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Posts Tagged ‘Equity Release Penalties’

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.

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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