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Posts Tagged ‘Government Gilts’

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.

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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How Easy is it to Remortgage My Equity Release Plan?

Sunday, April 22nd, 2012

Equity release schemes have now been in existence for over 15 years in their current format. Here we answer some common questions such as – ‘Can I get a better interest rate?’ & ‘Can I borrow additional funds? ’.

 

Equity release schemes allow you to free up some or all of the equity tied up in your property and use the tax free cash for lifestyle reasons. This can be a particularly useful option for those who do not have enough cash flow and own a property, but do not wish to sell it.

If you already have an equity release scheme but for some reason you’re thinking, ‘should I remortgage my equity release?’ it may be worth your while to compare equity release rates & deals to find a more suitable product.

 

The equity release market is constantly changing, with interest rates rising and falling, and new innovative equity release schemes becoming available all the time. For instance, interest rates at the moment are much lower than they were just a few years back. So if you decide to remortgage your equity release just now, the fall in interest rates could result in significant savings for you over the long term, even when you take into account the setting up costs, which include solicitors fees, application fees etc. Not only that but you may have released all the money from your original plan & now find you require a ‘top-up’ to continue enjoying your retirement.

 

Why should I review my existing equity release plan?

With equity release schemes becoming increasingly popular, equity release providers are developing new products and schemes all the time. Something that was not an option a few years ago may now have become entirely possible. Therefore, a more suitable and pragmatic product may now be available. This means that by reviewing your existing equity release UK plan and shopping around for new options is a good idea, especially at this point in time.

 

What should I look out for?

Equity release schemes are defined as a lifetime mortgage. As such all plans have some form of in-build early repayment charge which is differentiated by the company offering the equity release plan. These penalties can exist for a set number of years on a fixed basis, or alternatively they can be linked to an investment such as government gilts or Bank of England base rate.

Particularly government gilts seem to be a favourable barometer used in today’s equity release marketplace. The two largest lifetime mortgage companies – AVIVA & Just Retirement have decided to use them, so you need to be aware of potential back end penalties if the equity release mortgage is paid off early.  Other potential suitors such as LV= (Liverpool Victoria) & New Life Mortgages will only charge a fixed percentage penalty over either 5 or 10 years, with no penalty thereafter.

 

What is the next step?

If you are considering remortgaging your existing equity release scheme you must seek the professional services of an equity release adviser who has the experience of remortgage work. The adviser should be independent, so as to have the whole range of equity release schemes at their disposal. This is important as to remortgage again will incur a new round of equity release set up costs which need to be minimised as much as possible to ensure the new equity release deal is viable.

Before you decide to proceed with an equity release remortgage, it is important to consider several factors.

Remortgaging an existing equity release plan is not just a matter of switching to a new policy.

 

The following areas all need to be assessed & equity release comparisons made: –

Current value of the property – this may have changed since the original valuation, particularly in light of recent market conditions
Age of the youngest applicant – since the original equity release plan was taken out, you will be older, thus the loan-to-value ratio’s will have increased also meaning you can borrow a higher percentage of the house value
Balance of the existing equity release scheme – this can be based on your last annual statement or by requesting a redemption statement from your lender
Whether any early repayment charges would apply? – this can be ascertained from the redemption statement that should be ordered from your existing lifetime mortgage provider. This figure can be the difference between staying & switching plans dependent & the size & duration thereof.

 

Upon collating this data your equity release adviser can make an informed decision as to whether to stay put, or it’s in your best interests to switch plans. This is where the adviser’s independence becomes important. With any new equity release application comes a new set of set up costs. However, if your adviser can obtain a free valuation, cashback or any other incentive current available, then this will mitigate some of the new charges & make the whole process more worthwhile.

Professional financial advisers from Equity Release Supermarket will have all these tools at their disposal. With years of practical experience & many advisers having worked at the likes of AVIVA & Prudential, we know how these plans can be remortgaged & transacted quickly & cost effectively. With our current crop of best equity release deals we ever had, now is definitely a good time as any to consider saving yourselves, & your beneficiaries £1000’s by switching your existing equity release plan.

 

For a FREE no obligation equity release remortgage analysis, please contact the Equity Release Supermarket team on 0800 678 5159.

Alternatively, please complete the ‘find an adviser’ contact form to book an appointment with your local equity release adviser.

 

Equity Release Supermarket is one of the leading independent, over 55’s equity release specialists who have won awards for quality & impartial advice.

They can be contacted at mark@equityreleasesupermarket.co.uk where your enquiry will be treated with strictest confidence.

 

 
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