Equity release (of which lifetime mortgages are the most popular type of plan) allows homeowners aged over 55 to tap into some of the wealth that has built up in the value of their property over the years: as property prices have increased and they have gradually repaid their mortgages.
Increasingly, older homeowners need extra money as they approach or are already in retirement. The reasons for this vary widely and at Equity Release Supermarket, our customers ‘top 3’ uses are typically to repay their existing mortgages, to make home improvements and to make a gift to children – to perhaps help them with the deposit for their first home. But as the money released is tax-free and yours to spend as you wish, many customers use their money to tick off any number of their financial goals.
While deciding if equity release is right for them, many of our customers ask their local adviser, ‘Is now the best time to take out a plan?’
While the answer is always the decision of our customers, now could be the ideal time to take out a lifetime mortgage for a number of reasons, which we’ll now look at in turn.
Interest rates are at an all-time low – now under 3%
Two of the larger lenders are more2life and Pure Retirement. Their lifetime mortgages are very popular with Equity Release Supermarket customers: in fact, nearly half the plans our customers take are from one of these two lenders.
The Equity Release Council (the industry trade body) published sales figures for the first half of 2019 a couple of weeks ago and to be honest, lending figures haven’t gone up year on year as expected. That’s why the biggest lenders have dropped their interest rates – to try to increase their sales. This has created strong competition between them for your business!
Both these plans offer a range of flexible features – such as the ability to make voluntary repayments, they come with fixed early repayments charges and the choice of paying an application fee, or not**.
Flexible features are even more flexible
One of the major advantages of lifetime mortgages is their flexibility – and this often surprises our customers.
For example, there are options to make voluntary payments which allow ad-hoc repayments of interest and/or capital. The only restriction is the level of repayment the lender states which is usually upto 10% of the original amount borrowed. These voluntary payment plans require no proof of income, nor affordability checks to qualify, unlike the residential mortgage market.
Ultimately you are in control of the future balance, and therefore can start and stop repayments to suit your budget and lifestyle. Conversely, if you simply wish for the interest to roll-up and never make any repayments, then there are plans to enable you to do that as well.
If you can afford to make monthly interest repayments, then we now have interest-only lifetime mortgages, where you can service the interest on a monthly basis by direct debit. By repaying the interest every month, when your plan ends (when the last person on the deeds dies or moves into long-term care) then only the initial amount borrowed will have to be repaid by your estate. So, this option could be the ideal way to maximise the inheritance you leave for your loved ones.
Additionally, lenders are now including features such as ‘downsizing protection’ allowing you to repay the loan should you move home in the future. A useful option for many of our clients is the 3-year compassionate clause, where lenders allow on joint applications, the surviving partner to repay the loan in full and with no penalty, within 3 years of their partner passing away, or moving into care.
Finally, as we’ll cover below – there are a ‘new breed’ of early repayment charge options which, like the residential mortgage market are now fixed.
Early repayment charges are becoming more affordable
Early repayments charges (or ERCs) payable on lifetime mortgages used to be onerous and for which the industry was heavily criticised. That’s because of the way that the plans were funded by lenders in the past, but now for many that’s changed and so a new breed of ERCs has emerged that make repaying a lifetime mortgage completely or switching to a lower rate an affordable reality.
For example, many plans now come with 8-year fixed ERCs and once your plan has been in place for at least 8 years, you are free to repay it without any penalty.
If you think you might want to move home and downsize in the next few years, then Hodge’s Lump Sum plan is worth considering. It offers a competitive interest rate of 3.59%* and allows you to downsize from day 1 of your plan starting – without any additional charges to pay.
House prices are stable or rising in many regions
While there’s no denying that house prices have fallen in London and in some surrounding areas over recent months, that isn’t being replicated across the country. In fact, house prices in the regions – particularly the North West, North East and Yorkshire are on the rise.
If you are worried about the value of your home, and this is putting you off equity release, it shouldn’t – because history shows us that house prices only go up over time. The Nationwide’s House Price Index has been running since 1952 and in 67 years, house prices have only gone down for a total of 3 years.
Moreover, when house prices have fallen in the past, it has only been for a short period of time before they have bounced back. It’s also worth remembering that with equity release, you can also borrow again in the future, if your personal circumstances allow.
Speak to us now to get the best deal for you
The lifetime mortgage market is changing quickly at the moment and in these uncertain times, who knows how long these deals will be around for.
So, whatever the plans you have for the future, now could be the perfect time to put them into action with a lifetime mortgage.
One piece of excellent advice that money experts such as Martin Lewis give, is to speak to a specialist.
At Equity Release Supermarket, we’re independent and impartial experts and we’re here to help you.
We don’t have call centres and the first and only person you’ll ever speak to is your local adviser.
It costs nothing to speak to us and if you do take out a plan, our advice fee is guaranteed to never be more than £995 – which is over £1,000 less than some of our competitors.
So why not get in-touch today? Call us free on 0800 802 1051 or email us at [email protected]
*All figures quoted are MER (monthly equivalent rate).
**The rate quoted at 2.94% MER comes with an application fee. Figures correct as 22 August 2019.