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Legal & General Equity Release – Visionary Views & Sea Change Needed

Wednesday, October 14th, 2015

Legal and General Equity releaseThe equity release marketplace in 2015 has been undergoing a period of growth and innovation which has been long overdue. There are major factors influencing this potential golden generation of competitive equity release plans. Helping matters has been a new big brand household name – Legal & General who are aiming to take a large share of equity release business, but not necessarily in the conventional manner.

 

Realising the lifetime mortgage market needs a sea change in order to reach the heady predictions made, Legal & General are almost starting with a blank canvas & fresh approach to how equity release UK plans are marketed & advised. These ideas I’m sure will soon be rolled-out to the equity release broker community, who need to awaken to the concept of change, not much of which has really been seen over the past few years.

 

Personally, equity release brokers & lenders need a complete overhaul of its thinking & messages it needs to portray to the consumer to build confidence. Conventionality needs to be erased & brought into the 21st century using the latest of technology & wider distribution. This shouldn’t be just by one or two brokers strangling the marketplace, effectively restricting the entry of new lenders/funders, but an across the board approach by everyone (brokers & providers) working together.

 

Furthermore, for growth, new advisers are needed to be brought in from outside the industry & trained to meet the rigorous measures imposed by the Equity Release Council to ensure safe route to market for the consumer. There is a shortage of quality equity release advisers which needs immediately addressing, otherwise how can the market grow?

 

Legal and General Home Finance ‘Sea Change’

Let’s analyse what Legal and General Home Finance have achieved since entering the equity release arena by acquiring NewLife Mortgages in early 2015. They have provided a series of plans which have effectively matched the best crop of products in the market at entry point. Features such as the 10% voluntary repayment option, lowest interest rate, high loan-to-value products & inheritance protection facility have competed significantly well against its peers, such as Aviva Equity Release.

 

Understandably Legal and General had to start somewhere & their efforts so far are commendable. With product research underway & their own analysis of how the market should look moving forward, we welcome a fresh voice & innovative product development. With electronic applications & valuation instructions to commence in the New Year, these are exciting times for the industry, but not before time. Branding themselves as Legal & General Home Finance indicates their proposition will be more diverse than just traditional equity release plans.

 

Areas where development is needed is greater flexibility for all pre & post retirement homeowners and remedying the issues for the over 55’s sensibly borrowing into retirement which MMR has stunted. We have seen how the Marsden Retirement Mortgage has filled a niche in post lending advice & this gap between equity release schemes & residential mortgages is a void that needs consideration. Equity release plans in their current state, albeit the most flexible ever, will not meet the future needs & demands for all retirees. New ideas and new forms of retirement mortgages are needed, but maybe one’s that somehow interact with lifetime mortgages, switching between as the homeowner’s future circumstances dictate.

 

 

Can Legal & General Exert Influence?

There is a vision for the expected growth in post-retirement lending, which some market analysts have projected could reach £5billion by 2020! This is still a mere drop in the ocean compared to the residential mortgage market of over £200 billion, yet there is still almost £1 trillion in untapped equity remaining in the over 55’s property portfolio’s. Is the figure even realistic? Not in its current format & lenders thought process. This is why Legal & General’s introduction could be what the market needs.

 

We are aware of the history of equity release schemes, resulting in the lack of confidence with many retirees & press alike. However with the efforts from Nigel Waterson from the Equity Release Council & the voice of important members of the equity release sector such as Andrea Rosario, the market is starting to answer back. In essence, the external adverse publicity maybe due to lack of knowledge of equity release and of how the newer breed of lifetime mortgage schemes work in practice & how it’s strictly regulated by the FCA. But this is where the equity release industry has plotted its own downfall. Lenders themselves should stand up more & be accountable, especially when adverse publicity arises, as it tends to be the market correspondents alone who respond.

 

Frustration ensues when column inches and comments about equity release are misconstrued. But that will happen when the market is so inhibited by a few brokers who have their own interests at heart. We already have an ‘equity release club’ in the industry, but designed for brokers for equity release referral purposes. Equity release brokers themselves should form their own ‘club’, thus joining forces and work out they can ALL assist the growth in the equity release sector. A new era of consumer openness and transparency needs to develop so there is a clear voice representing the industry, with a collective approach from ALL, not just the monopoly of a few.

 

A Sea-Change of attitude, products, innovation and lenders is what’s required for equity release & retirement lending as a whole, to progress. At least one of these requirements seems to have been met, with the household name of Legal and General becoming a new lifetime mortgage provider. The next 12 months may define the future of this industry. These could be exciting times for all those involved from brokers through to lenders, but not forgetting the true beneficiaries to all this – homeowners over the age of 55 who genuinely need a mortgage vehicle to enhance their retirement!

 

For further information on the range of Legal & General equity release schemes, please contact Mark Gregory – mark@equityreleasesupermarket.co.uk or call 07966 889597.

How the New Marsden Retirement Mortgage Can Help Boost Equity Release Lending

Saturday, September 26th, 2015

Marsden Retirement MortgageEquity release specialists are crying out for greater innovation in its product range to lenders at a time when the lifetime mortgage market potentially enters the biggest growth phase of its history. Failure to do so could result in products such as the new Marsden Building Society Retirement Mortgage & the Vernon Interest Only Retirement Mortgage shaping retirement lending to the over 55’s in the years to come.

 

Here I would like to share my views on why the equity release industry needs a major rethink of its products, understands more of its consumer requirements & how some of the smaller lenders such as Marsden & Vernon may have an impact on this thought process, even future product design.

 

Is Equity Release Innovating Sufficiently?

The launch in September 2015 of the Marsden Retirement Mortgage could represent a wake up call to equity release companies, which until now have offered little in the way of sweeping changes, consistent with driving the post retirement lending market forward.

 

Until now, lending into retirement has been hampered by the after effects of MMR (Mortgage Market Review) and how lenders gauge affordability for pensioner mortgages. This has seen terms ‘interest only time bomb’ being banded about as high street lenders start reigning in their mortgage book, when normally then would have renewed or extended mortgage terms. This has left mortgagors stranded with the dilemma of having to decide whether to sell & downsize, or find alternative lending such as lifetime mortgages.

 

These mortgage prisoners have been one of the main reasons why the equity release industry has seen major growth recently & should not be fooled somewhat into thinking it itself has played a part in its own expansion. Equity release must not become Mr Complacency. People looking to offload their traditional mortgages in favour of a voluntary repayment lifetime mortgage or interest only lifetime mortgage has been clearly evident at Equity Release Supermarket. This market has still not reached its peak, yet innovative products are still out of reach for this purge in demand awaiting redemption & rebirth.

 

The Corridor of Uncertainty that exists between Residential Mortgages & Equity Release

With some recent relaxation in retirement lending rules, some residential mortgage lenders are set to take advantage by introducing retirement mortgage products that can fill the ‘corridor of uncertainty’ between the traditional mortgage market & equity release schemes. This void exists due to the gap in both distribution and the advisory process, but mainly the lack of products that can fill this area.

 

For instance people looking to borrow at age 60 over say a 20 year term looking for a 40% release of equity would struggle currently to raise such an amount. The reason being mortgage lenders are frowning upon lending beyond 70-75 and equity release providers have loan-to-value ratios at 60 that are insufficient to release this amount. So where can these people go?

 

Their prospects are currently limited to several companies, one of which is only accessible via advisers with lifetime mortgage permissions. This is the creditable Hodge Retirement Mortgage. Several smaller, local building societies will lend on an individually underwritten basis, but are obscure in research and not looking for large mortgage books for this kind of product. We saw this effect when the Halifax Retirement Home Plan eventually had to be withdrawn due to demand in July 2011.

 

The future of the equity release market lies in the hands of the lenders who define the products on offer to the over 55 lifetime mortgage brigade. 2015 for me is the landmark year that could evidence how these products are to be aligned in the years to come. With the upheaval to annuity sales and the new pension freedoms in place, equity release has remained too rigid in concept, yet has seen buoyancy, despite its many detractors in the press. Yes this is positive news, yet does not address the underlying issues within the equity release industry.

 

How Non-Traditional Equity Release Companies Can offer Equity Release

Recent news & industry talk is that smaller traditional building society’s are set to move in to the retirement lending space, which effectively could throw a spanner in the works of some equity release lenders and advisory firms who do not embrace these products. The term ‘equity release’ is generic, yet advisers & product providers alike, associate this term with either a lifetime mortgage or home reversion scheme.

Wrong! Equity release simply attributes itself to any form of mortgage vehicle then enables the release of equity from a homeowner’s property. The industry needs to move away from the stigma of historic equity release terminology & move into a new era of flexibility, innovation & a market not defined by just 9 lenders offering copycat products. If these lenders do not embrace the changes needed, other traditional lenders could spot their opportunity & move in.

 

This has started already. With news of two new bold retirement mortgages from what would be classed as two of the somewhat ‘smaller’ building societies. The first to launch was the Vernon Building Society’s Interest Only Retirement Mortgage with two rates dependent upon whether a LPA (Lasting Power of Attorney) was in place & registered with the Court of Protection; an unusual move, but clever thinking behind this. The Vernon’s non-LPA rate at 4.45% (4.9% representative APR) is actually higher than the Hodge Retirement Mortgage at 4.39% (4.7% representative APR), so a welcome addition, but not groundbreaking.

 

Why the Marsden Retirement Mortgage is Competitively Advantaged

The launch of the Marsden Retirement Mortgage plan is significantly different to the Hodge Retirement Mortgage. The Marsden has no affiliation with the Equity Release Council and therefore no constraints with regards to no negative equity guarantees and membership. This can provide greater freedom & the passage of savings in interest, clearly evident on this products launch interest rates of either 2.79% or 2.99% discounted rates, dependent on whether the interest only, or capital & interest route is selected.

 

The Marsden Building Society have made this semi exclusive retirement mortgage plan only available only through qualified intermediaries. This is not a direct to consumer product and is a move commensurate with ensuring best advice is given to a potentially vulnerable age group.

 

The Marsden Retirement Mortgage Product in Finer Detail

The minimum age at application for this mortgage in retirement product is age 55, with a maximum term being 30 years, hence this is not a lifetime mortgage. It is available to anyone looking to make a new house purchase, remortgage away from an existing mortgage provider, maybe due to expiry, or even general capital raising purposes where no mortgage exists currently. This could be for home improvements, gifting to children/family or any other lifestyle choices that make an improvement to their standard of living in retirement.

 

This Marsden pensioner mortgage is available on an interest only retirement mortgage basis or even capital & repayment. The option selected will be reflected in the interest rate which at launch in September 2015 are discounted until 31.01.18 at which point it will revert to the Marsden standard variable rate currently 5.95%. At this point no early repayment charges will exist.

 

The minimum release of equity is £50,000 and the maximum loan that would be considered is £500,000. Properties are accepted in England & Wales only & must be valued at least £200,000.

 

Set up costs are competitive priced compared to equity release schemes. There is a free valuation on properties upto £500,000 and booking fee & arrangement fees of £299 each. For remortgages a fee assisted package is available where standard legals fees are covered along with free valuation fee as previously mentioned.

 

Other essential features of this retirement mortgage are as follows: –

 

  • Income multiples are 4.5x single & joint incomes, subject to affordability checks
  • Minimum income levels are £20,000pa, either single or joint.
  • Only pension income can be accepted, but rental & investment income can be considered
  • Maximum loan-to-values are 40% for interest-only & 60% for repayment mortgages
  • For interest only a sensible repayment method must be in place at the end of the term

 

Summary

The way forward for the post retirement lending arena is a swathe of flexible, transparent mortgage plans that meet the varied need of retirees. Whether this be a lifetime mortgage, retirement mortgage or interest only lifetime mortgage the key word is CHOICE. The Marsden Retirement Mortgage is just the start of new lenders filling the void between equity release plans & standard residential mortgages.

 

For more information & advice on which form of equity release is best for you, or to request a Marsden Retirement Mortgage quote, please contact Mark Gregory on 07966 889597 or email mark@equityreleasesupermarket.co.uk

Revealed – How the Bank of Mum & Dad use Equity Release to Fund 1st Time Buyers

Saturday, July 5th, 2014

Bank of Mum & Dad

 

It has recently come to my attention, having watched my own daughter attempt to buy her 1st property, how difficult it has become for 1st time buyers to fulfil their dreams of becoming a homeowner.

 

It also occurred to me that EQUITY RELEASE could in fact play a significant role in assisting the “Bank of Mum and Dad” and others in providing funds to enable these dreams to come true.

 

First some FACTS:

  • The average age for 1st time buyers is now 29
  • 2/3rds of 1st time buyers now turn to the Bank of Mum and Dad (BoMAD) for help
  • 30 years ago 12% of income was needed for a deposit on a property. Today this is staggering 82%!
  • The cost of an average house in the UK is 10 times bigger than the average salary rising to 14 times in London
  • In all but 2 regions in the UK, prices are 7 or more times the average salary for that area (Office of National Statistics)
  • More than 3.3 million 20-34 year olds were still living with their parents in 2013

 

Although these figures clearly indicate it is becoming almost impossible for 1st time buyers to get on the property ladder, help could be at hand – YES, from the “Bank of Mum and Dad”

 

Parents are an obvious first point of call. However with rising living costs, low interest rates and diminishing savings pots, it has become increasingly more difficult for mum and dad to find surplus funds to gift to their children, grandchildren or loved ones, to assist in fulfilling the dream of property ownership.

 

However, there could be a way to take an early inheritance from parents now in order to benefit 1st time buyers when the money is needed the most!

 

A special type of retirement mortgage commonly known as Equity Release could potentially unlock cash tied up in a parent’s property. This can enable mum & dad to generate sufficient funds to gift as a deposit on a property purchase for their loved ones.

 

What is equity release?

Equity release schemes are available in two formats – home reversion & the more popular lifetime mortgage. Both of these equity release schemes enable people who own their main residence to release a percentage of its value in return for a tax-free cash lump sum. These two types of equity release mortgages then run for the rest of your life & only repaid once upon death or moving into long term care.

 

The equity release scheme known as a lifetime mortgage has proven the most popular due to its flexibility. This has been strengthened this year with providers such as Hodge Lifetime & Aviva both providing an option to repay upto 10% of the original capital borrowed each year. Therefore, control over its final balance, or even repayment of the whole scheme over the longer term could represent a serious possibility, for either parents to pay, or the children themselves!

 

Lifetime mortgages are available to those aged 55+, with a minimum property value of £60,000. The amount that can be borrowed is not always based on affordability, but on factors such as age & property value. Effectively, the older you are, the greater amount of equity you can release.

 

Following a release of the equity, the lifetime mortgage company places a first legal charge on the property. This is exactly the same as any conventional mortgage and 100% legal ownership is still retained by the client providing peace of mind.

 

Typically, someone age 60 could release equity of between 18-25.5% of the value of the property, dependent on the lender concerned. These equity release funds can be spent on anything you like, however a sensible & cautious approach is always advised. Therefore, parents looking to assist their children onto the property ladder, a lifetime mortgage could prove an effective mortgage vehicle to achieve this goal.

 

Which equity release schemes can help 1st time buyers?

Equity release schemes have become a lot more flexible and innovative these days. You can choose to make NO repayments and have the interest added to the loan which is known as a roll-up lifetime mortgage. The amount borrowed plus any interest accrued is repaid upon sale of the property. This would happen on death (last death if joint plan) or having to go into long term permanent care. Thought must be given here should there be more than one beneficiary. With an increasing balance & possibly reducing net equity figure, consideration must be afforded to any remaining beneficiaries as to what they may potentially receive at the end of the day?

 

However, there are new repayment versions of equity release schemes that have proven even more popular with parents looking to securely gift money to their children to help with a property purchase.

 

Interest only lifetime mortgages from Stonehaven & more2life will allow the repayment of just the interest only element. By repaying interest charged each month prevents the loan from increasing and thus remains level for the rest of the mortgagor’s life. This is a great idea when there is more than one child involved. The problem has always been how to separate the gift now, from the overall inheritance at the end of the day if more than one child is involved?

 

The solution is having an interest only lifetime mortgage. By knowing in advance what the balance will be, this loan amount can be deducted from that child’s share of the inheritance at the end of the day. This would be even fairer for the other siblings, should that child also pay the monthly premiums on behalf of the Bank of Mum & Dad!

 

NEW -Voluntary partial repayment plans

Equity Release Supermarket now has access to specialist equity release schemes where there is the option to repay up to 10% of the original capital released each year without any early repayment charges. These equity release schemes through Aviva & Hodge Lifetime have proved popular for those not just looking to repay the interest, but also the opportunity to repay the equity release scheme in full over approximately 16-17 years. These voluntary partial repayment equity release schemes are proving to be the next generation of the equity release market.

 

How is the Bank of Mum & Dad protected?

All the equity release schemes we recommend are members of the Equity Release Council, which means that there are certain guarantees built into them for consumer protection. As a minimum the Equity Release Council will ensure the following guarantees are included:-

  • The schemes are portable and can be transferred to another qualifying property should you wish to move in the future
  • There is a no-negative equity guarantee which means a debt cannot be left to your estate even if the value of the property becomes less than the balance of the loan outstanding
  • You can live in your house for as long as you wish and with a lifetime mortgage you retain full ownership
  • They can be repaid at any time, subject to potential early repayment charges

 

Benefits of using Equity Release

Contrary to directly gifting your property to your children, by using equity release to gift instead, would avoid any Capital Gains Tax as the main residence is retained by the client. There could still be a potential Inheritance Tax liability, but only if the client died within 7 years of the gift.

 

The lifetime mortgage would be a deductible liability against the client’s estate, reducing the value being taxed and although interest would have to be paid on the loan; this could still prove beneficial to both the client and those receiving the gift. Always consult a tax expert on these matters in conjunction with your independent equity release adviser.

 

Of course let’s not forget the best part of this!

 

The potential to fulfil the dreams of our loved ones in an age where quite frankly, property purchase is almost becoming nothing more than just a dream for some. The joys of parenthood!

 

Next Steps…

I would be delighted to offer a FREE initial consultation to discuss any of the above matters relating to how equity release can help your children step onto the property ladder.

 

Please call me on 07788 605620 or 0203 7517228 or email cathy@equityreleasesupermarket.co.uk

Why London Housing Statistics show Equity Release on the Agenda

Tuesday, May 20th, 2014

London Equity ReleaseAnytime housing values begin to increase, it is time to assess the home buying situation. Retirement has been a topic of some concern for those heading into their 60s. In fact, over 55s are starting to realise while they have worked hard, they may not have enough in their pension portfolio to live on. The reason is all down to living longer – longevity. The average life is no longer to 70, but closer to 90 for females. Even in London families are cash poor, but property rich. Take advantage of new housing statistics and use a UK equity release calculator to determine if there is an equity release solution for you. London equity release schemes are being called upon because of their ability to help those who need cash, but own large amounts of equity in their property.

 

Equity Release Defined

Equity releases most popular form is the lifetime mortgage. This mortgage comes in various guises and can either come with or without a method of monthly repayment until the property is sold, either because the homeowners move, pass away or end up in long term care. The mortgage can be taken out from the age of 55. These lifetime mortgages do collect interest based on a fixed APR that adds up each year until the mortgage is repaid.

 

The London Housing Market

London housing prices have increased by 17.7 per cent in the last year. New and pre-owned homes in London are continuing to increase rather quickly. While housing prices are increasing, mortgage interest rates have actually decreased in the last few years, however storm clouds are on the horizon with news that early 2015 could see an interest rate rise. The monthly cost even on equity release is lower than in previous years. Now with lifetime mortgages it is true you do not make a monthly repayment; however, it is important to use an equity release calculator to compare the cost of your lifetime product against a standard mortgage.

 

By comparing the two you can determine if the low monthly cost stacks up against the equity lifetime release. Standard mortgages in London offer a loan to value of 75 per cent, meaning the other 25 per cent has to be a down payment for the purchase of the property. Even the LTV has been increasing over the last few years and markedly in the last few months. What this means for lifetime equity release is a higher percentage of lump sum tax free cash available for homeowners.

 

The increase of housing prices means more value is in the home, thus more money can be released with any form of available equity release product. Even though there is a potential for more money to be available, it does not mean all homeowners will take the larger lump sum. It is just important to know it is available and there as a back-up should anything untoward happen.

 

Agenda – Lifetime Mortgage

Lifetime mortgages are defined and the London housing sector is ripe for the picking. You have an idea of the solution, but why might lifetime mortgages continue to rise in popularity even in the Big Smoke?

 

Younger generations tend to spend more during an average week than older generations, say those in their 80s. Many retirees are in their 60s, which means they are still spending money as if they were working.

 

If you add the expenditures that occur each week to the recession issues of the past couple of years, there is a detriment to retirement funds for most individuals, even those in London. Especially people living in London, considering the expense of daily living without being overly effusive with spending.

 

Housing costs to run a large home, food purchases, travel, and entertainment are all going to be more in the capital city. As retirement pensions and other retirement investments lost a great deal with stock market troubles, it has left many retirees without enough funds to sustain their retirement life.

 

More so has been the fundamental flaw in endowment mortgage schemes whereby large shortfall are being evidenced upon maturity of the endowment plan. This has left many London homeowners with shortfalls on the repayment of their interest only mortgage. Therefore, London equity release schemes have come to fruition with the likes Of Stonehaven, more2life & Hodge Lifetime whom can provide an escape route via remortgaging onto their London lifetime mortgage schemes.

 

It puts lifetime mortgages on the agenda because they are a way to gain cash for mortgage repayments, general living, extravagant holidays, and any other type of entertainment retirees might wish to enjoy. The cash poor situation suddenly becomes obsolete as the property rich gain a little of that hard earned money back to use as they grow older.

 

Inheritance Factors are Imperative

As you consider whether a lifetime mortgage is right for you, it is imperative to think about inheritance, especially with the associated property values in London borough’s. A large estate when provided to family all at once is subject to inheritance tax over & above the £325,000 allowance for each party. This tax can be so large that it wipes out the entire inheritance. It is the reason those with a huge estate set up trusts and other tax planning instruments which can alleviate some of the IHT burden.

 

A lifetime mortgage can work in one of two ways, both as detrimental to any inheritance you may want to leave behind, but can also be used as a successful vehicle for mitigating IHT issues. Even in London, equity release can threaten an inheritance depending on the type of loan. For instance, the roll-up lifetime mortgage has the interest compounding as long as the mortgage is outstanding. On the other hand it is an opportunity to disperse inheritance without fear of taxes. By using a UK equity release calculator, can help you calculate the percentage of loan to leave as an inheritance.

 

Before entering into any equity release contract, you must seek independent equity release advice from a reputable company. For a full list of equity release brokers visit the Equity Release Council website, where using a postcode search can identify a London equity release brokerage near to you.

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 I Move Home with Equity Release?

Wednesday, February 26th, 2014

Moving Home With Equity ReleaseOne of the most common questions we get asked as equity release advisers is whether a lifetime mortgage is ‘flexible’ enough to meet any future change in circumstances?

 

Having reached retirement, experience has taught us all that life can be full of surprises and quite rightly this question is always high on the agenda.

 

This article has been written using my 10 years equity release experience & how I have helped guide my clients towards their ultimate goals, but at the same time alleviating any inhibitions surrounding equity release and moving home in the future.

 

The most common apprehensions regarding flexibility and moving or buying a new home can be summarised as follows:

  1. Can I move home if I have already taken out an equity release plan?
  2. Can I use equity release to purchase a new property
  3. How much can I raise on a new home using maximum equity release schemes?
  4. Can I transfer my existing equity release scheme to a new home?
  5. Can I still take out equity release if I downsize?
  6. If moving house, is it worthwhile transferring, or taking out a new plan?

 

So how does an equity release adviser dispel the fears and help their clients overcome the concerns that a release of equity mustn’t feel like a noose around their neck?

 

Considerations on Moving Home from an Equity Release Advisers Point of View

When we consider the question of a possible future house move, we can divide this into three very different scenarios; each one deserving separate consideration in its own right: –

  1. The first equity release scenario captures the proposition of using a lifetime mortgage, or home reversion plan to help fund the purchase of a new house
  2. The 2nd situation analyses the advice & legal process required when purchasing or moving home, utilising an existing equity release plan.
  3. Lastly, we explain the advisers perspective on what options are  available to a client with their existing equity release mortgage, upon moving home

 

Scenario 1 – Can I use Equity Release to help fund a house purchase?

An increasing number of enquiries seem to be coming in from people who are looking to move home, and this can be for various reasons. Some are looking to move nearer to their family for support, others are looking to downsize to repay loans and mortgages. Still others simply want to buy that bungalow they had always dreamed of for when they retired.

 

In the majority of cases, the best way to use equity release schemes to help fund a house purchase is to transact them simultaneously. This means involving an equity release application to be used as part of the legal process to buy. Consider this theory as exactly the same principle as using a conventional residential mortgage to help buy a new property.

 

In essence, by taking equity release at the same time as house purchase will save money by not duplicating the legal work, should a release of equity be needed at a later date. The rationale is that only one set of legals are required should equity release & the purchase be transacted simultaneously. However, if a release of equity is taken post purchase, then two set of legal costs are incurred; at the time of the house purchase, but then again later when equity release is done in isolation.

 

The rules are fairly straightforward, whether you use a lifetime mortgage or a home reversion plan for this purpose. A given percentage of the value of the proposed purchase property would be made available, depending on the age of the youngest applicant, and some or this entire figure would be sent to the conveyancer on the day of purchase to enable completion to take place.

 

Case Study:

Mr & Mrs Townley are aged 65 and looking to buy a property nearer to their daughter at a cost of £200,000. Their own home has been sold for £180,000 and, bearing in mind the additional costs involved, they feel they would need a further £30,000 to complete the purchase.

Following research, their lifetime mortgage adviser has recommended the Aviva Lifestyle Flexible Option where they could release upto 25% of the value of their new property. This potentially could provide them with a maximum release of £50,000.

They decided that they only want £30,000 of this for now but, as they don’t know what the future may hold, they ask for a cash reserve facility to be set up so that they could access the other £20,000 in the future, just in case they need it later.

 

Scenario 2 – Can I move home AFTER releasing equity on my home?

This is a different question altogether, but is definitely another one that comes up most of the time. Most people want to know before they enter into an equity release agreement, what would happen if they moved home in the future? This could be downsizing when one partner is left on their own, or moving into sheltered accommodation, if health dictates it becomes necessary.

 

First of all it is important to acknowledge that any lender that is a member of the Equity Release Council (which recently replaced SHIP) will allow the transfer of an equity release plan to a new, suitable property. Portability is an important facet of all equity release schemes.

 

Important considerations for anyone releasing equity include what they think MAY happen, or which is MOST LIKELY, as none of us know what’s around the corner.

 

If downsizing is the most likely outcome, then it should be very easy to find a lender that will allow this with the facility to move the equity release plan at the same time. A valuation would be carried out on the new property and the maximum configured equity release would be calculated. Having access to a lifetime mortgage calculator would be an advantage.

 

If the amount currently owed, is in excess of the maximum amount available for release on the new property, then the excess would need to be repaid from the profit made through selling and buying the cheaper property.

Of course some people want to have the flexibility of repaying the loan in full if they downsize later on and this is where some care is needed from outset to ensure this is possible.

 

As lenders become more attuned to what is important to equity release customers we are seeing some innovative thinking and I for one hope that this is a trend that will continue to grow over the coming years.

 

Scenario 3 – What should I do with an existing equity release if I want to downsize or purchase new?

This scenario is a continuation of the previous section, albeit taking into account in greater detail the options available & what should be done with an old equity release plan. It would be amiss of any adviser to automatically assume it would be in the client’s best interest to port an old lifetime mortgage or home reversion plan to the new property.

 

This is a key opportunity for an overall review of the older plan to establish its competitiveness in today’s equity release environment. From my experience of working at Norwich Union Equity Release (latterly Aviva), I am aware of older legacy equity release plans that in today’s world are outdated and uncompetitive.

 

My Experience of Norwich Union’s Legacy Equity Release Plans

The forerunner of all of Aviva’s equity release plans was called the Capital Access Plan. The Norwich Union Capital Access Plan had an interest rate, not charged against the balance, but calculated against the property value escalating over time. People with these plans who have seen a large increase in property value, will also had seen a proportionate increase in their equity release balance.

 

Another legacy plan which is no longer available is the Norwich Union Index-Linked Cash Release Plan. This a scheme which offered a maximum equity release lump sum from age 55, but with an interest rate linked to Retail Price Index (RPI). This Index Linked Cash Release Plan had a minimum interest rate of 4.89%, rising to a maximum rate of 10.14%. The calculated rate was dependent upon on the annual change in RPI which was then added to the minimum rate of 4.89%. Hence, this scheme did not provide as much certainty as today’s lifetime mortgage fixed rates.

 

From thereon in, Norwich Union or Aviva Lifetime Mortgage schemes had interest rates over 8%pa and potential early repayment charges of 100% of the original balance borrowed. Its schemes such as these that need assessing as to whether they should continue, or if favourable, could be repaid upon sale & a new plan taken upon simultaneous purchase of the new property. With rates today from Aviva as low as 5.68% annual, it could make sound financial sense to consider a new scheme which could save many £1,000’s over time by switching.

 

Free Initial Consultation

It is therefore essential for an experienced independent equity release adviser to undertake a full review of the entire situation & provide an impartial recommendation as to what is best advice moving forward. This will involve requesting an upto redemption statement from the existing lender, analysing the existing scheme & importantly assessing all the features including potential early repayment charges.

 

Equity Release schemes that were taken out some time ago are usually not as competitive, or flexible as plans around today, given the period of low interest rates incumbent over the last 2-3 years.

 

I would advise ANYONE thinking of moving to take advice as it may well be cheaper to change lender than staying with your current one and transferring your plan to the new property. The only way of finding this out is to take advice from an Independent Equity Release Adviser that is able to research the WHOLE of the market. By conducting a switch plans analysis, Equity Release Supermarket can address whether it would be worthwhile, or not, to switch equity release plans when moving home.

 

 

Examples of lenders already attuned to the option of downsizing – Hodge Lifetime

At the moment if anyone is thinking of downsizing in the future and repaying their equity release plan in full, then serious consideration should be given to a new plan such as the Hodge Lifetime Flexible Mortgage Plan.

 

This plan allows the borrower to repay the whole amount WITHOUT PENALTY if they decide to move home & downsize, as long as this is at least 5 years after inception of the plan.

 

Alongside this downsizing protection option is the fact that, if something unforeseen should happen and you need to move and repay during the first 5 years then the Hodge Lifetime penalty for doing so would be capped at 5% of the initial release in year 1, 4% in year 2, 3% in year 3, 2% in year 4 and then 1% in year 5. Significantly, the Hodge Lifetime penalty is more favourable than many of the gilt linked product related early repayment charges.

 

I believe this gives an added degree of flexibility for equity release consumers, and I hope it’s an indication that lenders are changing the way they change tact & begin providing greater flexibility as the need to move home in the future increases.

 

The fact remains that it is possible to move home and it’s imperative that you get the right advice when considering equity release initially AND when thinking of a house move as well.

 

Summary

It is probably one of the most important decisions you will make financially, as the decision you make now will not only impact on your future, but also your children & grandchildren’s future.

 

These are the reasons why we at Equity Release Supermarket always offer a free, no obligation, initial consultation which can be in the comfort of your own home or over the telephone, whichever is preferable.

This initial consultation gives us the chance to ask our clients about their objectives as well as their future plans, so that we can tailor any Equity Release scheme we recommend to each individual set of circumstances.

 

For your FREE, NO OBLIGATION, initial consultation (whether it’s your first time or if you want to review your current scheme) please call Mark on 07966 889597 or e-mail mark@equityreleasesupermarket.co.uk

 

New Plans, New Providers, New Horizons – Equity Release 2014

Friday, January 24th, 2014

Equity Release 2014 Having been in the equity release industry for the past 14 years, there has never been as much optimism & confidence in this sector as there is now. Against a backdrop of reductions & barriers to lending in retirement, the equity release marketplace is expanding faster than most other areas of financial services.

 

Equity release 2014 holds the greatest number of reasons why the over 55 age group are now considering equity release schemes as their route to financial freedom & lifestyle improvements.

 

But first we need to understand the issues arising in 2014 for many retirees and how the stress associated with managing retirement finances can be alleviated. Furthermore, we’ll discuss why there is a change in attitude towards equity release, people’s inheritance and how the equity release lenders are developing products to meet the future needs of today’s baby boomers.

 

So why now & what are the reasons?

 

Firstly, it looks like 2013 laid the foundations for the recovery of the equity release market. A record £106billion equity release lending took place, which was a 10% increase on the previous year and this takes us back to the halcyon equity release days of 2006. But the numbers do not explain the underlying reasons, only the resultant effect.

 

I believe the huge growth in demand is down to a number of factors as follows:-

 

 

1. Baby Boomers – Primarily there are a record number of so called ‘baby boomers’ who are reaching retirement age. It is estimated that up until 2018 record numbers of upto 700,000 people will turn 65 each year and begin to draw their pensions and purchase annuities.

 

At that point, once the new financial landscape is established, will it dawn on many that the difference that retirement has made to their disposable incomes & the sacrifices & cut backs that will need to be made. But surely retirement should be time to retire & relax & enjoy the fruits of one’s career?

 

The transition from a paid salary to a reduced fixed pension can be difficult and for some, one many never really come to terms with. There have been many cases at Equity Release Supermarket, whereby following the first few years of retirement we are arranging equity release for the consolidation of debts such as credit cards & loans. This was a result of continued spending following retirement without carrying out what should be a mandatory income & expenditure analysis.

 

 

2. Indebtedness – Many of these baby boomers reaching retirement have grown use to managing debt during their working lives. This generation have lived through vast fluctuations in the economy such as interest rates, inflation & the recent credit crunch. Having come through the worst of this & still showing such positive signs of equity, gives them the confidence of maintaining such debts into retirement. Afterall, this age group are probably the ones with the best repayment history, credit record, guaranteed incomes and all coming with security of tenure in their properties!

 

A recent study showed that one in six over 65’s expect to borrow money in retirement to meet their retirement goals. In fact in the last year alone, 16% of over 65’s applied for a loan or credit card. The issue nowadays is of course that credit is not as readily available and one in ten applications from over 55’s will be declined, as lenders become far less willing to lend into retirement.

 

This applies to mortgages also. Lenders are increasingly calling in mortgage balances from customers aged over 55. It’s estimated 1.3 million households over 55 are still paying their mortgage, of which 289,000 over 65 year olds are still saddled with a mortgage debt! These are the people who will be looking towards equity release solutions in 2014 & beyond.

 

 

3. Interest only Mortgage Prisoners – Worse still are the Financial Conduct Authority (FCA) figures confirming the size of the ‘interest only time bomb’ looming. Of the volume of interest only mortgages due for repayment by 2020, 1 in 10 of these mortgages have NO repayment plan and upto 1.3 million interest only borrowers face shortfalls averaging £72,000.

 

So how will these people find these shortfalls and where do they turn for advice?

 

Well as we mentioned, lending into retirement has been constricted by the FCA’s stance and with MMR (Mortgage Market Review) being implemented in April 2014, lenders are under further scrutiny as proof of affordability becomes entirely their responsibility.

 

Therefore, as we are already seeing by the upturn in the volumes of business, the equity release industry is becoming the saviour for the interest only mortgage short fallers. In providing an equity release safety net, many of these trapped borrowers have another option than having reluctantly to sell their homes to fund the shortfall.

 

However, the solution will only be made available should loan-to-values fall within lender criteria, which for lifetime mortgages are currently stand at a maximum of 30% at age 65, rising to a maximum of 54% by age 85. These calculations can be confirmed using the Equity Release Supermarket calculator.

 

However, two further factors could influence these results; health & lifestyle and incomes.

 

Firstly, should a history of adverse health be prevalent then a range of enhanced lifetime mortgage products are available which will release a greater lump sum than standard equity release schemes. Secondly, the signs are more retirement mortgages could be introduced during 2014. Already the Hodge Retirement Mortgage has been bravely launched against the tide of lenders withdrawing such products. Currently, the Hodge Retirement Mortgage will lend upto 50% of the property value at the current interest rate of 4.75% (5.1% APR), subject to income(s). Click here for details on the Hodge Retirement Mortgage or call 0800 678 5159.

 

 

4. House Purchase/Moving Home – we are seeing the data already in 2014 from mortgage lenders regarding the upturn in mortgage lending which has been due to the housing market improving significantly. With support from the government with its ‘Help to Buy’ scheme, this has stimulated the housing market from the bottom end and resulted in a knock on effect up the ladder.

 

We are seeing an increasing number of Equity Release Supermarket clients using interest only lifetime mortgage products to assist with their house purchase. We can advise on products from Stonehaven, Hodge Lifetime & more2life whereby the interest element & possibly more can be repaid back to the lender with no penalty, & are becoming a high percentage of our overall equity release plan recommendations.

 

Additionally, we are experiencing retirees at a critical point in their lives looking to downsize, or move nearer to their families. This could be for disability or financial reasons and moving into a retirement properties where less maintenance is required. Purchasing such property may still require finance to bridge any shortfalls, or create surplus funds for other financial/personal reasons.

 

 

5. Burgeoning Confidence & Optimism – There has been a silver lining to the issues of retirement finance…PROPERTY. Staggeringly, 69% of the over 65 year old population own their home outright & unencumbered. The most recent research has calculated the over 65’s own a combined £752 billion in housing wealth!

 

With this kind of security behind them and the changing attitude towards inheritance is beginning to shape the equity release landscape we are seeing & being developed as we speak. Traditionally, roll-up equity release schemes were the norm. Compounding of interest put many people off releasing equity. As a consequence, interest only lifetime mortgages have come to the fore. In being able to control the balance by making regular or ad-hoc repayments, one can now maintain a level balance, or even reduce it year-on-year. We have evidenced the growth in inheritance protection via lifetime mortgages and will become another of the factors affecting the growth in equity release for 2014.

 

Flexibility is key for many now entering the market. One major step forward for equity release mortgages came with the advent of drawdown lifetime mortgages. Here borrowers can withdraw tax free cash in stages from a pre-agreed facility. Drawdown equity release now accounts for over 64% of all plans written during 2013. Hence, another good factor to influence the popularity moving into 2014.

 

Finally, we have the latest news there will be a new equity release provider in early February – Pure Retirement will be entering the market with an initial 2 product launch, followed by more products they anticipate later in the year. This comes hot on heels of recent press murmurings over the weekend that L&G could soon be re-entering the equity release arena after originally departing in 2004 when they white labelled Northern Rocks equity release proposal. There is also much product development behind the scenes with Aviva revamping their lifetime mortgage. Details once known will follow on this website.

 

All this development and equity release press coverage stokes up the interest in a market that has previously been in the doldrums, but has listened to the consumer & now developing products to match retirement planning needs.

 

Summary – Equity Release 2014

Equity Release will take off in 2014 because providers have listened to their customers and they can be very demanding and rightly so. Customers want flexibility, they’ve got it, Customers want no early repayment charges, they’ve now got it, Customers want to repay capital without penalty, they’ve got it, Customers want to pay off the interest, they’ve got it, and customers want to partially repay the interest without being tied or committed, guess what? …they’ve got it!

 

There has never been a better time to consider equity release, so here’s to looking forward to 2014.

 

Call freephone 0800 678 5159 to discuss any aspects of this article or complete our contact form to register for 2014 updates as & when they are announced.

 

 

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’.

 

Equity Release Is For Life, Not Just For Christmas

Sunday, November 3rd, 2013

Equity Release is a Lifetime MortgageI recently read an advertisement in a National newspaper extolling the virtues of Equity Release and was surprisingly written on behalf of one of the main equity release brokers based in Preston. All fine I thought until I saw that it was aimed at grandparents struggling to buy Christmas presents for their grandchildren.

 

It created a small furore amongst my colleagues and peers. The blogs were alive with advisers & political commentators slating the fact that equity release was being considered for such short term measures. Not only that, but to take equity release to spend on the grandchildren, would effectively be spending their own inheritance!  With the compounding effect of the interest over the remaining years, this will turn out as one expensive Christmas present.

 

After all, the most popular type of equity release is the lifetime mortgage; appropriately named & for a reason. These schemes are designed for longevity, not short term or for frivolous reasons, where better alternatives may exist.

 

Some were arguing that whatever legal reason people wanted a release of equity for, withdrawing capital was their choice, not ours as advisers, and on the face of it that is correct.

However, when I looked into this scenario further this played on my conscience for personal reasons and I had serious reservations.

 

I have five grand-kids, all under five years old. I had to check with my wife, but on average we spend about £150 to £200 on each. Extravagant ? Maybe. Worth it ? Definitely.

 

With various other gifts for family and friends we spend about £1,500. Agreed not easy on low pension income and little liquid savings.

 

If I was in that position and saw the advertisement I would almost certainly look into the possibility of equity release schemes. I would hope that I would employ the services of an independent equity release adviser i.e. someone like me who would strongly advise not to go down this route.

 

And here are the reasons why:-

  1. The minimum initial lump sum on any equity release scheme is currently £10,000. This would have to equate to £2,000 for this Christmas, £8,000 in the bank for the next 4 Christmases. The cash in the bank may attract 1-3% interest whilst I would be paying up to 6% interest on the mortgage. Not a good idea
  2. The set up fees, depending on the lender, could be as high as £2,000. Acceptable if you are considering a large expense such as buying a new car, a holiday of a lifetime, clearing an mortgage or giving the grand-kids a start in life for house deposit or university fees. Therefore, as a proportion of a £10,000 release, set up costs can be a considerable percentage of the initial release. Not so good to borrow £2,000 for Christmas gifts on this basis.
  3. If, like me, your intended beneficiaries are your grand-kids then they are actually buying their own gifts via their future inheritance. Let’s assume £10,000 on a normal roll-up lifetime mortgage, even on the lowest rate with Aviva Flexi Plan currently at 5.62% (5.8% APR) and deducting the set up costs from this, would in 10 years have accrued to about £17,276. So 10 year’s worth of Christmas gifts has cost £7,276.

 

I applaud the fact that some of the broker companies are bringing Equity Release to the fore and the pros and cons of equity release schemes are highlighted to the general public.

 

As a dedicated Equity Release specialist I am convinced of the merits of raising capital by these means as long as the following measures are taken: –

  • All possible alternatives are discussed with your adviser and broached with the children. Equity release is classed as a loan of last report by ourselves
  • The initial release matches your needs for the first 12 months of your spending plans i.e. don’t take any more than you actually need
  • You receive independent equity release advice from a FCA (Financial Conduct Authority) qualified adviser
  • The schemes recommended are members of the Equity Release Council (ERC) which ensures they come with the equity release code of conduct indoctrinated
  • You receive separate legal representation from that of the lenders. As from 2014, this will need to involve a face-to-face meeting with your solicitor for added protection
  • You receive a Key Facts Illustration and Suitability Report covering all aspects of your adviser’s recommendation including set up costs, interest rate, future balance & early repayment charges.

 

I have personally seen the benefit equity release has made and have the testimonials to show the satisfaction & difference a lifetime mortgage can make to someone’s life.

If taken for the right reasons, under the right circumstances and with the right advice, equity release schemes can prove to be the right choice.

 

If you require further information on whether equity release schemes could be the right choice for you, please contact Barry Adnams on 07989 281108 or email barry@equityreleasesupermarket.co.uk

 

Update on the Latest Equity Release Interest Rates

Monday, June 3rd, 2013

Equity release interest rates have never shown as much flux as we are seeing today. There are probably two major reasons for this which is greater competitiveness between the lifetime mortgage lenders and lower long term interest rates.

 

Both factors combined have resulted in equity release interest rates seeing their lowest levels in their history. So, could this be the best time to latch on to one of these deals thereby consolidating a sub 6% interest rate for the rest of your life? Maybe.

 

There are two very good reasons for securing equity release interest rates at today’s levels. Firstly you will be charged less interest (which remember does compound), thus leaving more equity to use later on in life if required. The second reason would be your beneficiaries will benefit as they will potentially have a smaller equity release loan to repay at the end, when the house is eventually sold.

 

So the good news is that everyone is a winner at present. With equity release lending increasing as highlighted by the latest Equity Release Council statistics showing that Q1 of 2013 had a 17% increase in advances than Q1 for 2012.

 

There are many factors fuelling the new tide of interest in equity release schemes. We have seen that there are serious issues highlighted by the FCA report on interest only mortgages and people’s inability or shortfalls in repaying them. Many people are therefore looking at their options & those not wishing to downsize to resolve their shortfall are turning to equity release to settle the bills.

 

This could be in the form of the roll-up equity release where no monthly payments are required. However, if income is not an issue, then a retirement mortgage could be a better solution such as the range of interest only lifetime mortgage schemes we have available now from the likes of Stonehaven, more2life and Hodge Lifetime.

 

This is where expert equity release advice can help save you £1000’s in future potential interest charges. By selecting a company such as Equity Release Supermarket, you are accessing a range of interest rates & deals that are more competitive than standard deals on the market. It is wise therefore to always shop around to negotiate the best equity release deal possible.

 

Selection of the lowest equity release interest rates – June 2013

 

EQUITY RELEASE LENDER PRODUCT

INTEREST RATE

APR

Aviva Lifestyle Flexi Plan

From 5.43%*

5.60%*

Hodge Lifetime Flexible Repayment Plan

5.59%

5.99%

LV= Lump Sum Lifetime Mortgage

5.89%

6.10%

Just Retirement Roll-up Lifetime Mortgage

5.92%

6.20%

New Life Flexible Lifetime Mortgage

5.99%

6.30%

Stonehaven Interest Select Lite (interest only)

5.99%

6.40%

*Aviva equity release interest rates start from 5.42% & dependent on personal criteria.

 

The majority of these deals come with free valuations and cashback offers.

For a full list of equity rates & to compare deals click here.

 

For further information and associated offers with the above lifetime mortgage plans please contact the Equity Release Supermarket team on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

These are lifetime mortgage plans. To understand the features and risks, ask for a personalised illustration.

 

 
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