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Equity Release Becomes the New Inter Generational Equity Vehicle

Wednesday, July 17th, 2013

With changing attitudes towards inheritance planning, and generational gifting becoming increasing common practice, we look at why equity release is being more widely used as the retirement vehicle of choice.

Having advised on equity release schemes for the past 14 years, we’ve witnessed firsthand the sea change in perceptions over how much of an inheritance parents are now wishing to leave their children.

 

Couple this with the growing acceptance of retirement equity release schemes by the over 55’s, we are now seeing real evidence through equity release enquiries the lengths parents are actually prepared to go to for their children.

 

Why a shift towards equity release?

In the early days of lifetime mortgage & home reversion plans, people were looking towards a release of equity mainly for lifestyle purposes; a new car, holiday or extra income. Today’s economic environment throws a different light on the real purposes for releasing equity – necessity (mainly debt consolidation) and generational gifting.

 

Equity release schemes are now providing a vehicle of choice for many that were once looking towards the retirement mortgage market when they reached state pension age. With schemes such as the Halifax Retirement Home Plan now being made redundant & mortgagees reigning in their lending criteria on the much maligned interest only mortgage, it has left little scope for retirees to find a route into secured lending.

 

How can equity release schemes assist?

Basically anyone over the age of 55, with a main residence valued above £70,000 could become eligible for an equity release mortgage. Further criteria does apply, such as any existing mortgage, property type etc, however in principle age & valuation are the main eligibility factors.

 

To ascertain your maximum release, tools such as our equity release calculator are available on the Equity Release Supermarket website. Based on the age of the youngest applicant & the current sale value of your home, the equity release calculation will prove of assistance as to whether you can raise sufficient funds to meet your financial objectives.

 

For those with an outstanding mortgage leading upto, or actually in retirement, equity release schemes have become a get out of jail card. Having a mortgage at retirement is not a crime, however the ability to repay it has become a problem for many as lenders are beginning to tighten their belts on mortgages into retirement. We have instances of clients anticipating renewal of their mortgage at retirement, only to see panic set in when their lender refuses to extend & then rub salt in the wound by demanding repayment. This would ultimately result in either a remortgage, which is becoming increasingly difficult, or sale of the property to downsize. Neither offer stress free options!

 

Bearing in mind these mortgages were actually set up with a final repayment end date, one cannot always expect in today’s economic environment the banks to be that sympathetic in such instances. However, some leniency would be welcomed, or maybe that’s just wishful thinking.

 

Equity release functionality

We have therefore seen how people are entering retirement still tied down with a mortgage. However, there are also an increasing number with unsecured debts, predominantly credit cards which people have trouble shifting once their income drops entering retirement. Perhaps realisation that there income has fallen hasn’t yet set in, which coupled with household spending continuing apace, sees the error of their ways without re-addressing the fundamental principle of ‘budgeting’.

 

The ‘equity release safety net‘ is becoming a credible solution for many in such situations. By taking a lifetime mortgage scheme, whether on a roll-up basis or more commonly an interest only lifetime mortgage, the debts can be consolidated into a secured loan fixed for the rest of their life. Depending on affordability once the debts were cleared, and attitude towards children’s inheritance, would determine whether the interest only, or roll-up version is selected.

 

Choosing roll-up means NO monthly payments. This has a benefit in leaving a household budget with a greater disposable income, particularly if all debts have been repaid. The negative aspect of roll-up is that the balance will increase over time therefore eroding, all or some of the kid’s inheritance. There are other factors that could affect the size of the inheritance, the main one being how much property values could increase by over their lifetime. Everyone has their own opinion on that.

 

Selecting an interest only lifetime mortgage engages an element of future discipline in that regular payments need to be maintained. However, there are significant advantages. These are that as the interest is being paid monthly, the debt will remain level for the duration. This has the added benefit that if house prices do increase, there could be an even larger inheritance to leave, even after you have taken a release of equity for yourself. With interest rates on these schemes starting at 5.59% (6.0% APR) and fixed for life, interest only lifetime mortgages now offer a credible equity release solution for many that were starting to despair at their lack of options.

 

Equity release gifting acts as a form of ‘early inheritance’

Finally, we touch on the growing realisation that children seem to have of accessing their inheritance now, rather than later. With difficulty for first time buyers in the current property market, the younger generation have turned to the bank of mum & dad for the answer to getting on the property ladder – using equity release.

 

This has been the biggest change in attitude we have seen in the 14 years of equity release schemes.

 

It has been two-fold: –

  1. the acceptance of parents to gift an inheritance now rather than later
  2. that the stigma of having to leave an inheritance when they die has gone

 

Increasingly, parents are taking equity out of their properties to gift to their children, mainly to invest in another property, occasionally for business or divorce purposes. It maybe all too easy for the children to say they would like their inheritance now, which is all well & fine if this is being taken out of their parents house & re-invested into their first property. Couple this with the governments help to buy scheme & providing 20% deposits leaves some children not having to strain themselves too much financially these days, judging by the many options available.

 

A great idea or not?

Some may say so; others may feel that the younger generation gets it too easy these days. Mortgages of old were also hard to come by & you had to save over a long period of time to find your deposit. Your lender even had to be the bank you held your account with!

It just seems the ‘I want it now’ attitude has arrived & the old fashioned ways of striving to find the deposit seem to have disappeared.

 

Whatever the consensus of opinion is, equity release is here to stay and finding such helpful scenarios of inter-generational gifting to become an advantage is certainly to be welcomed.

 

To discuss the topical areas within this article, or find out more about equity release and its uses, please contact the Equity Release Supermarket team on Freephone 0800 678 5159.

 

If you prefer to discuss in confidence, please send your email to mark@equityreleasesupermarket.co.uk

 

Are Self Cert Mortgages Available in Retirement?

Tuesday, April 23rd, 2013

Self-certification mortgages are mortgages that are available without a formal income check. Self cert mortgages can be a good option for self-employed or independent professionals who would otherwise have a hard time finding a mortgage lender. Self-certification mortgages are also now available within the retirement sector, in conjunction with the right equity release advice.

 

In fact, lifetime mortgages and pensioner mortgages where the repayment vehicle is the sale of the property are all essentially self-certification mortgages as they do not depend on the income of the applicant. The lending criteria for these pensioner mortgages are mainly the age of the applicant and the property valuation.

 

For instance, Stonehaven’s Interest Select Plan is an interest only lifetime mortgage. Clients can borrow a tax free lump sum against the value of their property. Interest can be repaid in full every month, and the principle amount of the loan is repaid when the property is sold. In fact, Stonehaven equity release will allow you to set up a partial repayment facility, if the full amount of interest is out of your budget range. Therefore, rather than all the interest being repaid, a contribution towards this amount is paid.

 

Therefore, rather than the balance remaining level for the duration of the lifetime interest only mortgage, there will be an element of roll-up interest, albeit significantly lower than if no repayments were made at all. This scenario is ideal for candidates who are risk averse and wish to control the future balance of these pensioner mortgages for their children’s inheritance.

 

Being a lifetime mortgage, there is no fixed term and the loan will continue indefinitely, which will be until sale of the property, which is usually on death or moving into long term care.

 

Self Cert 2013 Lending Criteria

The lending criteria for this loan are based on the age of the youngest applicant and the value of the property. Plans start at age 55 with a minimum property valuation to qualify of £70,000. The property can now be situated in England, Wales & mainland Scotland.

 

As long as applicants can make the minimum monthly repayment of £25, there is no question of requesting income. Stonehaven’s Interest Select plan can therefore be safely categorised as a self cert mortgage. Once the mortgage is set up however, the premiums cannot be amended, other than to stop interest payments completely and convert to a roll-up lifetime mortgage plan. This feature can be used as a safety net in case the mortgage becomes unaffordable in the future & effectively prevents a situation whereby normally repossession would ensue. Repossession for none payment of premiums cannot therefore occur with the Stonehaven Interest Select Plan.

 

Another feature that appeals in today’s economic climate is that of adverse credit or poor credit rating. These lifetime interest only mortgages have leniency towards this. They will permit arrears and defaults. Additionally, they will accept CCJ’s (County Court Judgements) upto a certain level as long as they are repaid from the proceeds and were for understandable reasons.

 

Like most equity release schemes, Stonehaven base the lending on a loan-to-value principle. Stonehaven have four tiers of loan-to-values and each comes with its own interest rate. In essence the more you borrow against the value of your house the higher the interest rate becomes. Conversely, the older you are the greater the amount that can be borrowed, hence it is important you receive independent equity release advice to assess which tiered rate of interest applies and is best for you.

 

For instance a male aged 65 with a property value of £250,000 could release the following with Stonehaven: –

 

 Product Name

Maximum Borrowing

Interest Rate

Loan-to-Value

 Interest Select Lite

£52,500

5.99%

21%

 Interest Select

£60,000

6.08%

24%

 Interest Select Plus

£67,500

6.17%

27%

 Interest Select Max

£72,500

6.81%

29%

 

Who else provides self cert lifetime mortgages on an interest only basis?

Other pensioner mortgages are becoming increasingly available such as the more2Life Interest Choice Plan. This is another self-certification mortgages whereby no income checks are made by the lender. The mortgage is only repaid once the property is sold, which is when the client dies or moves into permanent care, or decides to make an early sale for any other reason.

 

Self-certification mortgages are not very common in the regular residential mortgage sector as lenders are reluctant and wary of lending without formal income checks under FCA (Financial Conduct Authority) regulations. Interest rates are often higher and the loan to value ratio may be lower than traditional mortgages. However, they have been designed with security in mind, something which interest only mortgages of the past haven’t been.

 

Many pensioner mortgages which rely on the property sale for repayment are essentially self-certification mortgages as they don’t carry out income checks for approval. For these mortgages the main relevant criteria are the age of the applicant which helps determine the expected term of the loan and the property valuation which helps determine the loan to value ratio.

 

For a full assessment of eligibility criteria with the range of interest only lifetime mortgages that Equity Release Supermarket have available, please call Freephone 0800 678 5159 or email mark@equityreleasesupermarket.co.uk.

 

Further information on the range of self cert interest only lifetime mortgages can be found on our Compare Equity Release Deals page.

How Does Equity Release Work?

Wednesday, March 27th, 2013

Equity release schemes have risen in the popularity stakes over the past 12 months. With regular articles in the tabloids, and increasing government awareness, lifetime mortgages have certainly raised the bar. But how does equity release actually work in the whole scheme of things, and why has it become such topical subject matter for those looking for a comfortable lifestyle in retirement?

 

Equity release workings

Primarily equity release is available to home owners where the youngest person on the deeds is at least aged 55. Equity release works by allowing eligible people to raise tax free cash from the equity tied up in their home. The amount that can be released is based on an age-related ascending percentage of the value of the home. In other words, the older you are, the more you can raise!

 

For example a single person in good health, aged 65, with a property value of £250,000 could raise a maximum of 30% of the property value. This would mean a maximum equity release of upto £75,000 with Aviva.

Even better, is the fact there are now impaired life schemes that offer ‘enhanced’ rates to people who are not as fit and healthy as they used to be and these schemes increase the percentage that can be drawn.

Therefore, if the same person was a smoker with high blood pressure, having diabetes & a history of heart attacks could now release upto £115,500 on the Partnership enhanced lifetime mortgage scheme.

 

Popular uses for equity release

The money raised from any equity release scheme can be used for any legal purpose from clearing credit card balances and existing mortgages, to helping children or grandchildren with deposits to climb onto the property ladder. However, many would be treating themselves to some lifestyle indulgences such as a new car, world cruise or home improvements.

 

Today’s equity release schemes

The modern format of Equity Release started in the mid 1990s with Hodge Lifetime (part of Julian Hodge Bank), Norwich Union (now Aviva) & Northern Rock (now Papilio UK) with a simple roll up lifetime mortgage.

 

Today there are three basic equity release schemes:-

 

1)      Roll up Lifetime Mortgage

This type of scheme has a few variations but basically the borrower takes an initial tax free lump sum, makes no monthly payments and the accrued interest is added to the loan and compounds annually.

 

The main variation to this is the “drawdown lifetime mortgage“ scheme. This is where only the immediately required amount is drawn down and a reserve cash facility is then offered with the remainder. No interest is accrued on this drawdown facility until it is taken in the future. The advantage here by taking it in smaller amounts is that interest is compounded at a much slower rate, than if it had be taken all at once.

 

Another variation of a roll up plan is offered through Hodge Lifetime on a roll-up basis. Hodge’s flexible repayment plan has an option to repay up to 10% of the original amount borrowed annually without any early repayment charges. Hodge also offer a unique ‘downsizing protection’ option whereby after five years, if the property is then sold and the owner moves & downsizes house, then no early repayment charges apply.  A great solution for many who cannot sell now, but may do so in the future.

 

 

2)      Interest Only Lifetime Mortgage Plans

There are two lenders currently offering this type of interest only scheme – Stonehaven and more2Life. Both schemes are fairly simple whereby a lump sum is withdrawn and the monthly interest is paid in order to maintain the balance outstanding level throughout the term.

 

This method has proved appealing to parents who are keen to minimise any inheritance reduction for their children. In recent times, since the withdrawal of the Halifax Retirement Home Plan lifetime interest only mortgages have become increasingly popular. Both these Equity Release Interest Only schemes have the added safety feature that should the monthly payments become too much (one applicant dying and their pension income reducing) then it can revert to a roll up equity release plan, where no payments are required thereafter.

 

3)      The Home Reversion Plan

This is now the least popular type of equity release mortgage. Nevertheless, it can prove to be the best advice in certain scenarios. The workings are that the homeowner(s) must have a minimum age of 65. They have the option of selling part, or all of their property to the reversion provider and then lives in that property, usually rent free, for the rest of their life. In truth, this is usually only appropriate when there are no beneficiaries to the estate, or they wish to leave a guaranteed percentage of the final value of the house to their children.

 

Home reversion schemes only account for less than 5% of the market these days. The market has seen a few withdrawals from the market by lenders such as Aviva and Retirement Plus. The three remaining home reversion providers are Hodge Lifetime, New Life & Bridgewater.

 

About the author

The author of this article is Barry Adnams, who is a senior equity release adviser at Equity Release Supermarket.

Barry is aware of what a monumental decision taking equity release can be. He is a traditional adviser that would always advocate a home meeting with family involvement. Barry offers an initial cost free ‘face to face’ appointment and likes to include as many family members as possible to be present to discuss whether taking equity release is the right option, or not.

 

If you want to benefit from the experience Barry has to offer and understand how equity release works further, then please contact Barry Adnams at Equity Release Supermarket, on 07989 281108 for a free initial consultation. Alternatively please email barry@equityreleasesupermarket.co.uk.

Why Are You Still With Papilio UK Equity Release?

Friday, February 15th, 2013

Are you one of those lifetime mortgage borrowers who were originally with Northern Rock but, since March 2012, have seen the ownership of your mortgage transferred to Papilio UK Equity Release Mortgages Ltd, a subsidiary of J P Morgan?

 

If so, do you realise that you are probably paying interest at more than 1.3% higher than rates charged by some other lifetime mortgage lenders? And Papilio UK Equity Release no longer allows you to take further loans from the equity in your home, an option Northern Rock originally considered!

 

If so, you could make considerable savings by the simple process of remortgaging to another regulated lifetime mortgage lender. With equity release schemes now in the prime of their life, now has never been a better time anyway to consider an equity release remortgage.

 

For example, assuming you remortgaged an equity release balance of £50,000 onto a fixed rate of 5.60% instead of the 6.99% currently charged by Papilio UK, after 10 years you could save yourselves, and your beneficiaries approximately £12,000 in interest charges.

 

Competitiveness & Flexibility of New Plans

Depending upon the value of your home, many new lenders will allow you access to further loans either immediately, or by providing a cash reserve to draw upon at your discretion. Drawdown lifetime mortgages now account for the majority of equity release schemes taken out and provide best advice for those retirees that only need a smaller upfront lump sum, but may require additional cash in the future.

 

Modern day lifetime mortgage schemes have surpassed the rigid plans of old. Since Northern Rock (aka Papilio Equity Release) withdrew providing equity release mortgages the market has seen diversification unseen before. With the advent of interest only lifetime mortgage schemes, we have experience of people actually switching from old roll-up lifetime mortgage plans. Where they feel the balance has reached a point whereby they no longer want it to increase any further, they can switch to an interest only lifetime mortgage. This option may never have been available in the past.

 

A free initial comparison offer

Should you have a Papilio UK equity release mortgage then you will undoubtedly be paying over the odds on your interest rate. Many people contact us who hold an existing Northern Rock mortgage and ask for the Papilio UK equity release mortgages ltd telephone number to contact them.  Equity Release Supermarket has advisers that are experienced in analysing whether it would be in one’s interest to switch equity release schemes.

 

As acknowledged specialists, Equity Release Supermarket has given objective advice to increasing numbers of applicants seeking to remortgage from Papilio UK and we have guided them painlessly through the remortgage process.

The switch analysis will take into account the set up costs of the proposed new equity release mortgage. These costs can be lower than anticipated, especially as J P Morgan/Papilio equity release have indicated in the past that they will waive early repayment charges.

 

Allied to the current practice of many lenders offering free valuations and paying “cashbacks” of upto £1000, then equity release companies such as Aviva can offer a new safe haven for your mortgage. By providing a smooth transition in the equity release application process you can seamlessly transfer you Papilio (Northern Rock) equity release plan to a more competitive rate benefitting yourself & beneficiaries in the long run. Aviva are currently offering rates to Equity Release Supermarket customers starting at 5.57% annual.

 

If you want to join those who have successfully made the transition from Papilio UK then please do contact Mike Vicary of Equity Release Supermarket, on 07795 195302 for a free initial consultation.

 

When Equity Release is NOT Right For You!

Sunday, December 30th, 2012

This article looks at why a release of equity from your home may NOT be in your best interests, after all Equity Release Supermarket is an impartial website and we only want what is best for our customers. Whether that is to proceed, delay and consider the alternatives or to dismiss outright, we will always provide you with a decision that is in YOUR best interests.

 

Equity release schemes are becoming a popular solution for homeowners aged over 55 who want to raise cash without having to sell their property. Although the safeties of equity release schemes are now assured by regulation, the decision to take equity from your property may still not be in your best interests.

 

Start of the equity release planning process

While there are different types of equity release schemes such as Lifetime Mortgages, Home Reversion and Interest Only Lifetime Mortgages, essentially they all act as a vehicle to release some of the equity that is built into your property, and you only need to repay it only once the house is eventually sold.

 

This is all well and good, however you should never shoe horn an equity release plan to fit your personal needs. In fact the opposite should be the case. Any equity release plan should be designed to meet your own personal goals & circumstances. If they don’t, then look towards the alternatives.

 

The fact that you are considering releasing equity means you have a need for financial planning and require funds to meet your monetary objectives. There is nothing wrong with that. Throughout our adult lives, circumstances will dictate that some form of finance will be required, whether it’s a mortgage, loan, overdraft or the credit card. As long as the finance selected was the right product for the right reasons, then it should prove the correct decision to make.

 

This premise remains the same even throughout retirement. The needs of the baby boomer generation are now proving more expansive than previous retired generations. With long term health improving & the over 60’s having a more active lifestyle, retirees have a flavour of living a more care free life and fulfilling their ambitions and dreams. However, jumping to the conclusion that an equity release loan is the only answer, may prove to be a mistake.

 

When should equity release be a ‘NO’

For every reason why one should take a release of equity, there are as many reasons also why not to.  Here we look at the reasons and alternatives why you should think twice about taking out an equity release mortgage, be it a home reversion or one of the many lifetime mortgages.

 

1.      Age – equity release schemes are not available until the youngest homeowner is 55 years attained. There are instances whereby one person may 55+ and their partner is younger. Under these circumstances it is still possible to take a lifetime mortgage only, however this should really be only under exceptional circumstances such as poor health or the management of serious debt issues (maybe to avoid bankruptcy or house repossession). The age factor is an important principle behind one of the negative issues surrounding the equity release loan – compounding of the interest. Remember, the younger you are when releasing equity from your property, the more time the capital has to compound on a yearly basis.

 

The consequential effect of a longer term is that the final balance will be larger; resulting in more of the proceeds from the eventual sale of the property needing to be paid back to the lender. Bear in mind this will not be paid back by you, you won’t be around, unless the lifetime mortgage is being repaid due to moving into a residential care home! It will effectively be paid back by your children/beneficiaries.

 

NOTE -the resultant effect of a longer compounding interest charging period is that the final balance being much higher and a correspondingly much lower inheritance for your children/beneficiaries. If this is something that concerns you, request an equity release quote and see what the potential balance could be in the future. Making certain assumptions on future property values and your anticipated life expectancy would provide an estimate of how much equity could be left, if any at all. Should this be prohibitive, then a solution, if right for your circumstances would be to delay you decision for a few years until such a time the roll-up effect hasn’t as greater an effect.

 

2.      Consider possible alternatives – equity release should really be considered a ‘last resort’ once all the alternative forms of finance have been eliminated. The reason for this statement is due to the long term cost of these schemes, whereas some of the alternatives, if affordable could be more reasonable and favourable for your children or beneficiaries. As part of the Equity Release Supermarket advice service all our advisers will consider whether any alternative forms of raising finance would be better for you. These could include the following: –

 

  • Interest only or interest only lifetime mortgage – if you can comfortably afford to make repayments during retirement then look at such schemes. Interest only or interest only lifetime mortgages would be better for your children as there is NO compounding of interest. The balance would remain the same throughout the term as when the mortgage started. Therefore, the final balance will be known in advance and any inheritance can be ascertained using assumptions on future property prices. With the minimum equity release loan available being £10,000, alternative loan types maybe better. Could a personal loan or credit card be used to service the debt? Certainly options to consider that would also clear the debt, rather than it increasing like an equity release loan.

 

 

  • Downsizing – dependent upon the size of your current property and its uses, then moving to a smaller property could be a solution. By downsizing to a lower valued property would raise money that could then fund your financial objectives. If nothing else, it could delay the decision to take equity release for many years. This is an important decision and not to be taken lightly. There are costs involved in moving house – stamp duty, legal fees etc and there will undoubtedly be improvements you wish to make to your new property which will also include additional costs. Moving to a new area will also mean new neighbours, facilities such as shops, doctors etc should always be considered as part of the downsizing process.
  • Check for means tested benefits – Before taking any form of additional finance in retirement, it would be prudent to check whether you have any entitlement to means tested benefits. This could include state benefits such as pension credit, savings credit or even council tax benefit. Therefore, always check with the Pensions Office or your local council to establish whether you could claim further income for the state. This would only relate to lower income issues and should your income fall below the thresholds set by the authorities then you may have some entitlement. Having this extra income may solve or temporarily solve the need for equity release. If you are entitled to means tested benefits it would also be sensible to check whether any home improvement grants are available on your property. This could be even if you are planning home improvements or not. You may be eligible for loft insulation, cavity wall insulation or boiler replacement under some local authorities.
    NOTE – if you still pursue a release of equity and you are drawing state benefits, the equity release lump sum could result in a partial or total reduction in means tested benefits. If you wish to check your eligibility for means tested benefits you can check with you local equity release adviser on 0800 678 5159.
  • Use existing savings/family bequests – if you have savings or investments that are not used for income purposes then you should consider using these funds before taking equity from your property. Bear in mind that taking equity from your property and merely leaving it languishing in a bank account is not best advice. In today’s interest rate world you will not receive a better interest rate on a bank account than the interest being charged on an equity release scheme.  Therefore, use any savings or liquid investments first, but bear in mind that an emergency fund of upto £10,000 is also prudent to have for that rainy day. This decision is always down to the individual as some clients feel more comfortable leaving greater sums on deposit, just in case. There is also no shame in asking family members for financial support, particularly when the decision to take equity release may not be to their approval due to the effect on their inheritance! Should a family member wish to fund your loan then this may be more cost effective for them, but this could boil down to whether they are happy tying up these monies longer term when they may have their own family needs in the near future.

 

Evidently, there are many factors and solutions that can affect the eventual decision as to whether equity release is right for you. For that reason it is imperative to speak to a financial adviser who is trained & qualified in equity release solutions.

 

To speak to your local equity release adviser click here or call Freephone 0800 678 5159 where independent advice is available.

 

Do Banks Offer Equity Release Schemes?

Tuesday, December 11th, 2012

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

 

Problems from the start

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

 

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

 

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

 

Some have tried and failed

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

 

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

 

The importance of independence

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

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

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

 

Have Building Societies fared any better?

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

 

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

northern-rock_999576c

 

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

 

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

 

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

 

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

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

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

 

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

 

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

 

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

 

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

Equity Release – The Only Way is Ethics

Sunday, October 21st, 2012

With news that equity release schemes are becoming more of a mainstream mortgage for the over 55’s, we look at how the equity release market is regulating the protection of its consumers.

 

We have all heard the stories of how equity release schemes are bad for you and the local gossip columnists berating the expense of these plans. However, the equity release industry has come a long way since the original equity release plans were offered in 1965 when the average house price was approximately £4,000!

 

Why was regulation introduced?

It was the earlier version of equity release schemes that started creating a stir. Back in 1988 a new type of plan was introduced called a ‘home income plan’. They relied on using two financial instruments – an annuity or investment bond to provide an income, which in turn paid an interest only mortgage that raised the initial capital. The annuity income would have been sufficient to not only pay the mortgage but also provide additional funds to supplement the applicant’s income.

 

In 1988, the principles of the scheme were sound. However, there was no account taken of how future interest rates may change after a years of economic stability. Therefore when interest rates rose steeply in 1990 and property prices fell significantly, there were unfortunate cases of people experiencing negative equity. Additionally, as a consequence of higher interest rates, the annuity income became insufficient to cover the monthly mortgage payments, thereby wiping out the residual personal income also. These home income plans were subsequently banned.

 

The launch of SHIP

Such disastrous events were the catalyst for greater regulation of these equity release type products and led to providers in this market forming a coalition. This was heralded as SHIP (Safe Home Income Plans) and was introduced in 1991 to protect the holders of such schemes and their beneficiaries.

 

Further bad news

However, the problems were not answered immediately. During the mid 1990’s we had certain banks – Barclays and Bank of Scotland introducing SAM’s (Shared Appreciation Mortgages). These schemes worked on the basis that the mortgagee released an amount of equity in return for a proportion of the house value. No monthly payments of interest were required. However, the banks took not just the current value, but also a percentage of the future value.

You may recall that the mid to late 1990’s house prices thereafter soared. The bias was obviously in the banks favour (no changes there) to the tune of approximately three to one in their favour in any property escalation.

These schemes were consequently withdrawn and we are still hearing stories in the news today about people who took out SAM’s & have no redress financially from the FSA.

 

Step forward the FSA

Sooner, rather than later the Financial Services Authority stepped in to regulate the market & by 2004 the Government had brought forth legislation protecting lifetime mortgage customers. The protection didn’t just stop with the schemes; financial advisers now came under the auspices of the FSA and had to meet certain criteria to be able to provide equity release advice.

The FSA then introduced the Financial Ombudsman Service and put the FSA Compensation scheme in place to recompense people who had been mis-sold. Previously, applicants only had the courts as protection and taking on the banks could prove an expensive exercise.

By 2007, Home Reversion schemes were also governed by the FSA leading to stricter controls on all types of equity release schemes.

 

By this time some of the major equity release companies such as Norwich Union (now Aviva) and Northern Rock had joined SHIP. Equity release schemes started going through innovation with drawdown equity release plans becoming popular and being released initially by Prudential, Just Retirement & Hodge Lifetime. With mixed attitudes towards beneficiary’s inheritance, we had the introduction of interest only lifetime mortgages from Stonehaven which allowed some, or all of the interest charged being paid off.

So, not only has the market emphasis changed towards regulation, but also the products themselves have seen massive changed in concept and design.

 

Further peace of mind – legals

So far we have talked about how the FSA has helped regulate the market and the equity release companies themselves designing better products, but what about the equity release process itself?

 

The legal aspects of equity release have now been indoctrinated within the SHIP rules. It is here that extra layers of protection have been provided by the equity release solicitors and provide the final checks of the equity application process. From checking the identity of the applicants, establishing genuine reasons for the raising of capital, particularly when gifting to family and ensuring legal title & conveyancing thereof, solicitors have an important role to play.

 

Under SHIP rules, two solicitors must be involved – one for the applicant & the second on behalf of the lender. This is to ensure there is no conflict of interest and protect both the lender & equity release customer. The applicant’s solicitor must also sign a SHIP certificate to state he is satisfied that all aspects of the equity release have been brought to their attention, implications & that the rules of ‘caveat emptor’ persist. Until the SHIP certificate is signed then no equity release application can complete.

 

SHIP update

Further rebranding of SHIP was felt necessary as the market grew and a louder voice was felt necessary for the equity release market as a whole. After much debate it was proposed that ‘The Equity Release Council’ would provide the new voice of the industry. SHIP has now moved on and hopefully the feeling and attitude to all things equity release. It has travelled much distance since 1965 and overcome some dark days along the way.

 

Nevertheless, this is a new dawn for the equity release industry. With greater trust, greater demand and greater product innovation still to come the future is looking bright for the protection of its customers.

 

If you are considering equity release and need assistance on receiving the best equity release advice call the team on 0800 678 5159.

 

Can I Still Move House if I Take Out an Equity Release Plan?

Tuesday, September 18th, 2012

When it comes to financial planning, it is essential to explore all your options carefully, but even more important is to understand the full implications of your financial decisions today. Equity release proves to be a good option for many people, and if you’re considering a home equity release as an option, it is necessary to fully understand it.

 

Therefore, decisions made now could be influential in the future should your circumstances have to change. One of these situations would be if you wish to move house in the future. This could be for several reasons: –

 

  • Downsizing to a smaller property to raise cash to assist with financial affairs
  • Moving to a property for mobility reasons e.g. to a bungalow or sheltered accommodation
  • Move house to live nearer to the children to help with child minding or health care issues

 

A quick search online can help you find lots of information about equity release. Many equity release brokers have websites with ‘frequently asked questions’ (faq’s) sections that provide basic information about equity release mortgages. Here you can understand the two main types of equity release schemes – a lifetime mortgage and the home reversion plans. These all help the customer understand the potential risks and benefits of equity release plans and therefore form the basis of discussion with the family.

 

One of the common questions that people have when it comes to equity release mortgages is whether it is possible to move home once you have a lifetime mortgage or even a home reversion plan. The simple answer is yes, as long as the lender approves of the new property and the build criteria meets their acceptable lending policy.

 

All companies that Equity Release Supermarket deal with are members of the Equity Release Council (formerly the trade body called Safe Home Income Plan or SHIP for short). It is a condition of membership that the scheme is an approved equity release plan, which allows the applicant to transfer the mortgage to a different property.

 

With home reversion plans, moving is generally more complicated as the ownership of the existing home lies with both the lender and the original homeowner. Moving may involve changing the percentage ownership in the new property. Also, in case of downsizing, the home reversion lender may keep any profit made on the existing house. There are several factors to be considered, and the feasibility of a move will depend on the particular property.

 

While transferring an equity release lifetime mortgage is simpler, it involves additional costs, as fresh paperwork will need to be drawn up for the new property. Most lenders will require a new application which will involve all the same associated fees; namely valuation fee, application charge, solicitor’s fees and any advice fee charged by your equity release adviser.

 

There are further considerations when transferring lifetime mortgages which are affected by how much cash was borrowed on the original plan. The reason is that if someone is downsizing, they may need to pay off some of the existing balance on moving to a lower value house. When calculating the maximum amount that can be borrowed on the new valued property, this figure may not be high enough to pay off the balance from the former property.

Therefore, to bring the transfer in line with the lower valued property, a capital sum may need to be paid off the balance. The good news is that this would come from the equity raised by downsizing anyway and there is no penalty upon taking this course of action

 

Usually, there are no restrictions on moving home if the equity release is redeemed. However, you must be aware of the possible early repayment charges if the lifetime mortgage plan is paid off when moving house. Many providers charge an early repayment penalty, typically if the deal is cancelled within five years, or particular government gilts have fallen since the signing of the contract. Considering the high costs of cancellation, not enough equity may be left over to invest in a new property, so moving is generally a viable option for those who wish to transfer the equity release deal rather than cancel it altogether.

 

Nevertheless, to establish the exact position of your existing equity release mortgage obtain a current redemption statement which your equity release consultant can request on your behalf, with an appropriate client authority. From there an equity release calculation can be made to ascertain how much can be borrowed and the necessary recommendations can be made from there.

 

If you are looking at applying for equity release, or have an existing equity release scheme & considering moving home then contact Equity Release Supermarket team now on 0800 678 5159.

 

Alternatively, you can email the Equity Release Team – mail@equityreleasesupermarket.co.uk

 

Is It Possible To Remortgage My Current Equity Release Scheme?

Sunday, August 19th, 2012

Throughout the history of equity release schemes, now is as good a time as any to consider remortgaging your existing equity release plan. So whether you are looking to borrow additional money or looking for a lower interest rate, a review of your current equity release scheme could make sound financial sense.

 

With the equity release market constantly evolving and interest rates having fallen significantly over the past year or so, now is the right time to analyse whether you could get a better deal than your current equity release scheme. 2012 has brought about new plans and innovations in the lifetime mortgage market, so whether you are looking to borrow additional money or looking for a lower interest rate a review is always essential.

 

As a consumer, it is always good to keep exploring the market for better options. For those who already have an equity release plan, one of the most common concerns is whether they can easily switch from one scheme to another. Consider equity release schemes like a conventional residential mortgage; they are basically the same apart from the fact that with an equity release scheme there are no monthly payments.

 

Why consider an equity release remortgage?

The main reason for considering switching equity release plans today would be due to the fall in lifetime mortgage interest rates. Interest rates on borrowing are much lower today than a many years ago and with rates now as low as 5.57% on the Aviva flexible lifetime mortgage plan, considerable compound interest could be saved over the long term. Combine this lowest ever interest rate with the current crop of deals available such as Aviva’s £1,000 cashback and free valuation, makes an equity release remortgage to Aviva an great inheritance saving action plan.

 

Which are the best schemes to switch to?

Another important change in the market is that many new types of equity release mortgage have become available today. For instance, lenders may now have much more flexible terms on the loan than previously. Over 5 years ago there was no such term as a ‘drawdown lifetime mortgage’.

Now we have the likes of Just Retirement, Aviva, LV= and an even enhanced drawdown equity release plans (where poor health exists) from companies such as more2life. We now also have a repayment facility included in a new plan from Hodge Lifetime. Hodge allow 10% overpayments each year with NO early repayment charges and even no penalty on downsizing after 5 years of the start of the plan.

Not only do we have roll-up schemes, but increasingly popular are becoming the interest only lifetime mortgage schemes from the likes of Stonehaven. Whereas in the past the interest could only roll-up, nowadays with Stonehaven equity release you can actual repay the interest in order to maintain a level balance on your mortgage. This is a great idea for those who wish to take some equity out of their property, but ensure that a guaranteed amount will only be payable to the lender at the end of the day.

 

Therefore, a regular review of any equity release scheme is recommended as your circumstances may have changed, or your future plans may be different from those years ago when the original plan was taken out. Considering all this, it is likely that if you’ve had an equity release mortgage for some time now, you should be able to find a better and more suitable loan in today’s’ marketplace.

 

Are there any pitfalls?

Switching to an alternate scheme is not just a matter of searching the internet for equity release comparison sites and immediately applying for a new equity release loan. Several factors need to be considered carefully in order to work out whether a new loan is viable. Even though the terms of lending may look rather attractive on paper, these need to be considered in the light of your existing loan, particularly whether any early repayment penalties may exist.

 

Early repayment charges are penalties charged by lenders which are meant to protect the lender from any losses made due to an early repayment of the loan. This penalty could be a lump sum, or a percentage of the total amount borrowed. They could be as high as 25% of the principal amount or 5% of the amount borrowed. In order to make a considered and correct decision about switching, it is important to get more information on equity release remortgages.

 

How do I go about remortgaging?

The most appropriate person to seek advice from is a local independent equity release adviser. Your advisor can give you impartial and expert advice on which equity release plans may now work best for you. Your adviser can calculate exactly when you could start to make savings by switching to a new equity release plan. This would be assessed by considering all the costs involved in setting up a new loan, as well as taking into account any penalties.

On your behalf and with your written authority, your adviser will request an equity release redemption statement from your existing provider. This will establish exactly how much is outstanding, the interest rate being charged & any early repayment charges that may apply. Armed with this information, a full analysis can then take place to ascertain whether it is sensible & cost effective to switch plans.

 

So if you’re looking to borrow more from your existing plan, or wanting to reduce the future compounding effect of the rolled-up interest, always get specialist advice.

 

The quality of equity release advice can make significantly difference to the inheritance you leave behind. Contact the equity release remortgage experts at Equity Release Supermarket to take away any worry and ensuring you make the right decision for yourself and your beneficiaries.

 

Call freephone 0800 678 5159 and request a FREE equity release remortgage analysis today. Alternatively, complete our contact form with details of your current plan and one of our advisers will contact you to discuss further.

 

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.

 

 
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