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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

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.

 

 

 
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