Equity Release Latest News

Posts Tagged ‘Retirement Annuities’

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.

The Halifax Retirement Home Plan – The Quest To Find Mortgages For Pensioners?

Tuesday, October 26th, 2010

Planning for your retirement in essence should start in your earlier years; however as we know life unfortunately doesn’t always go to plan!

Here we discuss the merits of the niche interest only mortgage product; the Halifax Retirement Home Plan which is becoming an increasingly popular way of providing mortgages for pensioners.

Since writing my original article on the Halifax Equity Release plan (click here to view), interest has certainly been escalating. The main reason being that people in retirement are unaware of their mortgage options once they finish work. But life must go on.

 

What is the history of the scheme?

Established in 1984, the Halifax Retirement Home Plan was initially available through the Halifax branch network and was developed to provide low cost mortgage finance for the retired & elderly.

However, under the Financial Services Authority review of the lifetime mortgage market in 2006, Halifax withdrew the branch license to offer lifetime mortgage advice.

Therefore, the responsibility for providing advice on the Halifax Retirement Home Plan was left completely with lifetime mortgage qualified advisers including independent specialists Equity Release Supermarket.

 

So what is the Halifax Retirement Home Plan?

In simple terms the scheme is an interest only mortgage for people who are retired & facilitates the release of equity tied up in the property. The release of funds can be for almost any purpose including:-

  • Debt consolidation including paying off credit cards/loans or mortgages
  • Holidays including cruises or just day trips
  • Replacement car or caravan
  • Home improvements
  • Gifts to the children providing a deposit for house purchase
  • Supporting your lifestyle through retirement.

Qualification for the Halifax equity release scheme is based on income. Halifax will only accept non-earned income & this must be in the form of: –

  • Occupational pensions
  • Private pensions such as personal pensions or retirement annuities
  • State pensions
  • State benefits including pension credits & disability benefits

The stated minimum age for the Halifax Retirement Home Plan is 65. However, as long as there is no earned income & justification for the size of the mortgage can be based solely on the above income, then ages lower than 65 can be achieved.

 

How much can be released?

The minimum release on the Halifax Retirement Home Plan is only £15,000. However, to establish the maximum release possible would require the use of an affordability calculator.

Halifax does not base the size of release on a multiple of income, but whether the interest only mortgage can be afforded through retirement.

The data Halifax requires for this calculation includes income, credit status, number of applicants & credit commitments outstanding after the new mortgage commences.

This procedure can be carried out by qualified adviser such as Equity Release Supermarket & is an accurate assessment of the potential borrowings on this scheme.

The overall maximum release available can never be more than 75% of the valuation of the property. Therefore, should the affordability calculator show a figure greater than this, it will still be capped at 75% of the property value.

 

Does Halifax require a repayment vehicle?

The answer to this is NO.

As the Halifax Retirement Home Plan is an interest only mortgage for pensioners, no form of repayment is required.

In contrast, the mainstream mortgage market is actually tightening its grip on new interest only mortgages, whereas this Halifax equity release scheme will still accept repayment by virtue of the eventual sale of the property. This would be on death of the surviving partner, moving into long term care or earlier property sale.

The term allocated to the Halifax home retirement plan is 40 years which should provide ample time for it to run for the rest of one’s life! This removes any concern about having to find the funds to pay off the Halifax scheme during your lifetime.

Most mortgage providers will only accept a mortgage term upto age 70-75 or in rare instances age 85. However, this only buys time as eventual repayment would be required. However, this scenario may still be suitable should one be downsizing at a predetermined date in the future.

The Halifax Retirement Home Plan therefore removes any element of capital repayment risk.

 

So what interest rates & products are available?

Dependent upon whether you are a new or existing Halifax customer will determine the interest rates & products applicable.

 

Currently, the better deals are offered to new customers as they have access to the whole mainstream Halifax product range. This is a great advantage, as there is full access to current low rate tracker & fixed rate products. Click here for the latest interest only mortgage rates…

These include deals such as the current 2 year tracker rate at just 2.59%. Based on borrowing £50,000 this currently would only cost £107.92pm (3.6% APR).

 

Additionally, if remortgaging from another lender then there is the benefit of a free valuation & free standard legal fees, which reduces the set up costs significantly. I have experienced clients who have just £800 outstanding on a mortgage or even documents kept in deed store that qualified for this free remortgage package!

 

What if I already have a Halifax mortgage?

The good news is you can still apply for the Halifax Retirement Home Plan. However, the situation here requires completely different advice & procedure. Should you wish to merely transfer onto the Retirement Home Plan then you can port over your existing rate which can be good news if on a standard variable rate. However, if you wish for additional borrowing then the process becomes a little more complicated.

The product range for existing Halifax customers is rather sparse & with the best deals starting currently at 4.99% fixed, hence there is a distinct advantage for new customers.

 

Such applications will be paper based & therefore processed manually which involves more human input. Experience has shown this results in a different underwriting approach to the process undertaken on new applications.

 

Can I pay off the Halifax Retirement mortgage early?

The simple answer to this is YES.

Unlike equity release plans where penalties can potentially apply for the rest of your life, the Halifax interest only mortgage will only have early repayment charges for the initial product term. Therefore, should you have opted for the 2.59% 2 year tracker product discussed previously, the penalties would only apply for the first 2 years. After, this 2 year period the mortgage would then revert to the Halifax standard variable rate, currently 3.5%.

However, before the initial rate expires you will have the option to take out a new product from the Halifax mortgage range available at that time.

 

So what is the advantage of the Halifax Retirement Home Plan over an equity release scheme?

The obvious answer to this is the fact that the Halifax mortgage is interest only & therefore requires a monthly payment of interest. The balance will always remain the same throughout the term of the plan. E.g. borrowing £50,000 today, will result in £50,000 requiring repayment once the house is sold.

In contrast, equity release schemes do not require any monthly repayment & therefore the balance will increase over time. Roughly speaking the balance of equity release schemes will double every 10/11 years.

From a beneficiary’s point of view, the Halifax interest only mortgage will guarantee an inheritance, as the final balance of the mortgage will always be known. This would be favourable for people who want to ensure the children definitely receive an entitlement to their parent’s inheritance.

 

With all this information & options available it is more important than ever to receive specialist advice to obtain the best deal for your personal circumstances.

Equity Release Supermarket can provide independent advice on both equity release schemes & interest only mortgages for pensioners.

For further information or to request a quotation, please ring Mark on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

 
Ask us a question

captcha