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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.

 

 

How Equity Release Can Help You ‘Upsize’ while ‘Downsizing’

Monday, September 30th, 2013

downsizing in retirementWe often read comments in newspapers, or see reports on TV, that before taking equity release you should always consider your alternatives, as there maybe financial solutions that have not been previously considered. One of these which has created much debate recently is the possibility of downsizing.

 

This article, discusses the advantages of downsizing and how equity release schemes can still have an important role to play in such situations.

 

Equity Release versus Downsizing

The practice of downsizing, effectively means selling one property at a higher value than the one you wish to move into. Therefore, the equity generated from the price differential can be used to support you financially during retirement. This is usually the main reason for people deciding against taking equity release.

Downsizing is fine in principle, and it is one of the options Equity Release Supermarket advisers always discuss with clients. However, for economic and personal reasons, the idea of downsizing can be impractical.

 

Equity Release Case Study – How downsizing works in principle

Take for example Peter and Clare, both aged 73 and living in their semi-detached house worth £275,000 which they’ve owned for over 30 years. They are settled in the area, their family and friends are local to them and they feel comfortable and safe in their current surroundings.

Unfortunately, they still have a mortgage of £100,000 and the lender has informed them they will need to repay this by the time they reach the age of 75. Like many people in their situation, they do not have the money set aside to do so. Their family are in no position to help as they too are struggling to keep their own heads above water!

 

So what are their options?

  1. They could sell up, pay off the mortgage and look for another lower valued property. After taking into consideration the costs of moving this would mean considering properties around £165,000. Unfortunately, there are no properties of this value nearby, as even smaller properties locally that would still cost them in the region of £200,000.
  2. Consider a remortgage with another lender. This would involve switching their £100,000 mortgage to another lender. However, most high street banks & building societies will not allow borrowing beyond the age of 70, or even 75.

The only option it would seem is to have to move further away, to an area they would not feel comfortable with, and considering this would be their last ever move, it must be the right decision as happiness during retirement is key. This situation leads to anxiety and stress for the couple as their network of friends and family would no longer be around them and they would be moving to an unknown location which may turn out to be both undesirable and unpopular.

 

Therefore, only option 1 is feasible, but there is still the issue that the property would not be entirely suitable for their requirements moving forward.

 

Revised Case Study – The maths of upsizing

Let’s revisit option 1 again, as there is some good news for those that wish to downsize.

 

Equity release schemes can actually allow you to ‘up-size’ when moving house by using the equity release tax free cash to help fund the purchase of the new property. This would mean Peter & Clare still purchasing of a lower valued house. However, by using a new equity release plan in conjunction with the purchase, they can now attain property values of around £200,000+, which they needed to stay near to where they currently live.

 

Taking Peter & Clare’s example again. The couple are both aged 73. Using the Equity Release Supermarket calculator, they could borrow upto £78,000 on a property worth £200000, on a roll-up lifetime mortgage basis.

 

This would enable them to purchase the £200,000 property; by using £165,000 of their own equity, plus the difference coming from an equity release plan. In fact given the equity release calculation figures they could go even higher if they wished to do so, or even use some of the surplus to have a small emergency fund for the future which is missing at the moment.

 

Now Peter & Clare have come to terms with the downsizing, the couple can now consider fine tuning their equity release solutions.

 

In fact, they could consider a lender allowing interest payments – commonly known as an interest only lifetime mortgage provided by companies such as Stonehaven. These off-set the effect of the rolled up interest, but unlike their existing mortgage which comes to an end in two years’ time, a scheme such as Stonehaven’s Interest Select Plan would be open-ended and therefore run for the rest of their life.

 

In some cases, depending on their state of health, Peter & Clare may be eligible for more money if they could take advantage of enhanced lifetime mortgage rates offered by some lenders. These enhanced lifetime mortgage schemes can lend more than any standard lifetime mortgage & give that extra amount making all the difference.

 

Upsizing Summary

So as a solution, what does this up-sizing option offer: –

  • The opportunity for the couple to repay their existing mortgage in full
  • To move to a location near to their current property, ensuring that they can maintain the support of family and friends
  • To continue to live in a safe environment with familiar surroundings including local amenities which have become increasingly important to them, such as their doctor and local hospital along with good transport links and shop
  • To purchase a property which they’re happy with rather than taking on a property ‘because they have no choice’

 

To down-size is an option which may be suitable to some, but like all decisions taken it needs careful consideration. This is where specialist equity release advice can make all the difference to retirees making such important financial decisions in retirement.

Having an alternative in the form of equity release scheme or interest only lifetime mortgage may enable them to make a decision based on a more practical  solution and providing clients ‘peace of mind’, something which is not commonly advised upon in the news.

 

Equity Release Supermarket has experienced advisers who have dealt with such situations & can therefore make all the difference to people over 55 & in retirement.

 

If you wish to ask, or discuss anything with regards to his article with our team please call Freephone 0800 678 5159 or email admin@equityreleasesupermarket.co.uk

 

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.

 

Equity Release Schemes Can Be The Solution You Are Looking For

Friday, June 17th, 2011

Equity release is used as a term for schemes that help a homeowner to secure a good amount of money from their main residence. These schemes provide homeowners with an option to use their property to release money. It becomes hard for people who retire after a certain age and do not have funds to support their needs. Equity release schemes provide an option for people who live on pensions and are unable to support themselves or maybe wish to increase their lifestyle options with a new car or holidays. It therefore helps provide an extra flow of money to fulfil their needs & retirement enjoyment.

 

Equity release has become very popular among citizens who are over the age of 55. There are an increasing number of retirees opting for these equity release solutions. Equity release UK schemes offer retirees an opportunity to generate money from their property, either a lump sum amount, timely earnings, or in some cases, both. Retirees can remain living on their property unless they decide to move out at which point the equity release plan becomes repayable. The equity release providers will usually require repayment of the balance within 12-18 months by the beneficiaries. This gives the executors of the estate plenty of time to achieve the best sale price on the property to cover the debt & maximise the inheritance for the beneficiaries.

 

The value of your property and your age are the key factors in the data used in equity release calculator formula. There is no age limit as far as equity release is concerned. The older you are, the more you can generate out of your property. This scheme is accessible for people who are over fifty five years and own their property which usually should be of standard construction & freehold, or leasehold with more than 75 years left remaining on the lease.

 

Halifax Retirement Home Plan is one such scheme which helps people to extract money out their property. It is a type of interest only equity release lifetime mortgage plan where the borrower pays a sum of money to the lender on a monthly basis. It is a useful and easy plan which suits the needs of all perfectly. As mortgages for pensioners seem to be difficult to come by, the Halifax equity release scheme has become a breath of fresh air to many people in retirement. They can be safe in the knowledge that the balance will not increase as long as the payments of monthly interest are maintained.

 

This is an interest only lifetime mortgage which means there is no set term & these equity release schemes will run for the rest of their lives. As long as too much equity is not taken from inception on the Halifax Retirement Home Plan then if there comes a point in the future that the monthly payment should cease, then repayment by a roll-up equity release plan could always take effect.

 

There are many options today that assist pensioners to take equity release from their property, however to ensure which scheme is the correct one for your circumstances contact a professional & qualifies advisory service.

Award winning Equity Release Supermarket have advisors local to you who can provide quality & friendly service to guide you through the equity release decision making process.

 

Call the equity release team today on 0800 678 5159 for your free initial consultation.

 

 
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