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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
Where to go for equity release?
Where is the best place to look for equity release products? Is it something I can get from my bank or building society, or do I need to go to a specialist company? I have seen some adverts on TV, but I would like to look around first to compare deals. Thank you.
Answer
A good question – it’s a problem, many people tell us, knowing where to go to obtain accurate and trustworthy information.
Banks don’t currently offer lending via equity release and only Nationwide (who are a building society) act as a referral service to Age Partnership, providing its advice. It has recently stated on its website it now has a later lending advice service. However, this is for existing customers of Nationwide only.
The best way to review the later life plans that are currently available across all lenders is to use the ‘Compare Deals’ functionality at Equity Release Supermarket – https://www.equityreleasesupermarket.com/compare-deals.
I’m not suggesting this as I’m the founder and CEO, but because I’m proud of the fact that only Equity Release Supermarket offers the ability to compare not only all the available equity release plans, but also review the retirement interest only mortgages (RIO’s) currently available. It’s free, impartial and unbiased.
You can browse at your leisure researching all lenders, plans and interest rates currently available with information about the features and options.
I issue caution with some of the websites that advertise on the search engines and claim to offer a whole of market quotation in ‘seconds’, as they are quite frankly misleading. These sites are lead generators that ask for your personal information which they then sell onto the highest bidder.
I’m very proud to say that at Equity Release Supermarket we never have, and never will, buy leads from such companies.
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Question
Will a RIO be the best option for me?
I have been researching equity release options and I quite like the idea of a Retirement Interest Only (RIO) mortgage. I am a little concerned that equity release products mean I’m no longer the owner of my property, but with a RIO I feel I have more control. I own my property outright and don’t have an interest-only mortgage on it, so would I still be eligible?
Answer
The first thing to tell you is that with a lifetime mortgage – the most popular type of equity release scheme – you retain 100% ownership of your property. That’s one of the standards of the Equity Release Council, the industry’s trade body, of which we are long-standing members.
You may be able to take out a RIO mortgage subject to your income and credit record. The main qualifying criteria will be your ability to repay the monthly interest both now and in the future.
One of the major obstacles we have seen with RIOs is when there are joint applicants. If you have a partner, they must also be able to evidence affordability in their own right, should you pre-decease them. RIOs are residential mortgages and so your home could be repossessed if repayments are not maintained.
RIOs typically offer fixed or variable interest rates for between two and 15 years, thus at some point in the future you’ll need to renegotiate this mortgage, even remortgage with all the costs associated.
In comparison, with a lifetime mortgage, proof of income is not required and interest rates are fixed for life, providing a future guarantee of rate.
With greater flexibility in this market now you can make monthly, or even ad-hoc (voluntary) payments, to service some or all of the interest, even the capital if you wish. The popularity of these voluntary payment plans is that they can be stopped/restarted dependent upon your financial situation and all without penalty.
I’d recommend that as your next step to speak to a specialist adviser at Equity Release Supermarket who will be able to talk you through your options, as we can advise on both aspects of later life lending. You can find your local adviser at – https://www.equityreleasesupermarket.com/find-an-adviser –
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Question
Can I release equity whilst working?
Are there any implications to taking out equity release whilst still in employment? We would like to release some cash from our home to help our son and daughter-in-law onto the property ladder. However, we are not retired… yet! My husband works full time and plans to work for at least another two to three years and I am part-time and have no intention of giving up work for the foreseeable future. Might there be a tax implication?
Answer
As long as you and your husband are over the age of 55 and you are both owners of the property, then there is no reason why couldn’t take out a lifetime mortgage while you are working.
Gifting to children is becoming more common as parents look to help them onto the property ladder by providing their deposit, even part funding the purchase. Gifting is not exclusive to house purchase as we’ve had instances where grandchildren are being helped with their education fees with capital raised by their grandparents.
There are currently no capital gains tax or income tax implications in taking out a lifetime mortgage as the money released is tax-free.
You can gift money released to your son and daughter-in-law, but if you die within seven years of the gift, there may be Inheritance Tax (IHT) implications which your estate may need to pay. As IHT is a complex subject, it is advisable to speak to an IHT specialist if you are considering this.
Your local Equity Release Supermarket adviser will be able to assess your plans and provide guidance and you can read more about gifts and inheritance tax by visiting the gov.uk website. https://www.gov.uk/inheritance-tax
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Question
How much does it cost to release equity?
I wonder if you could help me with two questions I have regarding equity release, please. I understand there is interest to be paid – but how is the interest calculated? Do equity release providers take into consideration the property value, the amount being released and does the customer’s wealth get taken into account? Secondly, are there any fees or charges? Thank you in advance for your advice.
Answer
Like any other form of borrowing, there is interest to pay on the amount borrowed. Unlike other forms of lending – such as personal loans or residential mortgages – you can choose whether or not to repay the accruing interest with a lifetime mortgage.
If you choose not to make any interest repayments and allow the interest to ‘roll up’ then it is repaid when the plan ends, (when you die or move into long-term care). During the life of the loan, if no payments are made then the interest will compound. This means you will pay ‘interest on interest’ each year.
The final amount to be repaid depends on how long the plan runs for, the initial amount borrowed and the interest rate payable on the plan. You can use the ‘rule of 72’ to calculate how long it would take for the amount repayable to double if you choose not to make any repayments of interest and/or capital.
Here’s an example. If your lifetime mortgage has an interest rate of 4% and you borrowed £100,000. 72/4 = 18. It would take 18 years for the final amount to be repaid to double, i.e. then be £200,000.
We offer a ‘remaining equity’ calculator at Equity Release Supermarket – https://www.equityreleasesupermarket.com/calculators/equity-remaining – which will give you a rough idea of the value of our estate when your plan is repaid. This calculator takes into consideration the effects of rising house prices, which could help to off-set the interest to be repaid.
To answer the second part of your question, like any mortgage there are charges associated with taking out an equity release plan. These may include the lender’s application fee and fee for the valuation of your property – but many lenders currently offer plans where these two fees are waived.
You’ll also have to pay your own solicitor’s fees and any advice fee charged by your broker – which at Equity Release Supermarket is a flat fee and guaranteed to never be more than £995.
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