The words “Equity Release” have long sent a shiver down the spine of people aged over 55. For many years, people who may indeed benefit from these solutions have preferred not to achieve the goal that have set in their mind and this is down to historical horror stories, the legacy of which has never really fully disappeared.
What many people do not realise is that over the last few years a transformation of the industry and plans available has taken place and what is on offer to people today is a world away from the horrors of yesteryear.
The Equity Release market was a £4bn market in 2020 and has grown dramatically over the last few years due to the flexibility introduced and the interest rates dramatically reducing. This in turn has changed these plans to become much more appealing to a much wider audience and therefore much more mainstream, with this popularity due to get even bigger in the future.
As a company, we prefer to use the term “Later Life Lending” as we will assess each individual situation and offer the best solutions, whether that be a later life mortgage, RIO mortgage or Lifetime Mortgage. We will not advise on Home Reversion Plans as they account for 1% of the market and are deemed a very drastic course of action.
Lifetime Mortgages are the alternative to a Home Reversion Plan and they are the type of plan that has been propelled into mainstream lending.
With these plans, you always own your home, but you can release either a bigger lump sum now, or more often a smaller initial lump sum with access to a drawdown pot for your future. This is a mortgage against your home, but one where you do not have to make any kind of repayments if you do not want to.
In the past this was off-putting to potential clients because interest rates were high and the use of “interest on interest” meant that what was borrowed was generally doubled every 10 years and so a lot would be owed over time.
These days, first off interest rates start from such a low point that it can take 30 years for the same to double, but secondly and most importantly with most plans you can elect to make repayments as and when you see fit, usually to a maximum of 10% of the loan every year.
There are even plans that cater for “short-term” borrowers and we often have clients come to us for this reason after working out that this is the cheapest form of shorter-term borrowing instead of for example bridging loans.
It was also often thought that once you a plan, you cannot move home. This has always been allowed, but now many lenders will stipulate reasons that when you move home, you can elect to repay the whole amount owed without penalty. This starts from having the plan for five years initially. In the past if you had a plan and moved home to a property that did not for some reason meet the lenders lending criteria, then you would have to pay any early redemption fee due upon moving. Now if you have this situation and move home, as long you have had your plan for a minimum time of (best case) three years, you can move and repay the loan without penalty.
Many plans now also acknowledge that for couples, the situation really changes upon first demise and therefore offer a three year window for the survivor to choose if they want to repay the loan without penalty or not. This not only gives the client time to grieve without worry, but also allows them the time to decide what they would like to do next.
Five Questions to Ask Yourself
Many people wonder how to find a good lender, but actually the key is to find a good advice company. These are the key questions to ask to yourself when choosing an advice company:
Is the advice company (such as we are) a member of the Equity Release Council? - This means that they will adhere to some of the basic rules.
How many advisers should I speak with? – We would recommend 2-3 to give yourself options.
Why have advisers advised me differently? – A good adviser will look out both your immediate and future needs, this may mean a plan with certain features is actually better than a plan with the lowest interest rate.
What is the adviser charging me? – We charge what we see as a fair flat fee of £750 upon completion, whereas some firms charge a fixed fee of up to £1,800 or even charge a % of the loan which can mean an advice fee of £10,000 in some cases!!! You can see a detailed comparison here.
Has the advice company chosen won many industry awards (as we have) for service to clients? This will give you a good idea of how you will be treated.
All lenders in this market abide by strict rules and adhere to the Equity Release Council standards and they all must offer a No Negative Equity Guarantee, meaning that even in the worst case of taking the biggest loan at the youngest age, never paying any interest back and living long time to a point where property prices fall – you can never owe more than your property value to a lender.
As an active member of the Equity Release Council, Viva as a company want to continue to raise standards and we are currently working hard to add to the No Negative Equity Guarantee that applies across all plans, so that the minimum that a client from any plan is increased by at least 2-3 more features.
If you would like to find out more and to speak to one of our experienced advisers about your later life lending needs, please contact us to arrange a no obligation consultation.