It has been a mystery why the UK mainstream banks haven’t fully embraced their traditional image of lenders to the masses, by entering into the realm of equity release schemes. We look at the history of attempts and corresponding results of many high street banks who have previously offered equity release schemes to the over 55’s.
Problems from the start
We start our history lesson back in the 1990’s, when Barclays & Bank of Scotland dreamt up the concept of the Shared Appreciation Mortgage (SAMs) whilst the housing market was quite stagnant. People were looking desperately to get on the housing ladder and it seemed a good buyers market.
These two banks were offering the elderly a mortgage with NO monthly payments; however they would instead take a share in the future rise in the property value. Around 11,000 Shared Appreciation Mortgages were sold of which these unlucky retirees thought would only need to pay back a few thousand pounds.
However, the property boom followed the property slump of the 1990’s, and by 2007 property values had almost quadrupled of which the banks also took their large share. The resultant effect has left many pensioners now unable to sell as they haven’t sufficient equity of their own to move house. The legacy of these schemes still exists today with legal action being taken by some of the unfortunate customers of these banks.
Some have tried and failed
We have seen in the last decade a couple more banks have dipped their toes into the water & failed with lifetime mortgage schemes. Notably one temporary success was NatWest/Royal Bank of Scotland who ventured into lifetime mortgages for a period, but none have ever felt comfortable offering this form of mortgage for the over 55’s.
NatWest/RBS equity release schemes became available in 2006 and were made available to its long time bank customers or retired bank staff. However, by 2009 after much back office investment & a surge in recruitment RBS ran out of funds and closed the whole equity release operation down.
The importance of independence
HSBC offered equity release back in 2006, after tying itself up with a tender from the now dissolved equity release company - In Retirement Services. In Retirement Services were an equity release provider in their own right and funded by private equity firm 3i, but only offered their own products.
This was always considered a strange decision for HSBC at the time to tie themselves with a non-independent equity release company & left the markets bemused. Afterall, why would a major high street bank tie themselves to someone with no independence for its customers?
The relationship ceased and the products were no longer available once In retirement Services went into administration due to funding issues in 2009.
Have Building Societies fared any better?
There has been a history of building societies that have yielded greater success with their own equity release solutions. They have ventured in & out of the market but no building society has remained and stood the test of time. Many building societies have fallen victim to the credit crunch over 3 years ago. This was due to the issues with raising funds on the money markets, and inter-bank lending at the time was virtually suspended.
This left many building societies involved in equity release lending, moving their mortgage book of funds towards the most profitable products such as mortgages which provide greater profit margins that equity release over the shorter term.
Within the last 10 years we have had Northern Rock as a major provider; however we know how the how the market crash affected them & its customers! They are now accepting repayment of their equity release schemes to clear their mortgage books of these old equity release plans.
Northern Rocks early equity release mortgages only had 5 years early repayment charges, so it could be an excellent chance to get a better deal today with the current crop of low interest rate home equity schemes available. (Northern Rock has sold its equity release book now to Papilio UK Equity Release Mortgages)
Other building societies that tried and failed due to the credit crunch were Bristol & West, Saffron Building Society and a notably, although temporary, unique scheme launched by Godiva. They were the first to enter the equity release market with an equity release plan with NO early repayment charges. Unfortunately, again the credit crunch put paid to this, and you would hope a similar product would one day re-enter the lifetime mortgage market; albeit the Hodge Flexible Lifetime Mortgage Plan goes some way to meeting a no redemption penalty equity release plan – see below.
So what types of equity release providers are currently in the UK equity release market?
It seems the secret to success and longevity is to find a niche product with a USP in the equity release market.
Lets consider the current lifetime mortgage providers and the schemes on offer and you can see why...
|Aviva||Lifestyle Flexible Option||Lowest interest rate currently in the market.Rates currently start from 5.57% and come with free valuation and cashbacks|
|Stonehaven||Interest Select Plan||An interest only lifetime mortgage. Monthly payments help maintain a level balance.Great inheritance protection for the children|
|More2life||Enhanced Lifetime Mortgage||Offers the maximum release in the market by underwriting on the grounds of ill-health. The more severe one’s heath the greater the release|
|Hodge Lifetime||Flexible Drawdown Plan||Hodge have two USP’s. One is the ability to repay upto 10% of the balance each year. The 2nd is you can downsize after 5 years with NO early repayment charges|
Today’s range of equity release companies stem from insurance companies to finance houses who have the ability to fund their lifetime mortgage schemes via their annuity books. We still have a mutual society and the remainder are private companies who manage to find funding from business partners.
Whatever the funding source, the current breed of equity release schemes offer the most diverse range of plans and competitive interest rates the equity release market has seen.
If there are any lifetime mortgage plans, old and new that you wish to discuss further, contact [email protected] or call the Equity Release Supermarket team on 0800 678 5159.