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Posts Tagged ‘Flexible Lifetime Mortgage’

How Low Can Equity Release Interest Rates Go?

Sunday, January 25th, 2015

Aviva's lowest ever equity release interest rateHaving been advising on Equity Release since the halcyon days of Norwich Union, I have seen a continual, albeit gradual decrease in the level of equity release interest rates. The latest news has it that Aviva will be aggressively reducing their interest rates today –  Monday 26th January 2015 to an unprecedented lowest rate ever, starting from just 5.13%!

 

So what are the factors behind this interest rate drop, given the rest of the equity release companies trail so far behind Aviva in competitiveness?

 

History of Equity Release Interest Rates

Equity release interest rates historically don’t tend to move that regularly, or by very much. It tends to be market forces that dictate how competitively they wish to be & where they wish to be positioned in the market. Going back the early days of equity release schemes, particularly plans from Northern Rock (now Papilio) and Norwich Union (now Aviva), their early interest rates were in excess of 8%. However, comparatively mainstream mortgage rates were also higher at that time and therefore equity release plans were not considered as expensive as they look today.

 

Time to Consider Interest Rate Diversification?

However, the difference between mainstream mortgage rates and equity release interest rates is the fact that equity release schemes historically have a fixed interest rate for life. Residential mortgages don’t & therefore can be re-appraised frequently which enables the best interest rate to be achieved each time.

 

Perhaps it’s time that equity release providers took time to consider this fixed lifetime interest rate offering? Afterall, the reason that traditional equity release schemes have a fixed rate is to act as a safety net due to the compounding effect of interest as no payments are normally necessary, or permitted. This also aides the protection of their insurance policy, which is the ‘no negative equity guarantee’.

 

How Can Equity Release Lenders Reduce Interest Rates Further?

New Voluntary Repayment Plans from the likes of Aviva, Stonehaven & Hodge Lifetime accept repayments of upto 10%pa with NO penalty and therefore if managed correctly cancel out the potential compounding effect of interest. Therefore, would it not make sense for these lifetime mortgage lenders to offer a reviewable interest rate every so many years? A reviewable interest rate could have a bearing on the nature of early repayment charges where so many equity release companies use the unpredictable nature of government gilts as their barometer. Retirees are looking for greater flexibility these days and a change in structure could certainly assist.

 

Catering to the New Silver Surfer Generation

More retirees are becoming financially savvy, particularly those arriving at retirement still owning interest only mortgages. This crop of mortgagors have experienced the variances in interest rates & the different types of rates available during their mortgage years. For instance, is it not time for a standard variable equity release interest rate, or a tracker equity release interest rate? Why not, if the interest or upto 10% of the original capital is to be repaid each year, then why is it necessary to have a lifetime fixed interest rate?

 

If the equity release market is set to expand it needs further innovation & development of its equity release schemes. Therefore, should the forecast for future interest rates be historically low, then it would make sense to consider the options of tracker, discounted or variable interest rates. Perhaps the future of the no negative equity guarantee can be questionable given this has an effect of increasing the interest rate by upto 0.5%?

Why not have the option of choosing whether to include the no negative equity guarantee, or not. With that would come the choice of two representative interest rates; one including the guarantee & a lower interest rate without it. These options could all help to reduce the future interest rates of equity release plans & help the market move forward & expand.

 

A strong case in question for the optional inclusion of the no negative equity guarantee would be where retirees are committed to making repayments & managing the future balance of their lifetime mortgage scheme. Clearly advice of the consequences of not including this guarantee should always be provided, but we shouldn’t be treating the majority of equity release consumers with kid gloves. Equity releasers can themselves make informed decisions based on the facts & advice provided. As long as the adviser is giving quality impartial equity release advice then why can’t the industry open up & start becoming more diverse in its thought process & product innovation!

 

New Aviva Flexible Lifetime Mortgage Interest Rate

As stated earlier Aviva are to significantly reduce their minimum interest rate on their Flexible Lifetime Mortgage Plan. Equity Release Supermarket is able to obtain a lower interest rate than mainstream equity release advisers. This is set to continue from 26th January 2015 with the reduction in the minimum interest rate as calculated by the Aviva flex tool calculation. The lowest equity release interest rate with Aviva is determined by personal criteria, such as age, property value & also health.

 

Consider the following equity release scenario: –

Mr & Mrs Chambers are aged 67 & 64 respectively & own a property valued at £250,000 which is unencumbered. Unfortunately, Mrs Chambers had cancer last year and they now realised how important it is for them to enjoy their retirement. They wish to go on a cruise, carry out home improvements and release approximately £30,000 with access to a future cash reserve facility.

 

After conducting research with Equity Release Supermarket they were recommended the Aviva Flexi Plan with an interest rate of just 5.13%pa (5.33% representative APR). This recommendation was borrowing £30,000 & having a further cash reserve facility of £33,000 for possible future use.

 

Aviva’s Lowest Ever Equity Release Interest Rate To-Date

This 5.13% enhanced lifetime mortgage rate is the lowest ever equity release interest rate that any home equity release company has made available in the history of equity release & presents many opportunities for retirees to consider their future finances: –

 

  1. Those people with interest only mortgages – where lenders are demanding repayment as the end term has been reached & they are not prepared to extend can benefit from these interest rate reductions. By switching onto the Aviva Flexi Lifetime Mortgage Plan they could consolidate onto a mortgage for life, at a low fixed interest rate, thus enabling them to budget accordingly knowing the interest to be charged in the future.
  1. Existing equity release customers – who are on interest rates that are over 6%pa should consider whether to remain with their existing lender or switch equity release plans. By taking a lower interest rate would mean less interest charged & hence either a lower future balance, or less interest payments to maintain control over the balance. There are factors to consider such as potential early repayment charges & set up costs, however this is a calculation your Equity Release Supermarket adviser can arrange & analyse for you.
  1. Anyone over the age of 55 – who has been contemplating taking a release of equity, but maybe waiting for the optimum interest rate or occasion to apply for it. With the various lifetime mortgage schemes available now including interest only, drawdown & voluntary repayment schemes, the equity release market has never been so competitive.

 

So why have Aviva aggressively reduced their interest rates?

Word has it there are new lenders set to enter the equity release marketplace. With new names entering the market such as L&G and Santander, plus More2life have new funding available, Aviva are sure to find new competitors in their space. Perhaps they are trying to gather as much momentum & market share as possible now before they come under pressure?

 

We have already seen unprecedented movements in equity release interest rates so early in 2015. More2life’s Enhanced Lifetime Mortgage & Interest Choice plans have seen rate reductions, followed by Stonehaven’s Interest Select range in response to keep their market position above More2life. Whatever equity release 2015 has to hold its going to be exciting time and one for any future lifetime mortgage customer can benefit from with the lowest equity release interest rates ever seen.

 

Should you wish to request an Aviva Flexible Lifetime Mortgage quote & find out how low your equity release interest rate could go, please contact Mark Gregory on Freephone 0800 783 9652 or email me at mark@equityreleasesupermarket.co.uk

 

Further information on equity release –

 

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Can I Move Home with Equity Release?

Wednesday, February 26th, 2014

Moving Home With Equity ReleaseOne of the most common questions we get asked as equity release advisers is whether a lifetime mortgage is ‘flexible’ enough to meet any future change in circumstances?

 

Having reached retirement, experience has taught us all that life can be full of surprises and quite rightly this question is always high on the agenda.

 

This article has been written using my 10 years equity release experience & how I have helped guide my clients towards their ultimate goals, but at the same time alleviating any inhibitions surrounding equity release and moving home in the future.

 

The most common apprehensions regarding flexibility and moving or buying a new home can be summarised as follows:

  1. Can I move home if I have already taken out an equity release plan?
  2. Can I use equity release to purchase a new property
  3. How much can I raise on a new home using maximum equity release schemes?
  4. Can I transfer my existing equity release scheme to a new home?
  5. Can I still take out equity release if I downsize?
  6. If moving house, is it worthwhile transferring, or taking out a new plan?

 

So how does an equity release adviser dispel the fears and help their clients overcome the concerns that a release of equity mustn’t feel like a noose around their neck?

 

Considerations on Moving Home from an Equity Release Advisers Point of View

When we consider the question of a possible future house move, we can divide this into three very different scenarios; each one deserving separate consideration in its own right: –

  1. The first equity release scenario captures the proposition of using a lifetime mortgage, or home reversion plan to help fund the purchase of a new house
  2. The 2nd situation analyses the advice & legal process required when purchasing or moving home, utilising an existing equity release plan.
  3. Lastly, we explain the advisers perspective on what options are  available to a client with their existing equity release mortgage, upon moving home

 

Scenario 1 – Can I use Equity Release to help fund a house purchase?

An increasing number of enquiries seem to be coming in from people who are looking to move home, and this can be for various reasons. Some are looking to move nearer to their family for support, others are looking to downsize to repay loans and mortgages. Still others simply want to buy that bungalow they had always dreamed of for when they retired.

 

In the majority of cases, the best way to use equity release schemes to help fund a house purchase is to transact them simultaneously. This means involving an equity release application to be used as part of the legal process to buy. Consider this theory as exactly the same principle as using a conventional residential mortgage to help buy a new property.

 

In essence, by taking equity release at the same time as house purchase will save money by not duplicating the legal work, should a release of equity be needed at a later date. The rationale is that only one set of legals are required should equity release & the purchase be transacted simultaneously. However, if a release of equity is taken post purchase, then two set of legal costs are incurred; at the time of the house purchase, but then again later when equity release is done in isolation.

 

The rules are fairly straightforward, whether you use a lifetime mortgage or a home reversion plan for this purpose. A given percentage of the value of the proposed purchase property would be made available, depending on the age of the youngest applicant, and some or this entire figure would be sent to the conveyancer on the day of purchase to enable completion to take place.

 

Case Study:

Mr & Mrs Townley are aged 65 and looking to buy a property nearer to their daughter at a cost of £200,000. Their own home has been sold for £180,000 and, bearing in mind the additional costs involved, they feel they would need a further £30,000 to complete the purchase.

Following research, their lifetime mortgage adviser has recommended the Aviva Lifestyle Flexible Option where they could release upto 25% of the value of their new property. This potentially could provide them with a maximum release of £50,000.

They decided that they only want £30,000 of this for now but, as they don’t know what the future may hold, they ask for a cash reserve facility to be set up so that they could access the other £20,000 in the future, just in case they need it later.

 

Scenario 2 – Can I move home AFTER releasing equity on my home?

This is a different question altogether, but is definitely another one that comes up most of the time. Most people want to know before they enter into an equity release agreement, what would happen if they moved home in the future? This could be downsizing when one partner is left on their own, or moving into sheltered accommodation, if health dictates it becomes necessary.

 

First of all it is important to acknowledge that any lender that is a member of the Equity Release Council (which recently replaced SHIP) will allow the transfer of an equity release plan to a new, suitable property. Portability is an important facet of all equity release schemes.

 

Important considerations for anyone releasing equity include what they think MAY happen, or which is MOST LIKELY, as none of us know what’s around the corner.

 

If downsizing is the most likely outcome, then it should be very easy to find a lender that will allow this with the facility to move the equity release plan at the same time. A valuation would be carried out on the new property and the maximum configured equity release would be calculated. Having access to a lifetime mortgage calculator would be an advantage.

 

If the amount currently owed, is in excess of the maximum amount available for release on the new property, then the excess would need to be repaid from the profit made through selling and buying the cheaper property.

Of course some people want to have the flexibility of repaying the loan in full if they downsize later on and this is where some care is needed from outset to ensure this is possible.

 

As lenders become more attuned to what is important to equity release customers we are seeing some innovative thinking and I for one hope that this is a trend that will continue to grow over the coming years.

 

Scenario 3 – What should I do with an existing equity release if I want to downsize or purchase new?

This scenario is a continuation of the previous section, albeit taking into account in greater detail the options available & what should be done with an old equity release plan. It would be amiss of any adviser to automatically assume it would be in the client’s best interest to port an old lifetime mortgage or home reversion plan to the new property.

 

This is a key opportunity for an overall review of the older plan to establish its competitiveness in today’s equity release environment. From my experience of working at Norwich Union Equity Release (latterly Aviva), I am aware of older legacy equity release plans that in today’s world are outdated and uncompetitive.

 

My Experience of Norwich Union’s Legacy Equity Release Plans

The forerunner of all of Aviva’s equity release plans was called the Capital Access Plan. The Norwich Union Capital Access Plan had an interest rate, not charged against the balance, but calculated against the property value escalating over time. People with these plans who have seen a large increase in property value, will also had seen a proportionate increase in their equity release balance.

 

Another legacy plan which is no longer available is the Norwich Union Index-Linked Cash Release Plan. This a scheme which offered a maximum equity release lump sum from age 55, but with an interest rate linked to Retail Price Index (RPI). This Index Linked Cash Release Plan had a minimum interest rate of 4.89%, rising to a maximum rate of 10.14%. The calculated rate was dependent upon on the annual change in RPI which was then added to the minimum rate of 4.89%. Hence, this scheme did not provide as much certainty as today’s lifetime mortgage fixed rates.

 

From thereon in, Norwich Union or Aviva Lifetime Mortgage schemes had interest rates over 8%pa and potential early repayment charges of 100% of the original balance borrowed. Its schemes such as these that need assessing as to whether they should continue, or if favourable, could be repaid upon sale & a new plan taken upon simultaneous purchase of the new property. With rates today from Aviva as low as 5.68% annual, it could make sound financial sense to consider a new scheme which could save many £1,000’s over time by switching.

 

Free Initial Consultation

It is therefore essential for an experienced independent equity release adviser to undertake a full review of the entire situation & provide an impartial recommendation as to what is best advice moving forward. This will involve requesting an upto redemption statement from the existing lender, analysing the existing scheme & importantly assessing all the features including potential early repayment charges.

 

Equity Release schemes that were taken out some time ago are usually not as competitive, or flexible as plans around today, given the period of low interest rates incumbent over the last 2-3 years.

 

I would advise ANYONE thinking of moving to take advice as it may well be cheaper to change lender than staying with your current one and transferring your plan to the new property. The only way of finding this out is to take advice from an Independent Equity Release Adviser that is able to research the WHOLE of the market. By conducting a switch plans analysis, Equity Release Supermarket can address whether it would be worthwhile, or not, to switch equity release plans when moving home.

 

 

Examples of lenders already attuned to the option of downsizing – Hodge Lifetime

At the moment if anyone is thinking of downsizing in the future and repaying their equity release plan in full, then serious consideration should be given to a new plan such as the Hodge Lifetime Flexible Mortgage Plan.

 

This plan allows the borrower to repay the whole amount WITHOUT PENALTY if they decide to move home & downsize, as long as this is at least 5 years after inception of the plan.

 

Alongside this downsizing protection option is the fact that, if something unforeseen should happen and you need to move and repay during the first 5 years then the Hodge Lifetime penalty for doing so would be capped at 5% of the initial release in year 1, 4% in year 2, 3% in year 3, 2% in year 4 and then 1% in year 5. Significantly, the Hodge Lifetime penalty is more favourable than many of the gilt linked product related early repayment charges.

 

I believe this gives an added degree of flexibility for equity release consumers, and I hope it’s an indication that lenders are changing the way they change tact & begin providing greater flexibility as the need to move home in the future increases.

 

The fact remains that it is possible to move home and it’s imperative that you get the right advice when considering equity release initially AND when thinking of a house move as well.

 

Summary

It is probably one of the most important decisions you will make financially, as the decision you make now will not only impact on your future, but also your children & grandchildren’s future.

 

These are the reasons why we at Equity Release Supermarket always offer a free, no obligation, initial consultation which can be in the comfort of your own home or over the telephone, whichever is preferable.

This initial consultation gives us the chance to ask our clients about their objectives as well as their future plans, so that we can tailor any Equity Release scheme we recommend to each individual set of circumstances.

 

For your FREE, NO OBLIGATION, initial consultation (whether it’s your first time or if you want to review your current scheme) please call Mark on 07966 889597 or e-mail mark@equityreleasesupermarket.co.uk

 

FREE Valuation Offer With Hodge Lifetime

Tuesday, February 26th, 2013

With growing interest in the Hodge Lifetime Flexible Mortgage, Equity Release Supermarket are pleased to announce a new FREE valuation deal for this market leading equity release product.

 

For all new applications from 26th February 2013, Equity Release Supermarket can offer customers taking out a new Hodge Lifetime Mortgage plan a FREE valuation on properties worth upto £350,000. For properties above the £350,000 limit will just need to cover the differential valuation cost.

Hodge Lifetime Free Valuation offer

 

Hodge Lifetime  has taken the lifetime mortgage market by storm with its forward thinking products catering for the changing needs of the over 60’s retired population.

 

The introduction of the Flexible Lifetime Mortgage Plan in 2012, saw two new features arrive that had never set foot in an industry previously devoured of new ideas & future planning tools.

 

Details of these features are as follows: –

 

  1. Downsizing Protection Option – allows anyone holding a Hodge Lifetime Plan to repay their lifetime mortgage with NO early repayment charges, providing they move house & downsize at the same time after 5 years of starting the plan. Also favourably for anyone that downsizes WITHIN 5 years –  Hodge Lifetime will only charge a penalty on a decreasing basis of 5%,4%,3%,2% & 1% over the first 5 years of the plan term. These rates are the best the equity release industry has to offer currently & helps those who have no intentions of moving now, but may do so in the future for various reasons.
  2. Flexible Repayment Option – first came the roll-up lifetime mortgage, then interest only lifetime mortgages where the interest could be repaid – now the Hodge Lifetime Flexible repayment option. Hodge now offer the facility to repay upto 10% of the original capital borrowed each year with NO penalty. Therefore, if you’re looking to cap the build up of interest with ad-hoc repayments, or even wish to reduce the equity release mortgage balance, then you can now do so. The repayments can be made anytime you like after the initial period of 12 months from the start date of the plan.

 

Hodge now have a range of lifetime mortgage plans that can be taken on a single lump sum or drawdown equity release basis with flexibility being key to their portfolio of products. With interest rates starting from 5.74% monthly (6.20% APR) and fixed for life, the present time is the best time the equity release market has ever seen for interest rates.

 

If you are looking for an equity release scheme whereby you can afford to make repayments of capital &/or interest in order to protect you children’s inheritance, then the Hodge Flexible Lifetime Mortgage scheme should be of interest.

 

For further information or to request a Hodge quotation, please visit our dedicated Hodge Lifetime deals page by clicking here.

Alternatively, you can speak to one of our Hodge specialists at Equity Release Supermarket by calling our equity release advice line on 0800 678 5159.

 

 
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