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Mark Gregory, Founder and CEO at Equity Release Supermarket
www.equityreleasesupermarket.com
Tel: 0800 802 1051
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Question
Can I release equity on a flat with a short lease?
I am after some advice on whether I may be able to proceed with equity release. I own a first-floor flat which is part of a Victorian house conversion on the edge of a commuter belt town. It’s valued at £350,000 and I own it outright.
There is, however, ground rent to pay as it’s a leasehold property and the lease is now 76 years, which I realise is not ideal from a selling point of view. How would this fare with an equity release lender? If I were to extend the lease, could I use some of the ‘released equity’ to do so?
Answer
The short answer to this question would be yes, however with a caveat in that it would be dependent on the age of the youngest person on the deeds.
The reason for this is that equity release lenders use formula’s for calculating whether a lease term qualifies for any of their plans.
For instance, Just Retirement offer a simplistic calculation in that they will only accept a leasehold property with a minimum term of 120 years. Others such as Canada Life, use a combination of a minimum term and age. Here, you need to meet the minimum term of 75 years, but at the same time when your age is added to this minimum term, the total must be at least 155 years.
Unfortunately, you haven’t provided an age at this stage. However, as your lease term has 76 years remaining, as long as the age of the youngest homeowner was 79+, then there would be lenders available to you such as Canada Life.
The amount you could borrow based on age 79, with a property value of £350,000 and 76 year lease would be on Canada Life’s smartER Platinum Plus plan with a maximum loan of £199,500.
As you can see, your current situation does restrict the number of lenders on the market, however as Equity Release Supermarket operate across the whole of the later life market, it allows us to offer a wider range of products.
The next step of the process would be to check how the products available to you now, would compare to those if you had your lease term extended – as this would bring extra lender availability.
We would then assess the total cost of extending your lease, both with your freeholder and the legal costs incurred. Taking this cost into account, along with the savings made on the new potential plan, we’d compare this against the best plan with your lease term remaining at 76 years.
Whichever option provides the most cost-effective option for you can then proceed with that recommendation. Another factor in all this would be speed, as extending a lease can take considerable time, so if funds are required in the short term, this should be factored in also.
Leasehold flats and maisonettes do have other features which need to be considered separately to just the lease term.
These would include accounting for the costs of ground rent and service charges, where most lenders imposed limits as a percentage of the property value. For instance, LV= allow a maximum of 2.5% of the property value for ground rent and services charges combined.
Other factors could be onerous clauses in leases that should be disclosed. These could include resale clauses, or sinking funds, also any age restrictions as to who can live in the property and even down to the number of storeys in the building and whether a lift is present or not.
As you can see, there are hurdles to overcome with leasehold flats and maisonettes. It’s therefore advisable to provide a copy of the lease to your equity release adviser who can then check for any potential issues before making any recommendations. This will save time in the long run, and best for all parties concerned.
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Question
Can I switch to a plan which allows voluntary repayments?
I understand I can now make voluntary payments on my equity release plan. I took out a plan five years ago which does not include this feature. Can I switch to a different product to allow for me to make additional payments?
Answer
With Equity Release, it is possible to make voluntary payments; however, this is only available with a Lifetime Mortgage and not a Home Reversion plan. For the benefit of this feedback, I have made the assumption that your existing plan is a Lifetime mortgage.
I can confirm that the Equity Release Council, the trade body that sets the standards for the equity release industry are celebrating their 30th birthday, and to mark their anniversary, they have adopted a fifth standard which states that all new Lifetime mortgage plans must allow flexible, voluntary payments. Therefore, if you remortgaged to secure a new Lifetime mortgage, the option to make payments is now a mandatory requirement.
However, before you consider remortgaging to secure a new fixed rate of interest, or to secure additional features, it is important to have your existing plan assessed by a specialist adviser to ensure that a new recommendation was bespoke to your personal circumstances. Furthermore, by re-mortgaging and changing your existing plan you may incur early repayment charges and lose other benefits.
Therefore, it is crucial that your expert adviser completes a full analysis of your existing plan to establish the positives and negatives of securing a new Lifetime mortgage before they make a recommendation for you to switch/remortgage to a new provider.
Here at Equity Release Supermarket, we have the adviser expertise, and we can provide you with a full analysis of re-mortgaging with no initial cost and no obligation. If your expert adviser makes a recommendation for you to secure a new plan, all costs will be confirmed in writing before you decide to proceed to a new application.
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Question
Family disagreement – advice needed
I hope you can help – I am not sure if this within your remit, but I would be grateful for any guidance. I am a widow, aged 78, and I am struggling with day-to-day living costs. I live in a large four-bed house which I rattle around in most of the time but which I don’t want to sell because I have three grandchildren who often come to stay, and it means they have a bedroom each!
The problem is, I would like to release some of the equity from the property to help with living costs. Things like the energy bills and food shop are going up but I also want to go on holiday with my friend. I started to look into equity release, and it seemed like a good idea.
My house is worth £800k so I could release £100k and still have plenty to pass on to my son and daughter. However, my son is really against me taking this course of action. He is worried I’ll lose all the money because of compound interest and that the equity release lender will own my home.
I would value some guidance on how to explain to him that I am not about to be fleeced! What can I do to convince him?
Answer
Thank you for your enquiry and thank you for confirming that you have considered and dismissed downsizing as one of the alternative options of raising capital from the equity in your home. This is because in theory, you could simply sell your home, downsize, and release equity naturally to provide the capital you need to support your lifestyle. However, it is a very difficult decision especially when you have three grandchildren who enjoy staying with you.
Your son is right to be cautious and I applaud him for ensuring that you think very carefully about raising capital from the equity in your home. Here at Equity Release Supermarket, we actively encourage family members to be present during client meetings, to provide support and guidance, and ask questions regarding any concerns that they may have.
I am often asked if equity release is safe, and I can confirm that equity release is regulated by the Financial Conduct Authority (FCA) and clear standards are set by the Equity Release Council (ERC).
With lifetime mortgages, you will always own your home and any increase in its value is yours. With a Lifetime mortgage, you borrow a lump sum that will attract a fixed interest rate for the entire term of the plan, and you decide if you want to make payments to service the interest, or you can let the interest roll-up, which will compound over your lifetime.
As an example, if you borrowed £100,000 and the interest rate was fixed at 5%, and you decided not to make any payments, the loan would double after 14.4 years.
Therefore, in theory if you lived for a further 14.4 years and then passed away or required long-term care, and your home did not increase in value, your family would sell your home for £800,000, repay the provider £200,000 and the sale proceeds would be distributed to your estate.
Some important things to considered include, you may live longer than 14.4 years, and the loan will continue to compound with interest. Furthermore, house prices can rise and fall, and your home could reduce in value, which would result in a reduction in any inheritance for your beneficiaries.
Here at Equity Release Supermarket, we have expert advisers who will assess your personal circumstances including your ability to claim means tested benefits, which could support your income. They will provide you with a personalised illustration and a suitability letter, and all meetings are completed without any charge or obligation, over the telephone, face-to-face or via video conferencing, and your family are encouraged to attend.
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Question
Can we get a later life mortgage if our children are still at home?
My husband and I are 60 and 62 respectively and we have decided we would like to release some equity to pay for some renovations. My husband was in the army and sustained an injury which means he is disabled so we are keen to wheelchair-proof the home to make life easier.
Currently both our children, aged 26 and 29, are both living at home. Therefore, we wondered if that might cause a hitch in equity release plans?
Answer
Thank you for your question, and yes it is possible to release equity from your home even though your children still live with you, and this will not restrict the availability of providers.
However, before I provide more detailed feedback, as an alternative to equity release, a disabled facilities grant may be available from your council, and this could be an option for you and your husband.
To clarify a disabled facility grant would allow you to make changes to your home, for example to widen doors and install ramps, improve access to rooms and facilities – eg stairlifts or a downstairs bathroom, provide a heating system suitable for your needs, adapt heating or lighting controls to make them easier to use. Further information can be found at https://www.gov.uk/disabled-facilities-grants
Regarding your specific question, with equity release it is important that you take Independent specialist advice, and here at Equity Release Supermarket, our specialist advisers encourage family members to be involved to provide their support. However, the choice is yours and their attendance is not mandatory.
During the advice process one of our expert advisers will explain to you that if you do decide to proceed with an application, your children would have to agree to leave your home when you have both passed away, or if you leave your home because you both need long-term care.
Before the application completes, your children would have to sign an occupier’s deed after first receiving independent legal advice from a solicitor of their choice.
This means that on your demise your children will agree to leave your home within a specific timeframe agreed with the provider. There will be an additional charge for this advice. However, our specialist advisers will be able to provide you with detailed information without any obligation.
When you have both passed away or left your home because you need long-term care, the house is usually sold, the provider receives their loan back plus interest, and any surplus equity is paid to your beneficiaries.
However, should your beneficiaries wish to keep the property, they could consider repaying the loan to the provider. This arrangement should be considered as part of the application process, and your expert adviser will discuss this in more detail with you.
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