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Stonehaven Equity Release Re-Launch With 8 Year Fixed Early Repayment Charges

Monday, March 16th, 2015

Stonehaven Equity Release schemesWhen many equity release providers are competing directly in using their lifetime mortgage interest rates, Stonehaven have decided to compete in a different field by taking the bold step of moving away from Gilt-based early repayment charges (ERC’s) & introducing a fixed penalty basis covering the first eight years of the equity release loan.

With effect from 16th March 2015, Stonehaven will move its whole lump sum & interest only lifetime mortgage range of plans over to an 8 year fixed early repayment charge of 5% in the first 5 years, 3% in years 6-8 and none in the 9th year & thereafter.

 

Background to Equity Release Early Repayment Charges

Due to the nature of the product – ‘Lifetime’ Mortgage, the plans have been designed to run for the rest of the homeowners life. This can create uneasiness for some people taking out equity release schemes in retirement as they cannot always say with certainty what their future plans entail with regards to their property.

 

Equity release early repayment charges have historically been a mixture of fixed penalty, gilt based, Bank of England base rate related and even long term interest rates called SWAP rates. The majority of equity release schemes across the market today is predominantly linked to government gilts. This can be in the form of an individually selected gilt such as Aviva’s, which is based on the age of the youngest homeowner, or follow an index of gilts such as the FTSE UK Gilts 15 Year Yield Index with Just Retirement.

 

These gilt related penalties on paper can look extreme given that Aviva can charge upto 25% of the amount repaid dependent upon the gilts yield falling from inception. Additionally, companies such as Just Retirement & Pure Retirement can charge a maximum of 20% of the fall in the FTSE UK Gilts 15 Year Yield Index. Therefore, the nature of gilts leads to uncertainty of their future levels & consequently any prediction regards their future level is unknown & cannot therefore be relied upon for early repayment purposes.

 

Currently, only one equity release company offers the certainty of knowing exactly what the future penalty could potential be; this company is LV= (Liverpool Victoria). Charging 5% for the first 5 years of the amount repaid & then 3% in the next 5 years, they actually have no early repayment charges after 10 years. This have given them a niche position within the equity release marketplace.

 

Stonehaven’s Move to Fixed Equity Release Early Repayment Charges

However, LV= equity release now have fresh competition and this is the beauty of where the equity release industry is right now. Competition is driving this market forward and its with such innovations & product development that is going to extend the volume of lending in 2015, to beyond the £14 billion released in 2014.

 

Stonehaven have been considering this move previously, however with their takeover by MGM, its plans were put on hold. With a new team behind Stonehaven now, they have obviously decided the time is now right to introduce  fixed penalty equity release plan to the market. It will be interesting to see how these new fixed ERC’s are perceived. Historically, applying fixed rate early repayment charges can come at a cost and this is usually borne in the equity release interest rate with an extra levy on it.

 

At present Stonehaven have not indicated any changes to their interest rates with the lowest currently being the Stonehaven Interest Select Lite plan at 5.46% monthly (5.87% representative APR). Therefore, the fixed penalty charges look to have been absorbed into the current equity release deals on record.

 

So for anyone considering the equity release & uncertain regards whether an equity release scheme will be required over the longer term, the new equity release early repayment charge from Stonehaven could be a viable option to consider. Providing fixed, transparent & easy to understand  ERC’s with just 5% penalty in the first 5 years, 3% for the next two & zero after the end of the 8th year, Stonehaven have taken over LV=’s mantle of potentially the best early repayment charging system available in the equity release market today!

 

Further Information

To learn more about Stonehaven’s range of products attracting the new 8 year fixed penalty, please contact the Equity Release Supermarket team on 0800 783 9652 or email mark@equityreleasesupermarket.co.uk.

What are the Best Early Repayment Charges on Equity Release Schemes?

Saturday, August 18th, 2012

If you are considering taking equity release and early repayment maybe on the horizon, then selecting the right equity release plan is essential to avoid potentially high penalties. Here we illustrate the pitfalls of early repayment of an equity release scheme and what to look out for, if one day you are considering paying off your plan early.

 

Equity release schemes are in simple terms a mortgage that runs for your lifetime & commonly has NO monthly repayments. The principle reason for the growing popularity behind equity release schemes is that they enable you to free up the equity tied up within the bricks and mortar of your home.

 

With hindsight, once we all reach retirement age we should all have sufficient income & capital in the bank to meet our retirement objectives. However, such forward planning doesn’t always materialise for one reason or another; ill-health, redundancy or poor investment return can always interrupt anyone’s best laid plans. So what contingency plans can one put in place, or how can one minimise the risk of achieving retirement age without the funds to enjoy the longest holiday of your life?

 

Equity release schemes

We have witnessed the virtues of equity release mortgages & how they have come to the rescue of many retirees over the past 15 years. However, what can be a life saver initially can become a financial liability in the future unless professional equity release advice is provided by a qualified & experienced lifetime mortgage adviser.

 

One of the fundamental advances in the emerging equity release market is the protection this industry is now affording to its customers. With FSA (Financial Services Authority) regulation, trade bodies such as the newly formed Equity Release Council (formerly SHIP) & in-built protection features such as the no-negative equity guarantee, equity release clients have never been more re-assured of the improvements in these lifetime mortgages for the over 55’s.

 

What are the potential pitfalls of equity release schemes?

One area that hasn’t seen much improvement in the equity release marketplace would be the impact of early repayment charges (ERC’s). As equity release providers are lending over a potentially long duration; in some cases in excess of 40 years, they need to set their long term borrowing plans accordingly. Equity release on the face of it may seem very profitable to lenders, however for a large initial outlay it can be many years before they receive their capital & interest in return. To ensure that their profitability & future of the plans remains they must make contingencies in case of early surrender.

 

Hence, like any mortgage the lender, equity release providers need to include a penalty on early repayment of an equity release plan. To many this would not be seen as an issue as we may have all experienced some form of ERC with our mortgage companies in the past. The difference between residential penalties & equity release penalties are the basis of, the size, & duration that the penalties can be levied over.

 

What kinds of penalties are charged?

Whereas all residential mortgages charge some form of fixed penalty over a fixed number of years, equity release schemes in general are nothing like. The majority of lenders have now reverted to the old Norwich Union formula of using government gilts as the basis for their early repayment charge. Companies that have now followed suit are Just Retirement, more2life, Partnership, Stonehaven and more recently New Life Mortgages switched from a fixed rate basis onto gilts also.

However, there are a couple of exceptions to this rule who come from the likes of: –

 

  • LV= (Liverpool Victoria) – who still use a fixed penalty of 5% of the capital borrowed in the first 5 years to 3% in the next 5 years, then nothing thereafter.
  • Hodge Lifetimewho use a combination of a fixed rate penalty over 5 years and swap rates which relate to the long term effect of interest rates. However, they do have the advantage that if you move after 5 years, then no ERC’s will apply. Additionally, they permit 10% overpayments each year without penalty.

 

Is it all gloom and doom?

The answers to this could be both yes and no; depending if you have an existing equity release plan or not.

For equity release customers who took out a gilt related plan in the past it could be bad news. However, remember this is only bad news if you intend to repay early! If you have no intentions of early repayment, then no ERC’s would be applicable. All equity release schemes will NOT apply any penalty on repayment of the equity release due to death or long term care. Additionally, with the Equity Release Council (SHIP) rules in place if you are moving or downsizing you can take your existing scheme with you with no penalty. Equity release schemes have clearly made it known they are a lifetime mortgage. Therefore, the plans are not designed to provide short term borrowings.

 

You could however hedge your bets on occasions, but as the phase goes…let the buyer beware. For instance, with gilts rates currently at such low levels, unprecedented in the years that equity release has been around, could now be a good time to consider a gilt related equity release plan over the medium term?

The reason for taking out such a plan now would be the fact that these gilt related ERC equity release providers will not levy an ERC should the gilt rate have risen since the mortgage was taken out. In fact companies such as Aviva won’t charge an ERC if the gilt rate remains the same or even falls by a margin of 0.12%.

It is a gamble, as there is still much uncertainty in the economy, but the markets would expect that gilts are sure to go back up in the future when interest rates maybe rise. When though is the golden question.

 

So, gauging which equity release scheme is the best doesn’t all boil down to interest rates. A combination of assessing your future plans and how much, and when you actually require these funds can be just as important.

 

Afterall, what is the point of taking out an equity release plan with Aviva an interest rate of 5.66%, when upon early repayment you could be charged an enormous penalty of upto 25% of the amount you originally borrowed! It may be better to pay a slightly higher rate, with the knowledge that you either have no penalty or at least a known penalty from the outset.

 

Having an experienced equity release adviser is paramount in helping to decide which is the best equity release scheme, for your particular circumstances. By not only looking at your current situation, but also your future plans; your requirements now and also in the future will help your adviser assist in making the right equity release decision for you.

 

Equity Release Supermarket provide independent equity release advice from the whole of the market. Having the experience of actually working with the likes of Aviva, Prudential, NatWest and Norwich Union, gives our advisers the advantage of knowing the ins and outs of lenders early repayment charges and being able to give quality advice.

 

If you have any questions about equity release early repayment charges then please call one of our specialists on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk.

 

No Early Repayment Charge Equity Release Plan Launched by Hodge Lifetime

Monday, April 2nd, 2012

Following in the steps of the Stonehaven Interest Select plan, Hodge Lifetime are launching a new equity release plan with repayment options that include NO early repayment charges.

Previously, only Stonehaven equity release had created a niche in the lifetime mortgage market by offering an interest only lifetime mortgage. Stonehaven allow you the facility to repay the interest charged monthly, thus maintaining a level balance.

However, Hodge Lifetime has now created their own niche product, by offering a roll-up equity release plan with a spin. The unique feature of the plan is the facility of allowing partial repayments of upto 10% per annum with no penalty. This is a first in this previously inflexible early repayment charge equity release UK market.

 

The Mechanics

The option to repay without penalty applies after the plan has been running for at least 12 months. You then have the possibility of repaying all of the interest & an even an element of capital, if you wish. The minimum repayment is £500.

The major advantage of this lifetime mortgage is that no penalty would apply to this repayment as long as no more than 10% of the initial capital borrowed is repaid.

An example of this would be someone borrowing £25,000 initially. After, 12 months of the plan running they can then repay upto £2,500 each year thereafter. With a launch interest rate of just 6.31% annual equivalent, by paying the full 10% allowance would allow you to repay not only the interest but also the capital. The Hodge Lifetime Plan could then effectively be even used as a form of flexible lifetime repayment mortgage!

 

Background to Hodge Lifetime

Hodge Lifetime introduced the very first equity release plans in 1965 and have continued to earn a reputation for reliability ever since. Hodge Lifetime is a subsidiary of Julian Hodge Bank and is a founder member of SHIP (Safe Home Income Plans).

 

Plan Facts

The Hodge Lifetime Lump Sum Lifetime Mortgage allows you to take a single cash lump sum with a fixed interest rate for life. Plans start at age 60 & there is a minimum property value of £100,000 with a £20,000 minimum initial withdrawal limit. The plan is available in England, Wales & mainland Scotland.

Hodge Lifetime’s standard early repayment charges only apply for the first 5 years on a 5,4,3,2,1 basis. There is also an additional potential variable repayment charge dependent upon the movement in 25 year interest rate swap rates.

However, this variable penalty will be waived after 5 years. This ‘Downsizing Protection’ feature allows you to repay the Hodge Equity Release Plan with NO penalty if you move home after 5 years.

However, the main focus surely on the Hodge Lifetime Lump Sum equity release plan will be possibility of repayment the interest with a choice of when & how much.

No other equity release schemes provider will permit this at present with so much flexibility. Hodge will allow two payments per annum subject to the 10% maximum repayment & no penalty.

 

Who Would the Repayment Facility Benefit?

People who maybe wish to inhibit the traditional roll-up effect of their equity release plan would find the Hodge Lifetime plan of benefit.

Those unable to commit to a fixed monthly repayment as their preferred choice would be to make ad-hoc repayments once a cash sum has been saved.
People who may receive an unexpected windfall in the future
Parents who may wish to gift to their children for financial reasons (e.g. house purchase) knowing they will be repaid over a future term
Those at Pre-state pension age, need a capital lump sum now, but may wish to repay chunks back in the future from their extra income
The list could go on…

 

What to do next…

If you have been dissuaded by equity release early repayment charges in the past, then take a close look at this exciting new plan from Hodge Lifetime. The ability to repay 10% off the balance each year with NO penalty is unique.

With an opening offer of a reduced valuation fee of £99 for property values upto £350,000, this certainly looks likely to follow hot on the heels of Stonehaven’s Interest Select Plan.

 

For further information or to request a quote please visit Equity Release Supermarket’s dedicated Hodge Lifetime Lump Sum equity release page. Alternatively call the team on 0800 678 5159.

 

Equity Release Early Repayment Charges – The Truth

Tuesday, May 4th, 2010

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

 

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

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

 

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

 

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

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

 

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

 

Obviously life expectancy for everyone differs.

 

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

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

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

 

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

 

This could be for a number of reasons: –

 

1.       Sale of property

2.       Inheritance

3.       Death

4.       Moving into long term care

 

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

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

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

 

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

 

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

 

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

 

Lender

Term

Basis

Maximum Charge

Aviva Remainder of the plan term Charge linked to performance of gilts. Maximum 25% initial advance
Hodge Lifetime 10 Years Percentage penalty based number of years 5%
Just Retirement Remainder of the plan term Depends on the FTSE UK gilt yield Maximum 20% of total advances
LV= 10 Years Percentage penalty based number of years 5% yrs 1 to 5, 3% yrs 6 to 10

 

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

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

 
This will also include topics such as: –

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

 

If you have any questions or require further information on the subject of equity release early repayment charges, please email mark@equityreleasesupermarket.co.uk or contact Mark on freephone 0800 678 5159.

 

 
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