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Posts Tagged ‘Pensioner Mortgage’

How the New Marsden Retirement Mortgage Can Help Boost Equity Release Lending

Saturday, September 26th, 2015

Marsden Retirement MortgageEquity release specialists are crying out for greater innovation in its product range to lenders at a time when the lifetime mortgage market potentially enters the biggest growth phase of its history. Failure to do so could result in products such as the new Marsden Building Society Retirement Mortgage & the Vernon Interest Only Retirement Mortgage shaping retirement lending to the over 55’s in the years to come.

 

Here I would like to share my views on why the equity release industry needs a major rethink of its products, understands more of its consumer requirements & how some of the smaller lenders such as Marsden & Vernon may have an impact on this thought process, even future product design.

 

Is Equity Release Innovating Sufficiently?

The launch in September 2015 of the Marsden Retirement Mortgage could represent a wake up call to equity release companies, which until now have offered little in the way of sweeping changes, consistent with driving the post retirement lending market forward.

 

Until now, lending into retirement has been hampered by the after effects of MMR (Mortgage Market Review) and how lenders gauge affordability for pensioner mortgages. This has seen terms ‘interest only time bomb’ being banded about as high street lenders start reigning in their mortgage book, when normally then would have renewed or extended mortgage terms. This has left mortgagors stranded with the dilemma of having to decide whether to sell & downsize, or find alternative lending such as lifetime mortgages.

 

These mortgage prisoners have been one of the main reasons why the equity release industry has seen major growth recently & should not be fooled somewhat into thinking it itself has played a part in its own expansion. Equity release must not become Mr Complacency. People looking to offload their traditional mortgages in favour of a voluntary repayment lifetime mortgage or interest only lifetime mortgage has been clearly evident at Equity Release Supermarket. This market has still not reached its peak, yet innovative products are still out of reach for this purge in demand awaiting redemption & rebirth.

 

The Corridor of Uncertainty that exists between Residential Mortgages & Equity Release

With some recent relaxation in retirement lending rules, some residential mortgage lenders are set to take advantage by introducing retirement mortgage products that can fill the ‘corridor of uncertainty’ between the traditional mortgage market & equity release schemes. This void exists due to the gap in both distribution and the advisory process, but mainly the lack of products that can fill this area.

 

For instance people looking to borrow at age 60 over say a 20 year term looking for a 40% release of equity would struggle currently to raise such an amount. The reason being mortgage lenders are frowning upon lending beyond 70-75 and equity release providers have loan-to-value ratios at 60 that are insufficient to release this amount. So where can these people go?

 

Their prospects are currently limited to several companies, one of which is only accessible via advisers with lifetime mortgage permissions. This is the creditable Hodge Retirement Mortgage. Several smaller, local building societies will lend on an individually underwritten basis, but are obscure in research and not looking for large mortgage books for this kind of product. We saw this effect when the Halifax Retirement Home Plan eventually had to be withdrawn due to demand in July 2011.

 

The future of the equity release market lies in the hands of the lenders who define the products on offer to the over 55 lifetime mortgage brigade. 2015 for me is the landmark year that could evidence how these products are to be aligned in the years to come. With the upheaval to annuity sales and the new pension freedoms in place, equity release has remained too rigid in concept, yet has seen buoyancy, despite its many detractors in the press. Yes this is positive news, yet does not address the underlying issues within the equity release industry.

 

How Non-Traditional Equity Release Companies Can offer Equity Release

Recent news & industry talk is that smaller traditional building society’s are set to move in to the retirement lending space, which effectively could throw a spanner in the works of some equity release lenders and advisory firms who do not embrace these products. The term ‘equity release’ is generic, yet advisers & product providers alike, associate this term with either a lifetime mortgage or home reversion scheme.

Wrong! Equity release simply attributes itself to any form of mortgage vehicle then enables the release of equity from a homeowner’s property. The industry needs to move away from the stigma of historic equity release terminology & move into a new era of flexibility, innovation & a market not defined by just 9 lenders offering copycat products. If these lenders do not embrace the changes needed, other traditional lenders could spot their opportunity & move in.

 

This has started already. With news of two new bold retirement mortgages from what would be classed as two of the somewhat ‘smaller’ building societies. The first to launch was the Vernon Building Society’s Interest Only Retirement Mortgage with two rates dependent upon whether a LPA (Lasting Power of Attorney) was in place & registered with the Court of Protection; an unusual move, but clever thinking behind this. The Vernon’s non-LPA rate at 4.45% (4.9% representative APR) is actually higher than the Hodge Retirement Mortgage at 4.39% (4.7% representative APR), so a welcome addition, but not groundbreaking.

 

Why the Marsden Retirement Mortgage is Competitively Advantaged

The launch of the Marsden Retirement Mortgage plan is significantly different to the Hodge Retirement Mortgage. The Marsden has no affiliation with the Equity Release Council and therefore no constraints with regards to no negative equity guarantees and membership. This can provide greater freedom & the passage of savings in interest, clearly evident on this products launch interest rates of either 2.79% or 2.99% discounted rates, dependent on whether the interest only, or capital & interest route is selected.

 

The Marsden Building Society have made this semi exclusive retirement mortgage plan only available only through qualified intermediaries. This is not a direct to consumer product and is a move commensurate with ensuring best advice is given to a potentially vulnerable age group.

 

The Marsden Retirement Mortgage Product in Finer Detail

The minimum age at application for this mortgage in retirement product is age 55, with a maximum term being 30 years, hence this is not a lifetime mortgage. It is available to anyone looking to make a new house purchase, remortgage away from an existing mortgage provider, maybe due to expiry, or even general capital raising purposes where no mortgage exists currently. This could be for home improvements, gifting to children/family or any other lifestyle choices that make an improvement to their standard of living in retirement.

 

This Marsden pensioner mortgage is available on an interest only retirement mortgage basis or even capital & repayment. The option selected will be reflected in the interest rate which at launch in September 2015 are discounted until 31.01.18 at which point it will revert to the Marsden standard variable rate currently 5.95%. At this point no early repayment charges will exist.

 

The minimum release of equity is £50,000 and the maximum loan that would be considered is £500,000. Properties are accepted in England & Wales only & must be valued at least £200,000.

 

Set up costs are competitive priced compared to equity release schemes. There is a free valuation on properties upto £500,000 and booking fee & arrangement fees of £299 each. For remortgages a fee assisted package is available where standard legals fees are covered along with free valuation fee as previously mentioned.

 

Other essential features of this retirement mortgage are as follows: –

 

  • Income multiples are 4.5x single & joint incomes, subject to affordability checks
  • Minimum income levels are £20,000pa, either single or joint.
  • Only pension income can be accepted, but rental & investment income can be considered
  • Maximum loan-to-values are 40% for interest-only & 60% for repayment mortgages
  • For interest only a sensible repayment method must be in place at the end of the term

 

Summary

The way forward for the post retirement lending arena is a swathe of flexible, transparent mortgage plans that meet the varied need of retirees. Whether this be a lifetime mortgage, retirement mortgage or interest only lifetime mortgage the key word is CHOICE. The Marsden Retirement Mortgage is just the start of new lenders filling the void between equity release plans & standard residential mortgages.

 

For more information & advice on which form of equity release is best for you, or to request a Marsden Retirement Mortgage quote, please contact Mark Gregory on 07966 889597 or email mark@equityreleasesupermarket.co.uk

New Life Mortgages Buck the Trend & Launch a New 25 Year Interest Only Retirement Mortgage for the over 65’s

Wednesday, October 10th, 2012

The tabloids are currently awash with articles proclaiming the death knell for the interest only mortgage. We only heard a few days ago the Nationwide are just one of the high street mortgage lenders in declaring themselves out of the interest only mortgage market.

 

But are these lenders missing a trick?

 

There is a potentially huge retirement mortgage market out there; a society that has grown up on a life of managing debt. They have paid off their mortgage, loans and credit cards during their lives which has created a culture of good financial management and has enabled them to build a significant volume of equity in their property.

 

Lenders need to understand more about the needs and demands of our retired population: –

  • Pensioners have fixed incomes which will usually be incremented each year
  • Most have a good credit history with track record to prove this
  • The older population tend to manage credit better & have not harnessed the ‘buy now, pay later’ mentality of today’s younger generation
  • They cannot be made redundant, nor lose income due to sickness or injury

 

We know in business, where one dares to tread another will be quick to follow and New Life Mortgages have done just that with their newly launched Over 65’s Retirement Mortgage.

 

Who are New Life Mortgages?

New Life Mortgages have been offering equity release schemes since 2003 and their innovative ideas were behind the first ever buy-to-let equity release plan and 2nd home lifetime mortgage schemes.

 

Having been assessing the market for their latest launch, New Life has evidenced the potential behind the vacuum left by the withdrawal of products such as the Halifax Retirement Home Plan in 2011.

 

The 65+ Retirement Mortgage

The newlife mortgages 65+ mortgage is aimed at homeowners with a minimum age of 65 who are looking to raise a tax free lump sum secured against their property and who wish to remain in situ for the foreseeable future. The important aspect of this plan is the term – there is no upper age limit and the applicants can take it out over a 25 year term, possibly longer with lender approval.

 

Available on an interest only or capital & repayment basis, the 65+ mortgage has an interest rate of 5.74% variable. Therefore, applying for a £50,000 mortgage on interest only basis would cost £239pm.

 

Early repayment charges (ERC’s) are favourable also which isn’t the norm on most equity release or interest only lifetime mortgage schemes. With a penalty of 3% in the first year only and none thereafter, the 65+ mortgage could certainly could suit those who are unable to sell their properties in the short term but still need cash funds.

 

How much will New Life Lend?

Standard mortgage lending criteria applies and affordability needs to be evidenced to determine how much can be borrowed. A common sense approach, and & possibly one that most lenders in the current environment could benefit from.

 

The formula for calculating maximum borrowings  are based on income of 4x the first income plus 2.5x the second, or simply 3.75x joint income, whichever provides the highest release for the client. Even still the loan must prove affordable when viewed in conjunction with other household expenditures. Usual credit checks are made and references requested if necessary.

 

The overall maximum amount that New Life Mortgages will lend is £350,000, although again this can be reviewed subject to individual criteria. One caveat though is that the maximum amount that can be borrowed is 50% of the property value & there must be £150,000 equity remaining after the mortgage is granted. Therefore, the over 65’s mortgage may not fit all criteria; however it is hopefully a move in the right direction for pensioner mortgages.

 

Finally

The 65+ mortgage is available on a purchase or remortgage basis. If remortgaging then New Life Mortgages are currently offering a FREE legal fees package on every application.

 

If you wish to check eligibility or request a quote on the New Life Mortgages 65+ Mortgage please call the Equity Release Supermarket team on 0800 678 5159.

 
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