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Mark Gregory, Founder and CEO at Equity Release Supermarket
www.equityreleasesupermarket.com
Tel: 0800 678 5955
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Question
Different types of equity release
Can you please explain the difference between a lifetime mortgage and equity release? When I searched online I could only find differences between lifetime mortgages and home reversion plans… and now I am more confused. Can you clear things up, please?
Answer
‘Equity release’ is the generic term that covers the many ways of releasing equity from your property. In the post-55 age group, the term ‘equity release’ invariably covers two types of plans – lifetime mortgages and home reversion.
Lifetime mortgages are by far and away the most popular type of equity release plan for a wide range of reasons. For example, you still own your home and lifetime mortgages come with many flexible features and benefits that could meet your needs now and in the future.
The other type of equity release plan is home reversion where part, or all of the homeowners’ property is sold to the plan provider in exchange for a tax-free lump sum, or regular payments. A lifetime tenancy is then created, protecting the homeowner’s residency and freedom to live in their home rent-free for the rest of their life.
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Question
Equity release – what’s the catch?
I keep hearing lots of statistics about how equity release can help retirees pay off debts, improve their homes and help their children on to the property ladder. These are all things my husband and I currently need to address. Equity release sounds too good to be true – so what’s the catch? When we mention it to friends they draw in breath as if it’s something we of which we should beware! We understand it used to have quite a bad reputation… Are we right to be wary?
Answer
Equity release isn’t right for everyone, and this is where specialist independent advice is important and is what we do here at Equity Release Supermarket. There aren’t ‘catches’ with equity release; it’s highly regulated by the Financial Conduct Authority (FCA) – the financial services watchdog and governed by the Equity Release Council, which insists, amongst other things, that you have at least one meeting with your own, independent solicitor who will look after your legal interests.
Additionally, our advisers are trained and have passed the relevant industry standard equity release qualification. They also take annual licensing tests to ensure their knowledge and standards are maintained. So, as you can see, this industry has taken significant steps to ensure advisers and their advice is constantly kept up-to-date.
I’ve personally been in the equity release industry over 20 years now and have seen the tremendous efforts from both the lenders and the Council in allaying such fears. Stigmas will hang around as per your friends’ reaction. However, with improvements such as lower fixed interest rates, flexible features such as voluntary payments and fixed early repayment charges, the equity release landscape is really changing client perspectives.
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Question
How much will we be allowed to borrow?
I am dipping my toe in the equity release waters and would like to get a sense of how much I can borrow before I make the call. Is there some kind of calculation I can use? I know when you take out a mortgage there is a ‘four-and-a-half-times your salary’ rule on how much can be borrowed. Does the same apply with equity release? For information, I am 65 and retired, my wife is 62 and also retired and our house is worth £455,000.
Answer
This is probably the most common question we get asked. After gaining an understanding of equity release products, the natural next step is to see whether you can raise enough capital to meet your financial goals. The maximum loan is based on several factors – age of the youngest homeowner, value of the property and additionally your health and lifestyle.
From an advice perspective we’d only recommend you take an amount that’s initially required: taking the maximum release is not always in your best interests. Plans such as drawdown allow you to take cash in stages, and this is where expert advice is essential.
Equity Release Supermarket offer the most comprehensive range of calculators in the market. There are nine different ones to choose from on our website.
How much you borrow will be very much driven by you and the plans that you have for your money – which is why it’s a good idea to have a play with our calculators. But to give you an idea, we would base the calculation on the age of the youngest – in your case is your wife at 62 and your home valued at £455,000. Assuming, she is in good health the maximum you can jointly borrow as a lump sum would be – £145,600.
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Question
How do the interest payments work?
Can you please explain how and when the interest payments on an equity release plan are paid? Do they get rolled up and paid off at the end or would I need to pay the costs monthly or in advance?
Answer
How the interest is repaid with a lifetime mortgage (the most popular type of equity release plan) is very much up to you. There are three alternatives – firstly, traditional roll-up plans exist, where no payments are made, and interest compounds over the life of the loan and repaid upon death, or long-term care.
For those looking to make capital repayments and manage the balance of their plan, there are two alternatives to roll-up.
Interest-only lifetime mortgage plans enable you to make regular monthly interest payments. The advantage is that only the initial amount borrowed is repaid when your plan ends. These plans usually come with the benefits of no affordability, or income verification checks.
Or, if you wish for greater flexibility with self-discipline, and you could make ad-hoc repayments, then a voluntary payment plan could also help to reduce the final amount to be repaid. They allow you to make annual payments of up to 10% to 15% of the original amount borrowed with no penalty. You choose when to repay, or whether to repay and the choice is all yours.
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Question
Can equity release help boost our pension?
My wife and I own a home in South East London. We have lived here for our entire married life – 45 years. I was self-employed and never paid into a proper pension scheme so I am relying on my state pension and my wife’s (which is low because she doesn’t have her full National Insurance contributions). Between us we are living on £1,000 a month which, means we get by but we don’t have holidays or any luxuries. A friend mentioned equity release might be suitable, but we don’t want to use all the equity from our house and we don’t want a lump sum, just a boost to our monthly income. Is it possible to release a portion of equity which we are paid monthly?
Answer
Yes, you can. There are now both lifetime mortgage and home reversion plans available that are specifically designed to pay you a regular monthly income. They are called ‘income plans’ and are offered by Crown and also Legal & General (L&G) – one of the biggest lifetime mortgage lenders.
With L&G, the minimum income payment is £200 per month and there are options to receive this over 10, 15, 20 or 25 years. There are currently three different plans offered by L&G and you can find out more about them here.
An alternative and more flexible way of generating income is the use of drawdown lifetime mortgages. Here the lender provides an overall cash facility based on age and property value. From this a minimum of £10,000 can be taken. The remainder of the funds are held by the lender, interest free, until more cash is required. Further withdrawals can be taken in small amounts starting from just £1,000.
As you can see, one size doesn’t fit all and this is why you should always seek independent advice on such matters.
Equity Release includes, lifetime mortgages, home reversion plans and retirement mortgages. To understand their features and risks, ask for a personalised illustration. There will be a fee for expert advice from Equity Release Supermarket, guaranteed not to be more than £995, only payable on the completion of application.
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