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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
Confused: Father’s application was turned down
Is there any reason why equity release applications might turned down? My Father is quite old – 78 – and has dementia. He had a meeting with an adviser who suggested equity release would not be suitable for him because of his vulnerability and now they have suggested a meeting is set up involving me to discuss options.
I am quite shocked as I assumed he would be able to release the money he needs to make improvements to his home. Surely the adviser wants his business!
My dad lives in London and I am in Hong Kong so it’s tricky to put the pieces together. Can you advise?
Answer
The equity release industry takes its responsibilities towards Treating Customers Fairly very seriously and the adviser your father saw was right not progress with the application, due to your father’s dementia.
At Equity Release Supermarket we have a Vulnerable Customer Policy, and all members of our staff must undertake annual training to ensure that they are aware of, know how to recognise and the appropriate course of action to take when dealing with a potentially vulnerable customer.
Given your father’s condition, he may not have the mental capacity to make informed decisions for himself and with equity release being a big financial step with potential risks and implications, the correct outcome was not to progress.
The equity release industry isn’t driven by the desire to make money, but by providing our customers with the highest level of financial advice and finding the financial solution that is right for them – which includes advising against equity release.
The adviser was also correct to ask for a meeting with yourself to discuss the next steps. For example, if you hold a Lasting Power of Attorney for your father’s financial affairs then it may be possible to progress with equity release for your father, with you legally making the financial decisions for him.
However, it is firstly important that you speak to the adviser so that they can fully assess the situation and then make their fully documented recommendation based upon the facts. Here’s a link to an article on our website which discusses equity release and Lasting Power of Attorney – https://www.equityreleasesupermarket.com/news/details/how-equity-release-and-power-of-attorney-can-work-in-tandem
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Question
Loan or equity release? Help needed with financial conundrum
Our house is in complete disrepair. Unfortunately, since my husband had a stroke three years ago, we have let the DIY, decorating – everything – slip! So we decided to get a loan to pay for the work to be done by a professional.
I spoke to the loan company and because of the amount of money we need to take out and our small retirement income we would be making the repayments for a number of years. It was such as shock. My husband also feels very uncomfortable about the idea of having debt at such a late stage in our lives.
Then someone mentioned equity release – which sounds great on paper. This would mean we are not making onerous monthly repayments and we would be using money which is already ours! But what are we missing? Is there some hidden fee or are we going to lose our house? I would value some advice and guidance on how it compares to the straightforward loan.
Answer
Many older people find it difficult to secure personal loans and they are not always suitable given that, as you say, the repayments must be made monthly and this can be difficult with a small retirement income, putting yourselves under financial pressure that you simply do not need to do in later life.
What’s more, you also have to pass the lender’s credit checks as part of your application. On the flip side, the advantage of a personal loan is that you know exactly how much you are paying each month, when the loan will end, and they tend not to have fees associated.
You have many other options to consider when borrowing money in later life and equity release is certainly one of them.
With equity release, you borrow a percentage of the value of your home. For example, if your home is worth £300,000 and you borrow 20% of its value – then you receive £60,000. Equity release is so popular because it has several advantages over other forms of borrowing. For example –
• there are no credit or affordability checks to pass
• you don’t have to make any form of monthly repayment (though there are many flexible ways you can do this)
• you home is always 100% yours – so you don’t need to worry about ‘losing your house’
• your money is tax-free and yours to spend as you wish.
The main thing to consider with equity release is that if you choose not to make any repayments, interest will accrue and compound over time which means that your estate will repay considerably more than you borrowed.
For example, if you borrowed £60,000 at a rate of 4%, it would take 18 years for the total amount to be repaid to double to £120,000. Over time, it is likely that your house will increase in value, which could effectively ‘off set’ some of the interest to be repaid.
As you mention, there are also fees associated but these are very much in line with what you would pay during the purchase of a property – such as a valuation fee, solicitor’s fees and the fee for the financial advice you receive. Here are a couple of links to the Equity Release Supermarket site, so that you can read more about equity release –
https://www.equityreleasesupermarket.com/plans/lifetime-mortgages
https://www.equityreleasesupermarket.com/what-is-equity-release/how-it-works
There are also other mortgage options to consider in later life. These are retirement interest-only (or RIO) mortgages and retirement mortgages.
As you mention that you have a small retirement income, these options may not be suitable for you as they both involve making regular monthly repayments. These could be of just the interest accruing on your mortgage or the interest and some of the capital you borrowed. I won’t go into the detail of these options here as I’ve provided links to webpages on our website which you can read at your leisure.
I recommend that as a next step you speak to a specialist, such as one of our independent advisers at Equity Release Supermarket.
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Question
Worried about inheritance tax
I am a widow and I have three children and four grandchildren (at the moment) and I would like to gift some of the wealth tied up in the family home to them. There are two reasons for this – my eldest children have families and want to buy a property and my youngest will need to get on the ladder at some point. Therefore I want them to have the cash now – so I can see them enjoy it, I don’t want them to wait till I die to fulfil their dreams.
But, here’s my one concern – will the gift still be liable for inheritance tax if I die in the next few years? And, if so, can I arrange for some equity to remain in my home to pay this in the event it might happen? Your advice would be gratefully received.
Answer
Equity release is an increasingly popular way to provide a ‘living legacy’ for loved ones, as you can see them benefitting from some of your inheritance now, which can be very rewarding.
Any money you release (through equity release) is tax-free and yours to spend as you wish. There are no immediate tax implications of gifting large amount of money but there may be for the recipients of the money, depending on what they choose to do with it. For example, if they were to make any income from the gift, it may be subject to Capital Gains Tax.
The current rules are that once your estate is worth more than £325,000, then it is subject to Inheritance Tax (IHT). You mention that you are a widower, but I don’t know if you have transferred your late husband’s allowance – which could boost the value of your estate to £650,000 before IHT becomes liable.
Whether the gifts to children and grandchildren are liable to IHT does indeed depend on how long you live for after these are made. If you were to take out equity release, make monetary gifts and then die within 7 years, IHT would be payable. After 7 years, IHT isn’t payable on the gifts, and they are no longer considered part of your estate for IHT purposes. If you die within 3 years of the gifts being made, 40% tax is payable and between years 3 to year 7 it is on a sliding scale, reducing annually.
Here’s a link to the Money Advice Service where you can read more about IHT and gifting –
https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-from-inheritance-tax
There is a feature of equity release called Inheritance Protection Guarantee (IPG) – which ring fences a percentage of the value of your home – which your beneficiaries are then guaranteed to receive when you die or move into long term care (which is when your plan becomes repayable). That said, IPG does reduce the amount you can borrow through equity release. For example, if you were to use IPG to ringfence £100,000 of the value of your home, the lender would then only consider lending on £300,000 (if your home is worth £400,000).
However, this feature of equity release does not help you with your estate planning and mitigating IHT as the total value of your estate is considered for IHT purposes – which will obviously include the money you have ringfenced for your beneficiaries through an Inheritance Protection Guarantee.
Estate planning is a complex subject, and you may require specialist tax advice to help you with this. As a next step, I recommend that you speak to an adviser at Equity Release Supermarket so that we are better able to understand your financial situation and advise you accordingly.
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Question
Checking out credentials of equity release firm
I wondered if there’s a register where I can check the qualifications and credentials of equity release advisers and potential lenders, please?
My daughter says I can check with the FCA, but I can’t find what I need and I don’t like using the internet. Is there someone I can call – like Companies House – to put my mind at rest?
Answer
While Companies House will tell you if an organisation is incorporated or dissolved, they won’t be able to give you any guidance as to the credentials of an equity release adviser.
The FCA has recently updated its register recently to include the firm and its advisers here – https://register.fca.org.uk/s/. You can search by firm name or adviser name and with the recent update this now includes mortgage advisers. It’s always worth checking that the company you are speaking to have the appropriate permissions to advise on equity release
Additionally, the equity release industry trade body, the Equity Release Council (ERC), has a register on their website where all lenders and advisers who are members of the ERC are listed.
You should only consider an adviser or lender that are a Council member and the link is – https://www.equityreleasecouncil.com/find-a-member/advisers/
I appreciate that you don’t like using the internet, but it is the simplest way to find the information you want, and I hope that your daughter (or a friend or other family member) will be able to help you. Alternatively, here are the telephone numbers for both the ERC and the FCA –
Equity Release Council – 0300 012 0239
Financial Conduct Authority – 0800 111 6768
All our advisers at Equity Release Supermarket (which is regulated by the FCA) are all members of the Equity Release Council (as are Equity Release Supermarket) and on our website we provide all their qualifications and a biography of each adviser – so that you can see who is advising you and learn a little bit about them – https://www.equityreleasesupermarket.com/find-an-adviser
Of course, you can always telephone us on 0800 802 1051 and we’d be delighted to help you.
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