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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
What is the Equity Release Council and how can they help me?
I have been looking into the possibility of either downsizing or taking out equity release and I am incredibly nervous about the latter but, equally, quite tempted because I really don’t want to move out of my beloved family home.
Someone told me there is an organisation called the Equity Release Council which acts a bit like a regulator for this industry. Could I approach them for help, are they independent and would this be the best course of action for someone who is really quite anxious?
Answer
Firstly, I’d like to reassure you that there’s really nothing to be anxious about when considering equity release.
It is a big financial decision and that’s why at Equity Release Supermarket we believe in giving our customers the time they need and always encourage them to include their families in the process.
Firstly, with regards to consumer protection, lifetime mortgage schemes have been regulated by the Financial Conduct Authority (FCA) – formerly FSA – since October 2004. This ensures all schemes are fully regulated and therefore, should a complaint arise, the Financial Ombudsman is available.
Secondly, the Equity Release Council (ERC) – formerly Safe Home Income Plans (SHIP) – is a voluntary trade body which has been in existence since 1991. The ERC was formed to provide extra safeguards by ensuring equity release providers, solicitors, advisers and relevant trade associations adhered to a voluntary code of conduct.
The ERC also has a Standards Board to ensure equity release products are safe and reliable for consumers.
The ERC has set standards for the industry whereby all products should meet specific criteria. These standards cover areas such as interest rates, the ability to remain in your property for life, the right to move and port your plan, and finally the ‘no negative equity guarantee’ which ensures no matter what, you can never leave a debt that is greater than the value of your property – on death or long term care.
Because the ERC works closely with advisers and lenders, there are now an enormous range of flexible plans to choose from, which are designed to meet your needs both now and in the future. That doesn’t have to be equity release, as there are other ‘later life lending’ opportunities including retirement interest-only (RIO) mortgages and retirement mortgages to consider.
We are also always open and transparent with our customers and if later life lending isn’t right for you and we feel that another option, such as downsizing, would better meet your needs, we’ll tell you.
You should feel under no financial obligation to have a chat with anyone about equity release. Here at Equity Release Supermarket, we always allow our clients to take their time in making such a big decision. In fact, we don’t charge you anything until your plan is complete and you have received your money.
Equity Release Supermarket are long standing members of the ERC and all of our advisers are members and importantly two of our senior team also have positions on the Standards Board and Committee at the ERC.
The Council will not be able to provide you with any help in deciding if equity release is right for you or in providing you with advice, but their website does list all the members of the Council: https://www.equityreleasecouncil.com/find-a-member/advisers/
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Question
What exactly is a RIO?
I have happened upon your website in my search for a later life mortgage and I am intrigued by the retirement interest-only option. Can you please explain in layman’s terms what it is and how it works? I am 65 and own my own property but keen on this avenue as a way of releasing equity…. Would it be suitable?
Answer
Retirement interest-only (RIO) mortgages have been around in various guises for some time, however in 2018 the Financial Conduct Authority (FCA) relaxed the rules on them, making them accessible to a wider range of people.
As the name suggests, they are interest-only mortgages designed for those in, or near to retirement. The earliest RIO plans can start from is age 50, however the majority of lenders have a minimum starting age of 55.
Every month, you must repay the interest accruing on the amount you borrowed. You don’t repay any of the capital (the amount you first borrowed), instead the capital amount is repaid when you die or move into long term care – usually through the sale of the property.
There is no specific term or end date attached to RIO’s – they basically run for the rest of your lifetime.
RIOs differ from lifetime mortgages (equity release) in one key respect, and that is that they are actually residential mortgages – and work in the same as the previous mortgage you had on your property.
The downsides of this are two-fold. Firstly, you must pass the lender’s affordability and credit checks. If they feel that you don’t have the retirement income to meet your repayments both now and in the future, they won’t lend to you. If you have a partner, this also applies to them, as lenders will assess affordability on the lowest income to ensure they could afford the mortgage in their own right.
As RIOs are residential mortgages they also come with the ‘wealth warning’ of these types of mortgages. If you can’t meet your monthly repayments, then the lender has the right to repossess your home. They would only consider this in extreme circumstances, but it is a reality that you should be aware of.
Neither of these exist with lifetime mortgages – there are no affordability checks to pass and you cannot be repossessed for non-payment.
The major advantage of a RIO over a lifetime mortgage is the amount you can borrow. RIOs lenders offer up to 75% LTV – i.e. you can borrow up to 75% of the value of your home, subject to income. Whereas at 65, with a lifetime mortgage, you maximum you can currently borrow is 40%.
And the final consideration is that with RIOs, the interest rate you pay isn’t necessarily fixed for life (as they are with lifetime mortgages) and so your interest repayments may go up (or down) in the future. If the RIO has a fixed term of interest (such as five years), and you wished to switch to a new lender or product, there will be additional set up costs.
As with lifetime mortgages, RIO’s are sure to evolve and we are starting to see this with new lenders such as Livemore and Legal & General entering the RIO market with lifetime fixed rates and flexible features. The growing portfolio of RIO mortgage products can be found here on our website.
Whatever your financial goals in later life, I’m sure that we’ll be able to find a financial solution that meets you needs and so as a next step, I recommend that you speak to your local adviser who will be able to chat through your options at your leisure.
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Question
Equity release on a second home – can this be done?
We currently own two properties – the home in which we live and a ‘second home’, which is in a UK holiday hotspot and which we rent out to family and friends and sometimes use ourselves.
We would like to release some cash for our son’s wedding and to provide him with a deposit for his first house. Everyone keeps telling us to sell our seaside home, but we really don’t want to. Firstly, it’s such a lovely place to escape to and then when we (hopefully) have grandchildren we would like them to enjoy the benefits of this property.
We wondered whether, instead, we could release some of the equity on this property? We own both this and our main residence outright. However, would we be liable for any taxes for releasing money on a second home for which we sometimes profit?
Answer
The good news is that, yes, there are a small number of lenders that have designed specific equity release plans for those with second or holiday homes.
The choice is far smaller than with a lifetime mortgage on your main residence and lenders also put in place a number of caveats that must be met to satisfy their lending criteria.
For example, Canada Life, defines a second home as a property that must be available for the sole occupancy of the owner, or allowed to be let-out for a maximum of four weeks consecutively.
The property must also be used by the homeowner for a minimum of four weeks every year and have no formal agreements or assured shorthold tenancy agreement in place (i.e. you are not letting the property out).
A holiday home shouldn’t be advertised as such and must not have any prominent signage indicating any lettings status.
As you indicate that you allow friends and family to rent the property, it may not meet the lender’s requirements.
It’s also worth pointing out that the interest rates on second home lifetime mortgages are higher than those available for residential lifetime mortgages and the amount you can borrow is less, but we do find that some customers prefer to borrow against their second home, to keep their main home ‘mortgage free’.
All the money you borrow with a lifetime mortgage (whether residential or second home) is tax free, but what you choose to do with the money may not be. As a next step, I’d recommend that you speak to your local Equity Release Supermarket adviser who will be able to talk through your lending options and find the right solution for you.
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Question
Getting a valuation on my home
I am looking into getting my house valued by three local estate agents in advance of contacting an adviser about equity release. I wondered whether this would provide sufficient information, or if I might need a full survey conducted by a surveying firm. Can you advise please?
Answer
The only reason I would suggest getting a valuation done prior to contacting an adviser, is to give you an indication of how much the property is worth, if you haven’t got an idea at present.
The usual reason for obtaining a property valuation, is so that you can gauge whether you could release sufficient funds via equity release in the first place. This amount is a combination of the age of the youngest applicant, location and the property value.
If you want to get an idea of the value of your property, it may be worth looking at any of the online estate agent websites to see how much similar property in your area have recently sold for – but only use this as a guide.
Once you have the valuation figure, you can then use a simple equity release calculator to establish whether you can raise enough for your requirements.
Therefore, I wouldn’t recommend incurring any expense in getting your house valued before you look into equity release, as many estate agents – online or offline would be willing to give you a figure for free.
Additionally, as part of the equity release application process, the lender you apply to will instruct their own valuer and on this valuation, they will decide the final amount that they are prepared to lend to you.
If they felt a structural survey was required, which is rare, the lender will inform you and your adviser can help guide you in the right direction, which is all part of the service they should provide.
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