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Author: John Whyte

Equity Release Explained: How Does Equity Release Work?

Posted on by John Whyte

An Equity Release scheme provides a tax-free sum of money, using the value of your current home. As long as you are a UK homeowner aged 55 or older, equity release can provide a lump sum or steady income to make your years of retirement more comfortable.

What does Equity Release involve?

There are two main types of equity release plan in the UK; a lifetime mortgage and a home reversion plan.

A lifetime mortgage plan is the most popular scheme, and allows you to retain complete ownership of your home. With a lifetime mortgage, you borrow a proportion of you property’s value, which will not have to be repaid until you sell your home, or in the event of your death. The interest for this mortgage is “rolled up” until the end of the loan, when it will be payable by your estate. To help you decide if a lifetime mortgage is right for you, we provide an obligation-free Equity Release Calculator.

Home reversion schemes involve selling a percentage of your home in exchange for a lump sum. You can remain in your home rent free for as long as you need, and the loan is repaid when the house is sold.

What are the benefits of Equity Release?

The main benefit of Equity Release is that you can access money tied up in your home, without having to move out or make any repayments during your lifetime. The nature of an equity release scheme also means that the amount of inheritance tax to be paid by your estate is often reduced, and the NNEG (no negative equity guarantee) protects your loan in the event of a market downturn.

Using an equity release scheme to unlock cash is a simple way to provide income for the rest of your life, however it’s important to keep in mind that it will impact the value of your estate, and can also affect any means-tested benefits you are currently entitled to.

The equity release market is fully regulated by the Financial Conduct Authority (FCA), and your options should be fully explained to you before you sign up to any equity release plan.

Should interest rates be a client’s no.1 priority?

Posted on by John Whyte

When discussing Lifetime Mortgages, on almost every meeting with clients, the first question they ask is, what is the interest rate?

There is no doubt the interest rate charged is very important as this provides an indication of how the long-term loan will build up. But it is only one of the aspects we need to consider when providing clients with ‘best advice’ and its only once we have explained in more detail how these products work and carry out an in-depth fact find that we can identify the client’s actual needs. The outcome of the fact find may be to provide the most competitive interest rate, (but not necessarily the cheapest!) while at the same time providing the client with a product which better meets their individual requirements.

For example, for a client who knows they will be repaying off their loan within a specific timeframe due to perhaps a maturing investment, a pension pay-out or a sale of a second property, then maybe a lender who has a clearly defined early repayment charge, such as those provided by lenders such as LV=, Hodge or Retirement Advantage may be a better option than those with a potential charge offering a lower up-front interest rate but perhaps with a much larger charge for repaying the loan.

The client may prefer to make a monthly payment, which reduces the effect of the rolled up interest applied to Lifetime Mortgages. This is a facility offered by a number of lenders, or they may choose to specifically set aside a percentage of the property value as an inheritance guarantee for their beneficiaries.

Clients may prefer to take advantage of a fee free valuation which allows them to make an application without incurring up-front costs, or they may prefer to take advantage of a cash-back, an incentive from lenders which can be used to off-set their setting up costs or they make prefer to take advantage of those lenders providing additional lending when considering their state of health.

These benefits, which once explained are often of more benefit to clients rather than the rate of interest applied to their loans, but what is most important, the cheapest rate or a lender meeting the specific needs and requirements of the client?

By providing professional advice, rather than being nothing more than an order-taker, I would suggest that meeting the client’s specific needs is more important than simply providing a client with ‘the best rate’.

We must not forget the bank of Gran & Grandad!

Posted on by John Whyte

We regularly hear and see comments about the role of the ‘Bank of Mum and Dad’. This comes as no surprise as many who already retired are now in a position to provide additional funds for their children…and many are happy to do so as they can see the benefits of the money and the way it’s being spent today rather than their children receiving the cash on their death, by which time they may not need the money so urgently.

However, it’s all too easy to forget the role that Grandparents often play providing cash, not just to their children but also to their grand-children.

Twice in the last few years I have been asked to raise money to pay educational fees. In both cases this was due to the son being made redundant and rather than see the grandchildren taken out of their private school, they have made provision for the fees to be paid by releasing equity in their home.

The case made was that this way, the grandchildren would be able to stay in their present school and the Grandparents can continue to make the financial contribution to provide ‘the best education they can afford’.  In these situations, I’m reminded of the start to the television series, The Inbetweeners where one of the cast members, Will, has been pulled out of private school as his mother can no longer afford the fees due to her divorce and we then see the harassment he receives from fellow school pupils when moved to a state school.

I’m sure that this series isn’t a true representation of what would happen but I guess that the thought of moving children from private to state education doesn’t appeal to those involved.

But it’s not just providing educational fees. We see the grand-parents, who can be in a better financial position than their children, providing the deposit for the grandchildren to enable them to get into the housing market, effectively by-passing their children’s inheritance.

I just hope that when this is done that the work carried out by their solicitors protects the money should the grandchildren later marry or enter into the purchase of a property on a joint basis with a future partner.

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