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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
Advice needed on switching deals
I am paying 6.6%. Now rates are a lot lower and was wondering if I could change to another company?
Answer
Having been an adviser now for over 20 years, I’ve had plenty of experience remortgaging many older lifetime mortgage plans away from the higher interest rates they used to attract. Switching lifetime mortgage plans can be done for a number of reasons, not just for a lower rate, although this is the most popular reason.
The first thing to do it to assess whether it’s in your best interest to change plans by conducting a comprehensive ‘switch analysis’ exercise. This basically studies your existing plan – interest rate, current balance, any early repayment charge, closing admin fee and its existing features.
We would then calculate how much capital is needed to set up the new plan. For instance, we need to account for the set up costs of the new plan (application, valuation, legal and advice fee – where applicable), exit penalties from the old plan and we add two months interest as an estimate of how long it would take for the new plan to start.
We would then consider any features or benefits that you may be losing from your existing plan and then complete an in-depth personal questionnaire, where we’d establish what features you require in the new plan. Armed with this information, we would then conduct our research from the whole of the market to find which lifetime mortgage plan could offer the amount and features required – at the best interest rate available.
Our analysis tool will then compare both plans and establish the break-even point – this is where it becomes profitable for you to switch plans. As long as this period was reasonable and fits with your age and future life expectations then you could proceed with a switch to a new company and product.
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 full switch analyses, and check whether it would be in your interests to move your plan to a new lender.
As you can see, there is more to switching than just finding a better interest rate. Newer plans have many more features than previous such as downsizing protection, voluntary payments, inheritance protection, fixed early repayment charges and 3-year no ERC window on death/long term care for joint plans.
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
Getting equity release during the pandemic
I wondered if it’s possible to take out equity release in the current environment. I am in the shielding group and therefore am reluctant to leave my house and I certainly cannot have anyone to visit.
I know I must get some kind of advice before proceeding. Will I need to wait until the pandemic is over – whenever that will be? Or is there another solution?
Answer
As the Government is slowly relaxing lockdown and social distancing measures, the equity release industry has now returned to its usual working practices, which were in place before restrictions were imposed.
In reality, that means advisers are now able to provide face-to-face meetings, surveyors are able to make home visits to access the market value of your home (on behalf of the lender) and solicitors are again able to hold face-to-face meetings with their clients.
Depending on your personal circumstances you may want to continue shielding until 31 July (please visit https://www.gov.uk/government/publications/guidance-on-shielding-and-protecting-extremely-vulnerable-persons-from-covid-19/guidance-on-shielding-and-protecting-extremely-vulnerable-persons-from-covid-19 for more information).
Regardless of your situation, we are able to help you at Equity Release Supermarket. Our award-winning advice can be provided over the ‘phone or via a video application such as Zoom.
We can arrange for your solicitor meetings to take place remotely. Providers will instruct an independent valuation of your home and these can be done either semi-automated, via a desktop process or with a physical valuation.
in-line with government guidance at that time.
I’d recommend that as your next step, you speak to an expert adviser at Equity Release Supermarket by telephoning freephone 0800 802 1051. They will be able to talk through how we can help you at this difficult time.
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Question
Releasing equity on a buy-to-let
I have a buy-to-let property which I am living in at the moment (it’s a long story) and I am using a buy-to-let mortgage to repay the loan.
I have recently become unemployed due to the pandemic. I am not eligible for a mortgage holiday and cannot afford to switch to a residential mortgage as my interest-only rate on the buy-to-let is just about manageable.
Someone suggested equity release or a retirement interest-only mortgage might be a good solution. I am 56 and single so there are no other family members to consider. Would these be a viable option?
Answer
A requirement of a retirement interest-only (RIO) mortgage is that you are able to pass the lender’s affordability criteria and prove that you are able to meet the monthly interest repayments both now and in the future.
As you are currently unemployed, then it may not be possible to secure a RIO mortgage unless you are in receipt of any retirement income. If you are in receipt of retirement income one of our expert advisers will help you with the choices and options you may have.
As you are living in the property, you may be eligible for a lifetime mortgage and a lender would consider this to be your main residence.
You can use a lifetime mortgage (the most popular type of equity release plan) to firstly repay your outstanding buy-to-let mortgage and then any funds left over are yours to spend as you wish.
The caveat here is that I don’t know what your outstanding mortgage is or indeed the value of your property. As you are 56, the maximum you could borrow with a lifetime mortgage is 28% of the value of the property. If your outstanding mortgage is greater than this, then a lifetime mortgage wouldn’t be an option for you as all lenders stipulate in their terms and conditions that any outstanding mortgages must be firstly repaid with the money released.
Let’s assume that a lifetime mortgage meets your needs.
You then have to consider the type of plan that best fits your financial goals. As you are single without any other family members, then a lump sum plan may suit you.
That’s because there are no monthly repayments to make, and the amount borrowed, and accrued interest are repaid when your plan ends – that is when you die or move into long term care.
If your situation changes in the future, and you find employment, then the majority of lifetime mortgages now come with the option to make voluntary payments.
This means that you can usually pay anything up to 10% of the original amount borrowed every year without penalty. That way, you can manage the balance as you see fit, and the plan is flexible enough to meet any change of circumstances in the future.
If, in the future, you let the property out and vacate it again, you will need to inform the lender. At this point, your lifetime mortgage will need to be transferred to a buy to let lifetime mortgage and an early repayment charge could be payable.
The size of the charge will depend on how many years your lifetime mortgage has be in place for. Transferring to a buy to let mortgage will also reduce the amount you can borrow against the property (the LTV) and so you will need to make sure that a buy to let lifetime mortgage can accommodate the size of the loan, otherwise letting out the property in the future won’t be an option for you. Please note that changing plans and providers would also incur set up costs as you would need to take advice.
This may sound complicated and so as a next step I recommend you speak to an adviser at Equity Release Supermarket by telephoning freephone 0800 802 1051. They will be able to talk through your lending options and find a solution that’s right for you.
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