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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
Can I release equity on a home I own but don’t live in?
I wonder if you can help me with a financial matter, please. I own two properties – my own home, which is also our ‘family home’, where the children grew up, and my daughter’s home.
My daughter’s home is a flat in South London, which is situated a half-an-hour’s walk from the centre of the capital. I have owned it for years and therefore the value has rocketed. I rented it out for some time and then, two years’ ago, when my daughter gained employment in a London law firm, it made sense for her to live there.
I now find myself in a situation where I am property rich and cash poor! I have all this money tied up in the London property and my daughter is blissfully happy there and doesn’t want to move. So, I wondered if I could use some of the equity to pay for some work on my own home and also to fund a trip I wish to take to America later next year.
My daughter lives rent free. She has a lodger who pays her some rent and which she uses for bills and puts into savings. I have no wish to deprive her of this income.
Thanks so much for your advice.
Answer
Thanks for your question and let me answer this in two parts – your property resided in by your daughter, and your own main residence.
As I have limited information on your ages and property values I will discuss this generically.
Assuming you are over the age of 55, there are lifetime mortgages designed for the buy-to-let market. However, the rules state they cannot be let to a family member – hence this would rule this option out from a later life lending perspective.
My advice on your daughter’s property, would be to contact a buy-to-let mortgage specialist to ascertain whether any standard buy-to-let lenders would consider this scenario.
The alternative option is to consider your own main residence to raise the funds required for your home improvements and trip to America. In fact, the good news is this may work out cheaper than the buy-to-let alternative as the interest rates on your main residence could be lower.
As I have no figures relating to your property value or the amount you are looking to release, I will have to provide some examples of what may be available – assuming age 60, property value of £500,000 and as an example looking to release £40,000.
Under such a scenario you could obtain a lifetime mortgage with an interest rate fixed for life as low as 2.46% MER (2.54% APR). If you wanted to take a lower amount initially, you could take the plan as a drawdown, whereby as and when bills become payable you can then release additional money, rather than being charged interest on the whole £40,000 from Day One.
Additionally, if you wished to service any, or all of the interest, you can make voluntary payments of up to 10% of the amount borrowed each year, with no proof of income to help manage the future balance.
As you can see there are many options with lifetime mortgages that can be tailored to suit your future plans. As always we would recommend you speak to one of our later life specialists here at Equity Release Supermarket.
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Question
Can I switch to a retirement interest-only mortgage
Hello there – I would be grateful for some advice on retirement interest-only (RIO) mortgages. I am currently on an interest-only mortgage, which I have been on for a number of years.
Someone mentioned RIOs were a good option for people like myself, who are nearing retirement, as a way to make my repayments more manageable when I stop work. My pension income won’t be that great.
Can you please explain how they work and if I might be eligible? I am 64, live with my wife who is 62.
Answer
Retirement interest-only (RIO) mortgages were specifically designed for people like yourself who have an existing, residential interest-only mortgage and want to carry that on into retirement and continue to make monthly interest repayments.
In reality, RIOs work in the same way as your current interest-only mortgage in that once arranged, you continue to make monthly interest repayments to the lender – just as you do now.
One of the main benefits of a RIO is that they work in the same way as equity release (or lifetime mortgages) in that the amount borrowed doesn’t have to be repaid until the last borrower dies or moves into long-term care.
So, you would no longer have to worry about repaying the amount borrowed during your lifetime.
You mention that a RIO could make your repayments ‘more manageable’ but I have to offer a word of caution here as your monthly repayments will be determined by the interest rate of the mortgage, the length of the term of the deal and the amount you want to borrow.
The other main benefit of a RIO (as opposed to a lifetime mortgage) is that the amount you can borrow is potentially much larger.
At your age it could be up to 75% of the value of your home. With a lifetime mortgage it would be 38.3% (as your wife is 62 and lenders use the age of the youngest borrower).
My main concern with your ability to qualify for RIO mortgage is that you mention that your pension income ‘won’t be that great’.
This is a challenge we routinely face with RIO mortgages because they are residential mortgages and that means that lenders apply their own, individual qualifying criteria. You must be able to prove to the lender that your income is sufficient to continue to make your monthly interest repayments.
This applies not only now, but in the years to come when you are retired. You must also be able to prove that should anything happen to you, that there is enough income for your wife to continue to meet the monthly repayments (or vice versa).
This is simply because as a RIO is a residential mortgage, there is always the possibility of repossession should you fail to repay it.
As your pension is limited and you are looking for extra money in retirement, then I would suggest that you also consider a lifetime mortgage (the most popular type of equity release plan).
Lifetime mortgages work by allowing you to borrow a percentage of the value of our home (as previously mentioned that would be a maximum of 38.3% in your case) and once your current mortgage has been repaid with the amount borrowed, you are free to spend your money on what you want.
There are an enormous range of plans to choose from – which means it is simple to find one that needs your specific needs – such as an interest-only lifetime mortgage – where you could continue to make monthly interest repayments with only the initial amount borrowed to be repaid when your plan ends.
The beauty of a lifetime mortgage is that lenders do not assess your income and outgoings. So, you don’t have to be able to repay a lifetime mortgage (although there are options to enable you to do that).
As a next step I suggest that you speak to an adviser at Equity Release Supermarket who will be able to discuss your financial situation and find the right solution for you.
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Question
Maximum age limit for equity release
Please can you advise on the maximum age one can apply for equity release? I am 84 and my wife is 79.
Answer
Lenders take different approaches when it comes to the maximum age of an applicant they will accept. Some of the big brand names in equity release, such as Aviva, don’t have an upper age limit but others do, and this tends to be 85 to 90.
Lenders always use the age of the youngest applicant to determine how much they will lend and as your wife is 79 you will have access to most of the plans from all the providers.
Our helpful comparison tables have plenty of product information regarding interest rates and the maximum ages for you to consider
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Question
Home reversion plans: How do they differ from equity release?
I have been looking into what I thought were home reversion plans and equity release keeps emerging in my searches! I wondered if there was a difference and if so, what these differences are?
My husband and I are both in our 70s and hoping to release around £100k from our £580k property but I currently feel a little confused about our options as there do appear to be a huge array of products out there.
Answer
There are two types of equity release plan available. One is called a lifetime mortgage and the other is a home reversion plan. Lifetime mortgages now account for over 99.9% of the equity release market and so it is not surprising that you are finding it difficult to research home reversion plans. Plus, they are only offered by one provider – Crown.
Here’s a link to our website where you can read about home reversion plans at your leisure.
To summarise, they work by you selling a percentage of the value of our home to the provider and in return they give you a cash lump sum and a lifetime tenancy to enable you to continue to live in your home. Upon your death (or move into ling term-care) the house will be sold with proceeds being split in accordance with the percentages originally agreed with the lender. Any money left will then be shared amongst the homeowner’s beneficiaries as an inheritance.
Home reversion plans were the forerunners of today’s much more sophisticated and flexible lifetime mortgages. As you rightly point out, there is a huge range of lifetime mortgages available enabling you to tailor one to your specific needs, both now and in the future.
Here is a link where you can read more about lifetime mortgages.
They work very simply by enabling you to borrow a percentage of the value of your home. Your home remains 100% yours, there are no monthly repayments to make (unless you want to) and the initial amount borrowed plus accrued interest is repaid when the last surviving partner dies or moves into long term care.
The lender is then repaid (usually through the sale of the property) with the balance passed to your beneficiaries as an inheritance.
For a homeowner aged 75, you could borrow up to 51.7% of the value of your home. For you, that would be approximately £239,888 (as I don’t know your exact ages) which is considerably more than the £100,000 you had in mind.
There can appear to be a bewildering choice of lifetime mortgages and so I’d recommend you have an informal chat with one of our expert advisers. You can find your local adviser at Equity Release Supermarket or call us on 0800 802 1051. We’d be more than happy to help you and there would be no cost to you to talk through your options.
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