  • More2Life
  • Just Retirement
  • Partnership

Aviva equity release offer 2 plans; the Aviva Lump Sum Max offers a higher loan amount if you qualify for impaired terms. Alternatively, you could benefit from being charged a lower interest rate on the Aviva Lifestyle Flexible Option, with rates starting as low as 5.63% (5.7% representative APR).

 

More2life & Partnership offer a lower qualification threshold than Aviva for qualification on their enhanced lifetime mortgage schemes. Where Aviva offer one enhanced lifetime loan-to-value ratio, More2life & Partnership provide different levels of maximum release based on how serious the impairment is.

 

Just Retirement being specialists in the enhanced annuity market take a more scientific approach & will consider more illnesses including COPD. Their actuaries will individually assess each Lump Sum Plus case to determine the maximum equity release available.

 

What illnesses qualify for an enhanced lifetime mortgage?

 

Most of the impaired health conditions, which can qualify for enhanced terms, are similar with all of the above lenders and include-

  • Height and weight
  • Smoking details
  • High blood pressure
  • Heart attack
  • Diabetes
  • Stroke
  • Angina
  • Cancer
  • Parkinson’s Disease
  • MS
  • Early retirement due to ill health
  • Even whether prescription medication is being taken

The amount of extra money that you can release depends on three factors; age of the youngest applicant, the value of the property & which conditions you have & the level of severity of each impairment.

 

You may simply qualify for an enhanced lifetime mortgage based on your height and weight which is represented by your BMI (Body Mass Index). Typically, the greater the number of conditions you have, the higher the maximum equity release loan amount that is available.

 

What are the qualifying criteria for an enhanced equity release?

 

The minimum age is 55, which out of the four equity release companies only Aviva will accept and additionally there is no maximum age. Joint life customers can also apply although it’s usually the health of the younger person which affects any enhanced rate. The minimum property value can be as low as £60,000 from More2life while properties must be located in England, Scotland & Wales with Aviva also lending in Northern Ireland. The lowest enhanced equity release available is £10,000 with no upper limit from the likes of Aviva.

 

How much more tax free cash does enhancement provide?

 

A recent client of mine, age 69 had a property valued at £250,000. Based on standard terms he was able to release a maximum equity release loan of £86,250. However, he suffers with high blood pressure and diabetes. Based on his ill-health & completion of a health & lifestyle questionnaire, the loan amount was increased to £104,500 by More2Life, so he was able to release an extra £18,250.

 

He set the More2life enhanced lifetime mortgage plan on a drawdown basis. This enabled them to release an initial £30,000 and still leave a reserve facility of £74,500 with More2life which he can access in the future without incurring further fees. This meant he has the flexibility of a drawdown lifetime mortgage but with the benefit of an enhanced drawdown facility.

 

Will I need to have a medical?

 

The good news is that you won’t have to attend a medical to qualify for enhanced terms. Lenders ask you to complete a health & lifestyle questionnaire and sign to confirm that your medical details are correct. Following submission of the equity release application, each lender may simply write to your doctor to confirm that your conditions are accurate, so that you qualify for the best terms possible.

 

If you are a smoker, they may ask you to undergo a simple non-invasive test and require you to confirm your consumption and the extent of your smoking habit. The test, which they arrange and pay for, is carried out by a qualified nurse in the comfort of your own home.

 

How do I find out if I qualify for enhanced terms?

 

You should always to seek advice from an independent equity release specialist. As part of the process of checking whether equity release is suitable for you or not, we will always ask clients for details of their medical history to ensure that we can tailor any advice to their fit their circumstances. At the end of our initial meeting we would then conduct research from the whole of the equity release market to find the most suitable plan. If you do qualify for an enhanced rate, we can then produce an equity release key facts illustration to explain how the lifetime mortgage works.

 

Where can I get more information?

We have information on all the enhanced products in the compare equity release deals section of our website along with the useful enhanced equity release calculator.

 

If you wish to speak directly with me, please feel free to contact me direct on 07415 275669 or email simon@equityreleasesupermarket.co.uk for further information. There’s no obligation and any information you provide is confidential.

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

 

How to Get the Best Aviva Equity Release Deal

Monday, March 24th, 2014

Best Aviva equity release interest ratesWhile you might think that going direct to the biggest brand name in the equity release market would be your cheapest option when looking to unlock the equity in your home, you’d be wrong.

 

The leading name in the equity release market is Aviva. Through Aviva Direct they had provided the services of their own dedicated field based sales force to both advise you on clients options and sell you their products. But the direct sales team needed paying for, and those costs were to be met in sales. This sales force needed wages, pensions, company cars, holidays, benefits, a mobile phone. All of this costs and Aviva needs to find that money from somewhere. Their only real option is for all of that to be costed into the direct product.

 

Saving through independent equity release services

In contrast to the Aviva tied-in sales model, an independent equity release brokerage such as Equity Release Supermarket costs the company much less. They don’t have to pay any of those costs or expenses, and those savings can be passed onto you, the consumer. Aviva also want to encourage those independent advisers to send them more business. This is how independent companies can offer more competitive deals and rates. They have no obligations to the lenders.

 

For instance, Equity Release Supermarket can obtain rates on the Aviva Flexible Lifetime Mortgage Plan, starting at 5.68% (5.88% APR). If you get the same deal directly by making the enquiry at Aviva now, even though it won’t be Aviva whom you deal, the rate would be much higher. Beware.

 

This is the reason that Aviva closed down their direct equity release offering as of 1st July 2013. Today over 80% of all equity release deals are coming in through independent firms. Customers have discovered that the best deals could only be found this way. Aviva was the last big company to still provide the direct service, but now they have realised that they can offer the best service to their customers through independent companies.

 

How Do Aviva deal with their enquiries now?

Since Aviva Direct was disbanded, enquiries still filter through from the general public. Not only that, Aviva have still continued with their direct marketing as can be evidenced on their paid listing on Google. But why would they continue marketing when they have no advisers to deal with their Aviva equity release enquiries?

 

Aviva made the unusual decision to use independent equity release brokers to handle the new business & any Aviva additional borrowing enquiries. However, even more unusual is the fact that these independent brokers are unable to deal with these enquiries on an independent basis. They must handle these Aviva potential consumer enquiries by only recommending Aviva’s own lifetime mortgage products. Not only that but this doesn’t come with the independent & best Aviva equity release UK interest rates. Yes, a premium would be paid.

 

So where do you find the best Aviva equity release interest rates?

As with any purchase to be made, the safest option is to always shop around. Therefore, if an Aviva referral to an outsourced company has been made ascertain their independence and whether this constitutes the best equity release deal. Once the quote & recommendation has been made, it then time to research the whole of the equity release market & compare deals. Using comparison tables such as prepared by CompareEquityRelease.com, you can see where the lowest rates relating to drawdown lifetime mortgages, lumps sum plans or even interest only lifetime mortgage scan be found.

 

The message is to understand your needs first. Don’t just plump for the first recommendation, especially if the company providing the advice can only recommend an Aviva plan. Aviva do have a very competitive offering, but this must come from an independent source, not a tied representative arrangement. This tool they use to get the best Aviva interest rate is called the Aviva Flex Tool.

 

What is the Aviva Flex Tool?

Independent equity release brokers have access to a unique quotation tool called the Aviva Flex tool. This is the pre-quotation tool that helps design the customer’s rate & product, whether it be an enhanced lifetime mortgage or maximum lump sum or the Aviva flexible drawdown plan. Based on criteria surrounding the clients ages, property value, health & loan-to-value will determine the lifetime mortgage rate offered. The higher the loan-to-value, the higher the interest rate usually becomes. Additionally, for drawdown lifetime mortgages, the greater the reserve facility required, the higher the interest rate becomes. There, is also the option of choosing certain offers, such as free valuation or a £500 or £1000 cashback.

 

Therefore, by using a combination of tactics with the size of the cash lump sum, the reserve facility and the cashback/valuation offers can manipulate the interest rate in the clients favour. This is something that only a specialist equity release adviser with access to the Aviva Flex Tool can provide & by contacting EquityReleaseSupermarket.co.uk, this access can be made available.

 

 

Work these extras into your Aviva plan

You can build these cash extras to the Aviva plan through Equity Release Supermarket. You might wish to include a free valuation of your property before deciding, or add £500 or £1000 cash back. These are deals that you can only obtain by using one of the top equity release firms in the UK. And the best price on those deals can only be found when using independent advice through companies such as Equity Release Supermarket rather than going through the equity release firm directly.

 

For a free initial Aviva quotation, call the team on 0800 678 5159 or alternatively complete this Aviva quote request form.

Practical Applications of the Pure Retirement Drawdown Plan

Saturday, March 22nd, 2014

Pure Retirement Drawdown PlanPure Retirement recently became the latest equity release provider to enter the lifetime mortgage market.  Launched in January 2014, it signalled the re-emerging confidence & growing popularity in the equity release market.

 

However, it makes no sense for a new lender to enter the market without finding a niche for itself. So, over the past few months Equity Release Supermarket advisers have encountered practical experience of where the Pure Drawdown Plan has fitted in providing best advice scenarios. Here we help explain where we feel the Pure Retirement Plan wins, in an already competitive equity release marketplace.

 

First, the Pure Drawdown Plan in Detail

Before we enter the wheres & wherefores of how the Pure Plan fits in with equity release recommendations, let’s look at the Pure Retirement plan facts

 

The Pure Retirement Drawdown Plan is the first offering from the new lender formed by funding assistance from equity release brokerage – Age Partnership. This follows the similar relationship that exists between more2life & Key Retirement Solutions and represents a growing trend where brokers have become equity release providers. This similarity is also evidenced from where the funding source is derived, in that Pure Retirement relies also on the same annuity backed insurer to give it the ability to fund its lending – Partnership Assurance.

 

The Pure Drawdown plan is a lifetime mortgage that starts later in life than most equity release schemes with a minimum age at commencement of 70. It’s aimed towards the higher end of the loan-to-value ratios without any medical underwriting, which the enhanced lifetime mortgage plans have the advantage of.

 

The starting percentage is 36% of the property value at age 70, which compares favourably with other high LTV products. Albeits not the highest maximum equity release plan out there, it has a neat trick up its sleeve with how it can still compete with these maximum lifetime mortgage plans. Details of how are explained later in this article.

 

As a member of the Equity Release Council, the Pure Drawdown Plan offers a free no-negative equity guarantee and 100% ownership of the home. Portability enables you to still move house once the plan has been set in force and the interest rate is fixed for life, launched at a reasonably competitive 6.74% monthly rate (7.1% representative APR).

 

The minimum loan is higher than most at £25,000, which is where Pure Retirement’s market lies and is available in England, Scotland & Wales.

 

This is a roll-up lifetime mortgage plan with the option of a cash reserve facility. Therefore, Pure Retirement will calculate the maximum release possible, from which an initial amount can be withdrawn. Any funds untaken, remain in a cash reserve held by Pure Retirement at no cost until needed in the future. Should it later be necessary to access these funds, they can be drawndown in minimum amounts of £5,000 with no further charges.

 

Where Pure Retirement Lifetime Mortgage Strengths Lie

As an independent equity release adviser, one of the most common reasons for client objection lies in the costs of implementing an equity release scheme. Here is where the Pure Drawdown Plan wins – set up costs!

Only one equity release company has previously offered a scheme whereby the standard terms dictate a cost effective route to market for any client taking out a lifetime mortgage, & that’s Partnership’s Enhanced Lifetime Mortgage. Some lenders will temporarily create pockets of time whereby a cashback exists or a reduced interest rate for a limited period, but these come & go.

 

However, Pure have created these features as a permanent fixture & all credit to them in seeing this gap in the market and understanding what the consumer requires. Afterall, many applicants want a release of equity to help them financially as they have limited funds in the first place. By asking them for more money up front, it makes the process more difficult for them to get the whole application underway. Pure Retirement alleviate these areas, both pre & post application stages, let me explain how and why.

 

Pure’s Set up Costs

Pure Retirement provide a two tier set up cost operation; one for equity release loans between £25,000 & £44,999, the other based on loans in excess of £45,000.

All equity release schemes will normally incur set up fees in four main areas – Valuation, application, solicitor & adviser charges.

 

Pure approach this differently in the sense they aim to cover the majority of costs; the more one borrows, the greater the help provided. For loans over £45,000 the cost is enhanced furthermore by them providing: –

 

  1. FREE valuation
  2. NO application fee
  3. Contribution of £600 towards legal costs
  4. Contribution of £500 towards the advice fee

 

Therefore, dependent upon how much the advice fee being charged is, which in the case of Equity Release Supermarket its £895; the net advice fee cost would only be £395. Bearing in mind we can source an ERSA equity release solicitor, for a reasonable £495 + VAT & disbursements (including home visit) the £600 contribution from Pure Retirement should cover this on a standard freehold property. This effectively means to implement a Pure Drawdown Plan with Equity Release Supermarket would only cost approximately £395!

 

Where Does the Pure Retirement Plan Offer Clients Best Advice?

As previously stated, Pure Retirement Drawdown Plan has been targeted to meet those clients looking towards a maximum equity release in order to assist them with their retirement needs.

A recent example of how the Pure Drawdown Plan can still offer a client a greater net amount, even though the maximum release is lower than a competitor, can be illustrated by a case I recently encountered: –

 

CASE STUDY

Pam, aged 79 was looking to move property & required a lifetime mortgage to help her with the purchase. She was in good health & needed the maximum release possible to not only help with the purchase but also the moving costs & legal fees.

The purchase price for the 3 bedroom flat in Cornwall is £140,000.

 

Pamela requires the maximum release possible which following extensive research would point towards the Just Retirement Lump Sum Plus plan which would release £64,400 at an annual interest rate of 6.75%. This comes with a free valuation, £600 application fee, legal costs & advice fee.

 

Looking further down our research table identifies the Pure Drawdown Plan with a 6.74% monthly interest rate. However, the maximum release Pure would offer would be a lower amount of £63,000. But upon delving deeper into this product & by analysing the charging structure it shows that the actual Pure Retirement net release could be higher.

 

Fee Type /Provider

Valuation

Application

Legals

Advice

Legal Contribution

Advice Contribution

Net Costs

       Just         Retirement

FREE

£600

£600

£895

£0

£0

£2095

Pure Retirement

FREE

£0

£600

£895

£600

£500

£395

 

Evidently, the Pure Retirement plan has £1700 reduced set up costs, compared to the Just Retirement plan. The next part of this calculation is then offsetting this £1700 advantage that Pure Retirement has against the £1400 extra that Just Retirement can release as their maximum.

 

The final result therefore shows that Pure Retirement will have a greater net release to Pam of £300 and therefore proceeds with the recommendation as the £300 would be more advantageous in her pocket.

The message therefore is never look at the top line maximum amount, but always to consider any incentives that may help improve the net offering.

 

Existing Equity Release Customers Looking for Additional Funds

Other areas where Equity Release Supermarket customers have already benefitted from the new Pure Retirement lifetime mortgage is under two scenarios: –

 

  1. Where they have an existing equity release plan & need further funds.
  2. If looking to obtain a lower interest rate, yet no lender can provide sufficient funds to enable the equity release remortgage

 

Following the routine check to see if any additional borrowings are available with their existing lender, it’s then our duty to research the whole of the market to see if any other equity release providers could assist.

 

One of the issues against switching equity release schemes is usually the set up costs that prohibit the transfer. Under the two scenarios, in the first the charges could swallow up any of the spare cash being targeted, and in the 2nd scenario the set up costs make any transfer non-profitable as these costs offset any future savings in interest.

 

Its therefore the case that set up costs can prevent future maneuverability with any home equity scheme.

 

This is where the Pure Retirement Drawdown Plan can come into its own with its lower set up costs. Under both scenarios, Pure’s reduced set up costs will help with the switching of equity release schemes. Under the 1st scenario it will lead to more funds being available to withdraw & secondly in obtaining a lower interest rate its helps bring forward the break-even point.

 

Summary

Set up costs are an important aspect in the consideration of accepting any equity release recommendation. However, your adviser should consider the whole picture and features necessary in your meeting your requirements. This is why any equity release adviser should be experienced, qualified and importantly independent too.

 

If you feel that the Pure Drawdown Plan could be of benefit to you, please contact Mark Gregory on 0800 783 9652 or email mark@equityreleasesupermarket.co.uk.

 

 

Further Information

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

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’.

 

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

Sunday, December 15th, 2013

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

 

Equity Release Experience Counts

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

 

The issues with purchasing a static caravan

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

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

 

Case Study

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

 

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

 

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

 

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

 

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

 

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

 

Summary

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

 

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

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

 

How Equity Release Can Help You ‘Upsize’ while ‘Downsizing’

Monday, September 30th, 2013

downsizing in retirementWe often read comments in newspapers, or see reports on TV, that before taking equity release you should always consider your alternatives, as there maybe financial solutions that have not been previously considered. One of these which has created much debate recently is the possibility of downsizing.

 

This article, discusses the advantages of downsizing and how equity release schemes can still have an important role to play in such situations.

 

Equity Release versus Downsizing

The practice of downsizing, effectively means selling one property at a higher value than the one you wish to move into. Therefore, the equity generated from the price differential can be used to support you financially during retirement. This is usually the main reason for people deciding against taking equity release.

Downsizing is fine in principle, and it is one of the options Equity Release Supermarket advisers always discuss with clients. However, for economic and personal reasons, the idea of downsizing can be impractical.

 

Equity Release Case Study – How downsizing works in principle

Take for example Peter and Clare, both aged 73 and living in their semi-detached house worth £275,000 which they’ve owned for over 30 years. They are settled in the area, their family and friends are local to them and they feel comfortable and safe in their current surroundings.

Unfortunately, they still have a mortgage of £100,000 and the lender has informed them they will need to repay this by the time they reach the age of 75. Like many people in their situation, they do not have the money set aside to do so. Their family are in no position to help as they too are struggling to keep their own heads above water!

 

So what are their options?

  1. They could sell up, pay off the mortgage and look for another lower valued property. After taking into consideration the costs of moving this would mean considering properties around £165,000. Unfortunately, there are no properties of this value nearby, as even smaller properties locally that would still cost them in the region of £200,000.
  2. Consider a remortgage with another lender. This would involve switching their £100,000 mortgage to another lender. However, most high street banks & building societies will not allow borrowing beyond the age of 70, or even 75.

The only option it would seem is to have to move further away, to an area they would not feel comfortable with, and considering this would be their last ever move, it must be the right decision as happiness during retirement is key. This situation leads to anxiety and stress for the couple as their network of friends and family would no longer be around them and they would be moving to an unknown location which may turn out to be both undesirable and unpopular.

 

Therefore, only option 1 is feasible, but there is still the issue that the property would not be entirely suitable for their requirements moving forward.

 

Revised Case Study – The maths of upsizing

Let’s revisit option 1 again, as there is some good news for those that wish to downsize.

 

Equity release schemes can actually allow you to ‘up-size’ when moving house by using the equity release tax free cash to help fund the purchase of the new property. This would mean Peter & Clare still purchasing of a lower valued house. However, by using a new equity release plan in conjunction with the purchase, they can now attain property values of around £200,000+, which they needed to stay near to where they currently live.

 

Taking Peter & Clare’s example again. The couple are both aged 73. Using the Equity Release Supermarket calculator, they could borrow upto £78,000 on a property worth £200000, on a roll-up lifetime mortgage basis.

 

This would enable them to purchase the £200,000 property; by using £165,000 of their own equity, plus the difference coming from an equity release plan. In fact given the equity release calculation figures they could go even higher if they wished to do so, or even use some of the surplus to have a small emergency fund for the future which is missing at the moment.

 

Now Peter & Clare have come to terms with the downsizing, the couple can now consider fine tuning their equity release solutions.

 

In fact, they could consider a lender allowing interest payments – commonly known as an interest only lifetime mortgage provided by companies such as Stonehaven. These off-set the effect of the rolled up interest, but unlike their existing mortgage which comes to an end in two years’ time, a scheme such as Stonehaven’s Interest Select Plan would be open-ended and therefore run for the rest of their life.

 

In some cases, depending on their state of health, Peter & Clare may be eligible for more money if they could take advantage of enhanced lifetime mortgage rates offered by some lenders. These enhanced lifetime mortgage schemes can lend more than any standard lifetime mortgage & give that extra amount making all the difference.

 

Upsizing Summary

So as a solution, what does this up-sizing option offer: –

  • The opportunity for the couple to repay their existing mortgage in full
  • To move to a location near to their current property, ensuring that they can maintain the support of family and friends
  • To continue to live in a safe environment with familiar surroundings including local amenities which have become increasingly important to them, such as their doctor and local hospital along with good transport links and shop
  • To purchase a property which they’re happy with rather than taking on a property ‘because they have no choice’

 

To down-size is an option which may be suitable to some, but like all decisions taken it needs careful consideration. This is where specialist equity release advice can make all the difference to retirees making such important financial decisions in retirement.

Having an alternative in the form of equity release scheme or interest only lifetime mortgage may enable them to make a decision based on a more practical  solution and providing clients ‘peace of mind’, something which is not commonly advised upon in the news.

 

Equity Release Supermarket has experienced advisers who have dealt with such situations & can therefore make all the difference to people over 55 & in retirement.

 

If you wish to ask, or discuss anything with regards to his article with our team please call Freephone 0800 678 5159 or email admin@equityreleasesupermarket.co.uk

 

Do Banks Offer Equity Release Schemes?

Tuesday, December 11th, 2012

It has been a mystery why the UK mainstream banks haven’t fully embraced their traditional image of lenders to the masses, by entering into the realm of equity release schemes. We look at the history of attempts and corresponding results of many high street banks who have previously offered equity release schemes to the over 55’s.

 

Problems from the start

We start our history lesson back in the 1990’s, when Barclays & Bank of Scotland dreamt up the concept of the Shared Appreciation Mortgage (SAMs) whilst the housing market was quite stagnant. People were looking desperately to get on the housing ladder and it seemed a good buyers market.

 

These two banks were offering the elderly a mortgage with NO monthly payments; however they would instead take a share in the future rise in the property value. Around 11,000 Shared Appreciation Mortgages were sold of which these unlucky retirees thought would only need to pay back a few thousand pounds.

 

However, the property boom followed the property slump of the 1990’s, and by 2007 property values had almost quadrupled of which the banks also took their large share. The resultant effect has left many pensioners now unable to sell as they haven’t sufficient equity of their own to move house. The legacy of these schemes still exists today with legal action being taken by some of the unfortunate customers of these banks.

 

Some have tried and failed

We have seen in the last decade a couple more banks have dipped their toes into the water & failed with lifetime mortgage schemes. Notably one temporary success was NatWest/Royal Bank of Scotland who ventured into lifetime mortgages for a period, but none have ever felt comfortable offering this form of mortgage for the over 55’s.

 

NatWest/RBS equity release schemes became available in 2006 and were made available to its long time bank customers or retired bank staff. However, by 2009 after much back office investment & a surge in recruitment RBS ran out of funds and closed the whole equity release operation down.

 

The importance of independence

In Retirement Services logoHSBC offered equity release back in 2006, after tying itself up with a tender from the now dissolved equity release company – In Retirement Services. In Retirement Services were an equity release provider in their own right and funded by private equity firm 3i, but only offered their own products.

This was always considered a strange decision for HSBC at the time to tie themselves with a non-independent equity release company & left the markets bemused. Afterall, why would a major high street bank tie themselves to someone with no independence for its customers?

The relationship ceased and the products were no longer available once In retirement Services went into administration due to funding issues in 2009.

 

Have Building Societies fared any better?

There has been a history of building societies that have yielded greater success with their own equity release solutions. They have ventured in & out of the market but no building society has remained and stood the test of time. Many building societies have fallen victim to the credit crunch over 3 years ago. This was due to the issues with raising funds on the money markets, and inter-bank lending at the time was virtually suspended.

 

This left many building societies involved in equity release lending, moving their mortgage book of funds towards the most profitable products such as mortgages which provide greater profit margins that equity release over the shorter term.

northern-rock_999576c

 

Within the last 10 years we have had Northern Rock as a major provider; however we know how the how the market crash affected them & its customers! They are now accepting repayment of their equity release schemes to clear their mortgage books of these old equity release plans.

 

Northern Rocks early equity release mortgages only had 5 years early repayment charges, so it could be an excellent chance to get a better deal today with the current crop of low interest rate home equity schemes available. (Northern Rock has sold its equity release book now to Papilio UK Equity Release Mortgages)

 

Other building societies that tried and failed due to the credit crunch were Bristol & West, Saffron Building Society and a notably, although temporary, unique scheme launched by Godiva. They were the first to enter the equity release market with an equity release plan with NO early repayment charges. Unfortunately, again the credit crunch put paid to this, and you would hope a similar product would one day re-enter the lifetime mortgage market; albeit the Hodge Flexible Lifetime Mortgage Plan goes some way to meeting a no redemption penalty equity release plan – see below.

 

So what types of equity release providers are currently in the UK equity release market?

It seems the secret to success and longevity is to find a niche product with a USP in the equity release market.

Lets consider the current lifetime mortgage providers and the schemes on offer and you can see why…

 

 Provider  Product Name  USP
 Aviva  Lifestyle Flexible Option Lowest interest rate currently in the market.Rates currently start from 5.57% and come with free  valuation and cashbacks
 Stonehaven  Interest Select Plan An interest only lifetime mortgage. Monthly payments help maintain a level balance.Great inheritance protection for the children
 More2life  Enhanced Lifetime Mortgage Offers the maximum release in the market by underwriting on the grounds of ill-health. The more severe one’s heath the greater the release
 Hodge Lifetime  Flexible Drawdown Plan Hodge have two USP’s. One is the ability to repay upto 10% of the balance each year. The 2nd is you can downsize after 5 years with NO early repayment charges

 

Today’s range of equity release companies stem from insurance companies to finance houses who have the ability to fund their lifetime mortgage schemes via their annuity books. We still have a mutual society and the remainder are private companies who manage to find funding from business partners.

 

Whatever the funding source, the current breed of equity release schemes offer the most diverse range of plans and competitive interest rates the equity release market has seen.

 

If there are any lifetime mortgage plans, old and new that you wish to discuss further, contact mark@equityreleasesupermarket.co.uk or call the Equity Release Supermarket team on 0800 678 5159.

Do Enhanced Equity Release Plans Provide the Maximum Lump Sum?

Saturday, June 9th, 2012

Equity release mortgages have evolved over time. Compared to a few years ago, a much wider range of equity release products are available today. Mortgages have also become more flexible in general, making them suitable for a wider variety of customers.

If you’re interested in borrowing more than a conventional equity release will allow, then there is a type of equity release called the ‘enhanced equity release plan’ that may be of interest. Similar in principle to the enhanced annuity market, the ‘impaired’ or more commonly known enhanced lifetime mortgage can now provide an even greater maximum lump sum than even selling 100% of your property under a home reversion plan.

 

Why would you consider an enhanced scheme?

There are many reasons people are looking to release the maximum lump sum. It could be that one is looking to switch to a new equity release plan from an existing one in order to release extra tax free cash. For completely new applicants, it may be the case that the reason they qualify for an enhanced lifetime mortgage in the first place is down to the fact that health is poor & longevity maybe a concern. You may also want to borrow more, but your existing lifetime mortgage company may not grant further borrowing, or top up interest rates from the existing lender could be very high. An enhanced equity release plan is a lifetime mortgage that aims to maximise borrowing, and keep interest rates relatively low.

New enhanced plans from companies such as more2life will now provide the maximum drawdown lifetime mortgage facility. Therefore, should a retiree require only a small initial lump sum, but require as much as possible over the longer term, then products such as the more2life enhanced plan could be the solution. The underlying decision to go for a maximum equity release maybe to enjoy oneself before health deteriorates further. Once it does, holidays, new cars etc may not be on the list of priorities for the future.

 

Enhanced lifetime mortgage criteria

Enhanced equity release schemes are designed for individuals over the age of 55 years. As people live for longer, it is important to tailor equity release schemes to meet changing demands. As such, an enhanced equity release plan is designed for those who have certain lifestyle requirements due to long standing health conditions – from relatively minor conditions such as excessive smoking, early retirement due to ill health to serious illnesses like cancer & heart attack.

 

Lenders take several factors into consideration while working out the size of the loan. Underwriters calculate the amount that the lender can afford to lend, depending on the individual case and the answers to the health & lifestyle questionnaire. By taking into account the health condition or impairment, how this affects the client’s life expectancy, the lender can increase the amount loaned compared to a regular annuity or equity release scheme. An enhanced equity release plan could allow customers to borrow as much as 15% more than a regular home equity release loan. This can be a significant increase for many people who require the additional income or capital to cope with their day to day needs.

 

Who provides enhanced equity release schemes?

The three main providers of this type of equity release mortgages are currently Aviva, More2life and Partnership. If you are looking to maximise borrowing and suffer from health impairment, however minor, you could benefit from an enhanced equity release plan. A wide range of health conditions are considered for this type of equity release, to see if you qualify consult a financial adviser who can work out whether this is a viable option for you.

 

 

Independent equity release experts such as Equity Release Supermarket can study your case in detail and give objective advice. Using the enhanced equity release calculator  on the website will advise how much you can potentially release.

To receive further information or advice on enhanced lifetime mortgage schemes, call Equity Release Supermarket on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

 
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