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Weigh Up the Alternatives First – Equity Release Isn’t Always the Answer to Funding Long Term Care Costs

Thursday, January 1st, 2015

Long Term Care SolutionsWith long term care becoming increasingly topical, Equity Release Supermarket are encountering many enquiries where children & attorneys are considering equity release as a possible solution to solving this ageing dilemma. However, as a company we do not automatically assume that equity release is the only answer; there are more alternatives.

 

It is therefore always advisable to seek long term care advice from a specialist who can advise on all aspects of retirement planning to ensure all avenues are explored. This would include claiming any state benefits due, retirement annuities, care fees plans & equity release schemes.

 

The following live case study illustrates how one of my clients was in such a situation & was looking to release equity from their main residence. It explains how I researched & recommended the best long term care plan for their particular needs after exploring & discussing with them all possible solutions…

 

Case Background

I was contacted by a lady whose father – Peter was suffering from Alzheimers disease. Her mother Mary, who was in her 80’s, lived in the bungalow that they jointly owned, but because she suffered from mobility problems, she was unable to care for Peter. She had reluctantly made the difficult decision that Peter would be better cared for in a specialist Care Home.

 

Funding Long Term Care Shortfalls

At the time I spoke to Mary and her daughter, Peter had been living in a very nice Care Home for two years and was settled there. He was aged 86 and the fees for his care were £40,904 per year, the amount of his income that could be used to help fund this cost was £13,345 per year.

The shortfall between Peter’s income and the cost of his care therefore amounted to £27,559 and this shortfall was being paid from the capital that Peter and Mary had in their savings. At the time I spoke with the family, their savings totalled £135,000.

 

Although this amount would seem to be sufficient to fund the present shortfall in the cost of Peters care for nearly another five years, anything that Mary might need outside her normal day to day expenditure would also have to come out of it. This therefore left them in a financial dilemma that needed considering now, before the situation worsened & a long term care plan of action was to be put in place immediately.

 

The bungalow, for instance, badly needed decorating and Mary had not had a holiday for nearly five years. There was also the fact that Long Term Care Fees normally increase by between 3% and 5% per year. All of this needed to be met from this capital and Mary had started to worry that all their capital would be used up very soon, this worry was beginning to affect her health since she was not sleeping very well.

 

Is Equity Release the Solution?

Mary and her daughter had initially thought that taking out an equity release plan may be the only option open to them and this was when they contacted me for advice. They felt that by releasing equity from the property now, instead of using the savings would help preserve the capital into the future. However, after discussing the effect of roll-up interest & the fact that other retirement solutions existed they were prepared to sit down with me & conduct a thorough factfind exercise so I could fully analyse their situation.

 

Benefits of Seeking Independent Long Term Care Advice

Being a SOLLA accredited independent equity release adviser, I have the benefit of being FCA authorised to specialise in long term care, equity release plans, investments & annuities. Whereas many equity release advisers can only provide advice on equity release, whenever ANY advice is being given with regards to using it to solve long term care planning, it should always be referred to a long term care specialist such as myself who has be trained to provide guidance on such matters. We can consider ALL options available, not just equity release which may not always be the best solution.

 

The Long Term Care Solutions

After making an assessment of their situation I looked at the options that were available to them.

 

  1. The first option we looked at was to continue to meet the shortfall from the savings of £135,000. This meant that after annual increases in the cost of Peters care and looking after any needs that Mary might have, such as decorating and holidays, the capital would probably last for about another three or four years. After this period they would be reliant on Local Authority funding. Because the cost of the Care Home that Peter was in was more expensive than the Local Authority funding level, this may have meant Peter moving to a cheaper Care Home. Because he was settled and happy where he was, and the family was happy with the care he was receiving, they did not want this to happen.
  1. The second option was to look at investing the capital in order to obtain an income from the return. An optimistic return on the capital would be about 4% and this would provide an income of £5,400 per year. This would obviously not meet the shortfall of £27,559 and not entirely solve the long term care cost shortfall.
  1. The third option was to purchase a ‘Care Fees Plan’, otherwise known as an Immediate Needs Annuity. After obtaining the necessary medical reports from Peters Care Home and his GP, we received illustrations of the cost of these plans from the relevant providers. By investing a capital sum with the annuity provider, they would then provide a lifetime income payable to either the planholder or care home to cover care fees due.

 

The results were very pleasing. For a lump sum premium of £106,000 a Care Fees Plan could be purchased that would provide Peter with an income of £27,599 per annum for the rest of his life. The income would also rise by 5% each year in order to help cover any increases in the cost of his care. Instead of the income being paid to Peter so his Attorney could then pay his Long Term Care Fees, it was arranged to be paid directly to the Care Home. Arranged in this way, it gave the added bonus that the income would be paid tax free, thereby going further towards meeting the care costs payable.

 

The outcome of funding the cost of Peters care in this way meant that:

  • The cost of Peters care would be met for the rest of his life, regardless of how long that was.
  • The income of £27,599 would increase by 5% compound each year.
  • £29,000 of their capital had been protected for Marys benefit.
  • It had safeguarded the family home to be passed to their daughter.
  • The family had been provided with peace of mind.
  • Equity release is still an option if necessary in the future should circumstances dictate.

 

If you wish to discuss any aspects of this case study or need long term care advice from a SOLLA accredited adviser, please either email me – peter@equityreleasesupermarket.co.uk or telephone 07828 179707. I look forward to hearing from you.

Drawdown Lifetime Mortgages Offer the Key to Buying a New Static Caravan or Motorhome

Sunday, December 15th, 2013

Buying a Static Caravan with a lifetime mortgageOne the great advantages of Equity Release or Lifetime Mortgages is the ability to raise extra cash to enjoy in your retirement. Although a recent study showed that up to 42% of Lifetime Mortgages are taken out to pay off loans and mortgages, almost 30% are being used to enjoy holidays.

 

Equity Release Experience Counts

As an equity release specialist, I personally have had clients who have spent money raised to visit family and friends in the Far East, usually travelling in comfort as 1st class passengers on their long-haul flights. Some have taken the occasional Mediterranean cruise or a trip with the family to Florida. All these expenditures may seem extravagant. However, as a more down to earth extravagance has been the number of clients who have raised money to spend on something a little more permanent and closer to home – a Static Caravan.

 

The issues with purchasing a static caravan

Before anyone purchases a static caravan they must undertake research as to the implications & costs involved. With the cost of caravans and site fees often approaching £3,000 per annum, they have until now been out of the reach of many potential buyers, but things are changing.

Many people who own or looking to purchase a static caravan tend to be of retirement age & it’s now dawning on many who previously couldn’t afford, that they now have a financial opportunity to purchase the caravan of their dreams.

 

Case Study

I can refer to one particular couple, who until retirement had been able to afford to stay at a particular holiday site on the East Coast. With a reduced income and a smaller than expected pension they realised that they would no longer be able to do this. They missed being with their son and his wife and their grandchildren on what had been a regular holiday, an increasingly rare time when all the family was together.

 

A finance meeting with all the family took place to discuss how they were to fund the purchase of the static caravan, which was to cost, including fees a little over £25,000. Following a review of their current financial situation and understanding their objectives, I was able to make an equity release recommendation. To enable them to fund the purchase of the static caravan, it was decided that a drawdown lifetime mortgage would suit them best. This would allow them to borrow the initial £25,000 lump sum required and by creating a cash reserve, it would additionally provide access to more cash in the future to pay for annual maintenance and site fees.

 

The family who were present & involved by request at the meeting were all in agreement. During the meeting I would understand the lifestyle benefits the drawdown lifetime mortgage advice would create. For instance, he grandchildren would be able to stay for extended holidays, which pleased everyone and their children could see the advantage to themselves of sharing a place at the coast to get away for a few days. (free of charge of course!)

 

The on-going and future benefits were interesting. Not only did they spend more and more time at the caravan, away from the stresses of town life, but they found they increased their circle of friends, joining in social events arranged at the park and in the locality. This is something that many forget about the virtues of equity release schemes; how equity release can change one’s life.

 

They also had the opportunity to holiday with friends and former work colleagues which added to the sense of being part of a community, and they also found there was an element of camaraderie amongst owners as each owner kept a watchful eye on their neighbours caravan and there was always someone willing to inform them about the area and it’s facilities. Such as, where to get the ‘best cup of tea’.

 

In a similar situation, one item on their ‘bucket list’ for clients in the Peterborough area was to continue to take regular holidays in retirement. With the increased cost of holiday insurance due to health reasons and the problem of putting their two ageing dogs into kennels, holidaying abroad was becoming too expensive and impractical so they decided to buy a motor home and travel,  as and when they wanted.  They too were able to do so by taking a release of equity from their home to fund the purchase of their own static caravan.

 

Summary

In essence, equity release schemes come in various guises. Both lifetime mortgage and home reversion plans are designed to ultimately provide the tax free cash to effect life changing events. This can be for both lifestyle changes and life changing purposes.

 

As an Equity Release Supermarket adviser, I feel privileged to be able to offer this service to people over the age of 55.

Should you have an interest in purchasing a mobile home or static caravan and need assistance or advice then please contact Equity Release Supermarket on 0800 678 5159 or email admin@equityreleasesupermarket.co.uk

 

New Equity Release Scheme Launches To Help Landlords in the Buy to Let Mortgage Market

Friday, February 11th, 2011

The resurgence of the equity release market gathers momentum in 2011 with the news that New Life Mortgages are set to re-introduce their landlord & second home equity release schemes on 11th February 2011.

Following the additions of more2life & New Life Mortgages to the equity release market late in 2010, the latest launch from the innovative lifetime mortgage lender signals a degree of diversity to their portfolio.

New Life Mortgages temporarily withdrew from equity release market in 2009. They obviously haven’t been sat idle, but instead waited for their opportunity to re-enter at the right time & with the right products.

Following on from my previous article on New Life Mortgages rejoining the equity release market in November 2010, here we discuss the features & benefits to landlords of this unique equity release plan.

 

How does the scheme work?

The New Life Mortgages Landlord Loan provides a tax free cash lump sum based on a percentage of the value of the residential investment property & the age of the applicant. Plans start at age 55 & any landlord with a portfolio of upto 5 rental properties can potentially release some of the equity tied up within them.

This buy to let equity release has no set repayment date & no monthly repayments to make. The loan is eventually repayable on the sale of the property when the last surviving borrower has died or gone into care.

 

How do I qualify?

  • Minimum age of 55 (for joint applicants minimum age 55 of the youngest)
  • Investment property must be in England & Wales
  • Landlord loan minimum property valuation  of £100,000 & a maximum of £1million
  • Minimum release is £25,000 & maximum is £500,000
  • The property should be standard construction with flats over 5 storeys excluded
  • If leasehold property, then 80 years must be remaining on the lease
  • Any existing mortgage must be repaid on commencement of the Landlord scheme

 

How Much Can I Borrow?

This is determined by the age of the youngest applicant & the value of the investment properties:-

Age 55 –  16%
Age 60 –  21%
Age 65 –  26%
Age 70 –  31%
Age 75 –  36%
Age 80 –  41%
Age 85+ – 45%

 

Therefore, as an example a 65 year old landlord with a single investment property of £200,000 could potentially release a capital lump sum of £52,000.

 

How does it compare to a normal equity release scheme?

The scheme in principle works exactly the same. You borrow the money, the interest accrues on a monthly basis & it is repaid when the property is finally sold.

The differences lie in the rental side; an assured shorthold tenancy agreement must be in place to qualify & cannot be let to family members.

Also, there are maximum borrowing criteria, similar to a buy to let mortgage. This states that the monthly interest charged cannot be more than the rental income received.

 

What are the costs involved?

  • Valuation fee dependent upon the value of the investment property
  • Application fee which can be added to the loan
  • Solicitors legal fees
  • Lifetime fixed monthly interest rates of 6.39% (age 55-80) & 6.55% (age 81+)
  • Early repayment charges only 5% for the first 5 years. No charges thereafter.
  • Any advice fee charged by your equity release specialist

 

Practical uses of the New Life Landlord buy to let mortgage?

The equity release funds can be utilised in many ways.

With market opportunities growing in the rental market as house prices fall & yields increase, bargains are there to be had.  Should any residential landlord wish to expand their portfolio & have concerns over the expense of buy to let mortgages they can consider schemes such as this.

Should a potential landlord spot a new investment opportunity, but has limited capital for deposit, then landlord equity release schemes could assist. The borrower could review all properties under his portfolio & by using an equity release calculator; assess how much could be released individually to meet the shortfall required.

Additionally, with the age group eligible for this buy to let mortgage there could be tax implications. Therefore, should some of these assets need to be disposed of, rather than selling the property & incurring capital gains tax, then equity release can be undertaken instead.

Finally & the most common purpose for this could be for debt consolidation purposes. Should financial difficulties arise on a buy to let mortgage or other personal finances, then subject to the amount that can be released, these debts can be repaid.

 

Perhaps one has just had enough repaying a buy to let mortgage & would rather receive the gross rental income to support their retirement?

The uses of the New Life Landlord scheme can be many; so to discuss how the features of this unique buy to let lifetime mortgage can benefit you contact the Equity Release Supermarket team on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

 
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