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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
Using equity release to clear debt
Can you get extra equity release to pay off a credit card debt? The debt in question is £5,500.
Answer
As you have used ‘extra’ in your question, I’m presuming that you already have a lifetime mortgage plan in place and my reply is based on that premise.
You should think carefully about consolidating unsecured debts and adding this to your lifetime mortgage because you may be spreading the cost over a potentially longer term, which although may reduce your monthly outgoings, will result in the overall cost of the debt increasing. This is due to effects of compound interest and the fact that you have the choice not to make any regular payments.
With an existing equity release plan, you may be able to apply to borrow more against this. The lender would recalculate the maximum loan available based on the current value of your property and the age of the youngest borrower now. They would then deduct the outstanding balance from this figure, and any difference could be the additional amount available to you.
The minimum additional borrowing that lenders will consider does vary, and therefore it will depend with whom your existing plan is with. For instance, it can be as low as £2,000 with companies like LV=, but as high as £10,000 with More2Life. Also bear in mind that additional borrowing is not always guaranteed, and is at the discretion of the lender.
One advantage of additional borrowing using the same lender is that the set-up fees are usually lower than new borrowing, as no solicitors are usually required (Hodge will insist on this) and also more importantly – no early repayment charges would apply.
However, there is another option that should also be considered when borrowing extra funds from your current lender.
Consideration should also be given to remortgaging to a new plan and borrowing the extra £5,500 that way. You may be able to take advantage of today’s low interest rates and with the latest plans come flexible features such as downsizing protection, voluntary payments and inheritance protection.
Here at Equity Release Supermarket we have a handy switch calculator that provides a break-even point as to when switching would be most favourable. Our advisers have also been trained to conduct switch analyses, and check whether it would be in your interests to ‘stick or twist’ with your existing lender.
The viability of changing plans is usually determined by the early repayment charges of your current lender and so I recommend that you speak to one of our independent and impartial advisers at Equity Release Supermarket, who will be able to advise you on the best route to take.
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Question
Dementia and equity release?
My parents are both living in our family home and we would like to make some adaptations to the house to support my father who has started to develop dementia.
To do this we would like to use equity release. My brother and I fully support my parents’ decision to release equity and we plan to help them with the application.
Here’s the concern, however – my Dad, as mentioned, has dementia and as the main bread winner before he retired, and also the main pension holder now, we are concerned about whether an equity release lender would accept the application.
The dementia is not too severe, and he has more moments of lucidity than not, but he is obviously prone to confusion and forgetfulness. Would this impact an application?
Answer
I’m assuming that both your mum and dad are named on the deeds of the property? If they are, then they both need to sign the legal documentation associated with equity release.
I am sorry to learn that your father has dementia. If he has lost capacity to deal with his own financial affairs, then there would have to be a Lasting Power of Attorney in place. A Lasting Power of Attorney (LPA) is a legal document that lets your father (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help make decisions or to make decisions on his behalf.
This would normally be your mother or yourself or your brother. As your mother is party to the application, she could sign an application for herself however she cannot sign as Power of Attorney for your father on a joint application.
It is not unusual to see more than one attorney appointed, and if this is the case, your mother could sign her own part of the application and the other attorney could sign on behalf of your father. As this is a complex area, I would recommend you discuss your current situation with one of our expert advisers if you have a Power of Attorney.
Alternatively, if you do not have a Power of Attorney, I recommend that they seek advice from a solicitor or a suitably qualified person. Furthermore, you could contact the Office of the Public Guardian if you need help regarding Power of Attorney at:
customerservices@publicguardian.gov.uk or telephone: 0300 456 0300
Once the LPA is in place, it would be possible to take out equity release and it is also vitally important that you and your brother are involved in the process, to support your mother and ensure that she fully understands the implications of taking out a lifetime mortgage.
You also ask if the fact that your dad was the main breadwinner and benefits from a larger pension than your mother would this be a consideration for lenders. I can confirm that lifetime mortgages are not assessed against income as lenders only use the value of the property, its location and the age of the youngest homeowner when determining what they will lend.
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Question
Are there any restrictions on how I can spend cash released?
If I were to release equity from my home, are there any restrictions on what I can do with the money? I only ask because I would like to release a lump sum, but I am planning to use some of it to repay a mortgage on a second home and would like to put some money into savings? Would this be viable?
Answer
You are free to spend the tax-free cash you receive through equity release, on whatever you want.
However, this is where speaking to qualified equity release adviser would be beneficial, as they can ensure that it’s been done in a way that’s best for you.
For instance, we’d check the effect taking equity release has on any entitlement to means tested benefits, and discuss the amount you are looking to place into savings, as a drawdown plan may be a better option.
So yes, you can use some of the money to repay a mortgage on another property and use some to create an emergency fund.
If you are looking to repay a second home mortgage, you may also want to consider specialist equity release plans that are available exclusively for second homes.
We find that some homeowners with other properties prefer to take out equity release on their second/other homes rather than on the home they live in.
Having said that, the range of plans available and their features are far more limited than the lifetime mortgages for primary residences. Again, I recommend you speak to an adviser at Equity Release Supermarket to discuss your options.
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Question
Are there any alternatives to releasing a lump sum?
My wife and I are looking into the possibility of using our housing wealth to top up our pension income in retirement. We don’t want to receive all the money in one go, however, because savings rates are poor, and we don’t want a cash lump sum just sitting in our accounts.
Can we receive the money at monthly or regular intervals? Will this take into account any increase in our property’s value over time?
Answer
If you don’t want to receive your money from equity release as a single, one-off lump sum, then you have a couple of options, depending upon how regularly you want to receive your money.
If you are looking for the security and peace of mind of receiving a monthly ‘income’ from a lifetime mortgage then Legal and General currently offers a plan that pays a regular, monthly income. The money is paid into your bank account monthly and acts very much as a top up to your existing pension.
To qualify for this plan, the property must have a minimum valuation of £100,000 and the youngest age being 55 years to qualify.
You must also borrow a minimum initial amount of £2,500 to cover set-up costs and any initial lump sum borrowing can be up to a maximum of 10% of the total amount that Legal and General will lend you.
The minimum income payment is £200 per month and there are options to receive this over 10, 15, 20 or 25 years. Here’s a link so that you read more about income lifetime mortgages.
Another option would be to consider a drawdown lifetime mortgage. Here, once you have borrowed an initial amount of at least £10,000, the remainder of the total that the lender will offer you, is held in what’s known as a ‘cash facility’ by them. You are free to take money out of your cash facility as and when you want to without charge with each withdrawal typically being a minimum of £1,000.
The main advantage of a drawdown plan is that you are only charged interest on the amount borrowed and making a number of withdrawals over time can be an effective way of managing the interest accruing.
On your final point regarding your property increasing, as you always retain 100% ownership of your property under a lifetime mortgage, should your property value increase over the years, you can always reassess your borrowing in view of this.
There are many ways of generating income in retirement, and you should speak to a qualified adviser to find out the best options for you.
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