The Question
I’m writing on behalf of my parents who have an equity release plan on their home but, unfortunately, have become quite frail recently and are a bit confused about the terms.
They took the plan out around seven years ago through Key and a few years later they made some upgrades. This included new doors (front and back) plus French windows and new windows throughout. I think these will have added quite a bit of value to the house.
But my parents are now saying they think they weren’t allowed to make these upgrades under the terms of the loan and so they won’t gain the accumulated equity when the house is eventually sold.
This doesn’t sound right to me… what are your thoughts?
Mark’s Answer
Thank you for your question and I am sorry to learn that your parents are becoming quite frail and confused with their equity release plan.
At this stage of your enquiry, I would like to provide you with explicit details about their options; however, I am not able to do so without knowing what type of equity release plan your parents have.
There are two equity release plans which include a Lifetime mortgage and a Home Reversion Plan. With a Lifetime mortgage, your parents would retain 100% of their home and secure a mortgage. The mortgage would have a fixed rate of interest for the rest of their lives or until they leave the home to enter long-term care.
The loan will increase with compounding interest unless they have serviced the mortgage by making voluntary monthly or Adhoc payments. They retain ownership and any growth in the value of their home will potentially offset some of the compounding interest.
Following their passing, or entry into care, the home is sold by the executors of their estate and the provider will be repaid the mortgage and any interest. The remaining equity will be available for the beneficiaries and shared according to their Will or to pay for their care. I can confirm that Lifetime mortgages equate to 98% of all equity release plans advised and recommended.
With regards to the comments about the home improvements, I don’t concur with those comments about the lender as, at the end of the day, the property will be sold at the best open market value you can obtain, regardless of what the lender says can be included.
Alternatively, your parents may have a Home reversion plan where they may have been advised to sell a share of their home or all of their home in return for a cash lump sum and there is no interest with this plan as it is not a loan.
They would be able to live in their home for the rest of their life or until they need care. Once they have both passed away or entered care, their home is sold, and the provider would either receive their share of the equity that your parents sold to them or all of the equity if your parents sold all of their home.
Thank you for confirming that your parents took advice from Key and as brokers who provide advice, my understanding is that they will have presented your parents with a Key-facts illustration regarding the plan they recommended, and a suitability letter.
Furthermore, the provider will have made your parents on offer, which is very similar to a Key-facts illustration, and your parents may have saved these documents in their home. Here at Equity Release Supermarket we have a customer portal where all documents are stored safely, though I can’t be sure if Key hold a record of your parents’ documents.
Therefore, my advice would be to ask your parents if they have any documentation from the time they applied for equity release or they should receive an annual statement from the provider with details of their plan and your parents may have saved this in a secure place.
Alternatively, one of our specialist advisers, with your parents’ consent, could explain and help you understand their plan and their options. Another option is that your parents could contact Key directly as they may have a record of the documentation from several years ago.
Alternatively, your parents could provide one of our friendly advisers with a letter of authority/consent to approach the provider on their behalf to get explicit details about their plan.
Our advisers can be contacted directly without having to go through a call centre on 0800 802 1051 or via our free Livechat facility on our website www.equityreleasesupermarket.com
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
