Looking back a mere 12 months or so, the landscape of Equity Release and in particular, Lifetime Mortgages has changed dramatically. Yes, the number of people utilising some of the wealth generated in their property has increased to a record level equating to over £1.7bn in 2015, but this has been driven in no small part by the innovation shown by the equity release lenders to provide ever increasing choice and flexibility in the plans made available to those 55 and over.
Equity Release Voluntary Repayments – New Freedom of Choice
The greatest change to the equity release marketplace has been the freedom to repay up to 10% of the amount borrowed on an entirely voluntary basis, each year without penalty. This, for myself and the team at Equity Release Supermarket has certainly had a major positive impact on the market and will continue to do so. Voluntary repayments options provide those either approaching, or already in retirement with a real, tangible alternative to a conventional interest only mortgage, but crucially with more freedom of choice in whether or not to service the funds borrowed. ‘Freedom of choice’ is the key phrase here – you choose if you wish to repay up to 10% of the amount borrowed depending upon your circumstances, without having to justify or meet affordability criteria. These can be ad-hoc payments whenever you like & how much you like upto the limits imposed.
Repaying 10% of the amount borrowed year on year can significantly reduce the impact of not only any interest accruing on loan, but also the capital amount. If you elected to repay 10% annually, the entire Lifetime Mortgage balance could be reduced to £0 over an approximate period of 16-17 years. Furthermore, voluntary repayments can be made from any source, be it the borrower, a family member or anyone who might have an interest in protecting the legacy for the future. Again, these plans are available with NO proof of income or affordability…almost non-status mortgages.
Conversely, if you elect not to make any repayments at any time, that’s absolutely fine and all down to you. If this choice is made, then interest is added to the loan and compounded over the lifetime of the loan. You never run the risk of defaulting on the mortgage as the repayments are entirely voluntary and in most cases, the loan is not repaid until death or moving into long term care. Basically, for the first time control over the future balance & homeowner’s ultimate inheritance is now in the hands of the equity release planholder.
Major lenders are certainly keen to promote the benefits of voluntary repayments within their plans and this feature has now been adopted in various forms by Aviva, Legal & General, Hodge Lifetime, Retirement Advantage and new to the market – One Family. The future of equity release lies in its flexibility. With the stigma attached to equity release seemingly disappearing slowly, its features such as these partial repayment options that will govern its popularity in the future.
What Price Peace of Mind? - Increased flexibility for joint applicants
Sometimes, a major consideration for joint applicants is how they might feel about remaining in the property should their partner pass away or have to go into long term care. Whilst they might be comfortable to remain in the property, it is impossible to tell how one would feel in this future situation. Lifetime Mortgages are portable and the plan could be transferred to another property, but now there are plans available that provide for a consideration period of 3 years for the surviving partner. If they decide that they no longer wish to remain in the home and perhaps decide to move in with family, the property can be sold and the Lifetime Mortgage repaid without penalty.
Again, lenders are now moving away from previous issues of early repayment charges levied when a survivor has followed their partner into a long term care facility. This new flexible 3-year option has hopefully eliminated an area for cause for previous potential complainants where newspaper stories have picked up on this unfortunately anomaly. However, only a few lenders offer this as a free option which is automatically included in their equity release plans. These companies currently include Legal and General, Aviva and LV=.
Fixed Early Repayment Charges – Complete Transparency
Lifetime Mortgages are designed to provide a solution to clients’ needs over the longer term, normally remaining in place during the lifetime of the borrowers. However, lenders now provide more transparency than ever for clients who wish to redeem their plan earlier than perhaps expected. Fixed early repayment charges on a reducing scale over time are becoming more prevalent and this trend looks set to continue with further lenders over the coming months.
This is great news for borrowers who did not foresee their circumstances to change in the future, but due to unfortunate events they need to sell up & move. Knowing the fixed nature of the early repayment charges, clients can therefore budget accordingly & avoid the potential maximum 25% early repayment charge (ERC) which can be levied by some gilt-based lifetime mortgage providers. With companies such as Retirement Advantage & LV= offering 8 & 10 year fixed penalty periods, newer lenders are sure to take this mantle and develop the area of fixed ERC’s in the future.
Reducing Cost of Equity Release Schemes
In conjunction with more flexibility being added to the Lifetime Mortgage plans over the past year or so, interest rates reductions have also been instigated by the majority of lenders in the market. Annual Equivalent Rates are now available from as low as 4.39% and it’s important not to forget that most equity release interest rates are fixed for the lifetime of the plan. This provides security and complete peace of mind, given the transparency in knowing what will be owed over a given time frame.
Combine these low rates with the aforementioned voluntary repayment plans & you can see why the volumes of maturing interest only mortgagors are now considering lifetime mortgages as their salvation. Where many high street lenders are turning their backs on such borrowers reaching retirement, lifetime mortgage providers are almost welcoming them with open arms, a relief for many & a boost for the equity release industry.
Equity Release 2016 Update...
Here at Equity Release Supermarket, we pride ourselves on our passion and commitment to provide the best possible independent equity release advice to our customers. We understand that everyone has their own unique requirement and as a specialist adviser, my role is to assist you in identifying that need, applying the knowledge and experience gained through years of experience to formulate a solution that best fits your retirement plans.
If you would like to find out more about how equity release can assist you with your specific retirement planning needs by raising funds through your property for any purpose, please feel free to get in touch with me.
I am based in Hampshire, but travel extensively to visit clients in the comfort of their own home. To discuss any aspects of my article on the new found flexibility in equity release schemes please call me on 07825 126575 or email email@example.com
I look forward to hearing from you,
Allen Tomlinson - Certs CII (MP & ER)
Independent Equity Release Adviser
Equity Release Supermarket