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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
Where do I start?
I am in my 60s, a widow and although I have two children and a grandchild, I live alone. I am thinking about using equity release because – quite frankly – life is too short for my money to sit there doing very little. I would like to offer a bit of money to my children to help them out financially but I would also like to go on a cruise with my sister.
I noticed there are lots of companies out there offering advice and some are also offering equity release plans. I am totally confused about who to ask for advice in the first instance, and then how much I would need to pay them for this advice. What happens if I decide not to take out equity release? Would I still need to pay them a fee?
Answer
I understand perfectly that you don’t know where to start, because as you say, there are so many companies that give the impression that they can offer you equity release advice.
Sadly, many that advertise on search engines are not regulated by the Financial Conduct Authority (the FCA) and are not members of the Equity Release Council (ERC), the industry’s trade body.
So firstly, only consider speaking to a company that is regulated by the FCA and a member of the ERC. You can check membership of the ERC at http://www.equityreleasecouncil.com/member-directory/.
Secondly, you should seek impartial, whole of market advice and so speak to an equity release broker that is not tied to any particular lender and can search the entire market and find the right deal for you.
Equity Release Supermarket ticks all the boxes as we are regulated by the FCA, members of the ERC and are a truly impartial, whole of market equity release specialist.
You should also check whether the company you speak to charge any upfront fees, as the majority of equity release brokers will provide a free initial, no obligation consultation. Equity release brokers should only ask for their advice fee once they have done their job and your money has been released.
There are two ways advice fees can be charged; either as a percentage of the money released – subject to a minimum cost, or a simple fixed fee arrangement. Again, it’s all about shopping around to find the best deal for you.
Customers we speak to often prefer a more transparent and fixed advice fee arrangement, so they know exactly where they stand financially.
Again, Equity Release Supermarket ticks all the boxes. If you just want to find out more about equity release, then it is free to speak with one of our advisers and if you do decide to go ahead, our advice fee is guaranteed never to be more than £995 and only payable on completion of your plan.
You can find your local Equity Release Supermarket adviser here: https://www.equityreleasesupermarket.com/find-an-adviser
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Question
What’s the deal with compound interest?
My parents are talking about taking out equity release on our family home. I recently heard a podcast which warned against the effects of compound interest and now I am concerned we (my sister and I) will end up paying for this later on down the line. Is this likely? And if so, how can we reduce the chances of this happening?
Answer
The most popular types of equity release plans are called lifetime mortgages and the interest payable on the amount you borrow does ‘compound’ over time. For example, if your interest rate was 4%, using the ‘rule of 72’, it would take 18 years for the balance to double.
That said, lifetime mortgage plans now offer features which allow you to reduce the final amount to be repaid – just as you can with a residential mortgage.
Firstly, your parents could opt for an ‘interest-only’ plan. With these plans, interest charged by the lender is repaid monthly, therefore only the original amount borrowed needs repaying when the plan ends – which is either when your last surviving parent moves into long-term care, or has died.
There are many interest-only plans you can choose from. Some will require you to prove your income such as Retirement Interest Only mortgages (RIO’s), whereas others – Interest Only Lifetime mortgages require no proof of income. This is where specialist advice is important and a company that can look at all later-life lending products such as Equity Release Supermarket.
Alternatively, your parents could choose a ‘drawdown’ plan to reduce the compounding effect of roll-up interest. Here, the lender provides you with a ‘cash facility’ which you can then take an initial withdrawal from (subject to a minimum of £10,000).
Thereafter, the remaining cash facility can be borrowed against as and when your parents need it. The advantage here is that interest is only charged on the actual amount borrowed, not on money remaining unused in their reserve facility. So, the less your parents borrow, the less interest there will be to be repaid.
Finally, an increasingly popular and innovative way your parents can mitigate roll-up interest on their lifetime mortgage is choosing a ‘voluntary repayment’ plan. These lifetime mortgages allow ad-hoc repayments of between 10% and 15% of the original amount borrowed each year. This allowance comes with the added benefit of being penalty free and requiring no proof of income.
These could be ideal if your parents can’t commit to making monthly interest repayments, but may have extra money to do so from time to time.
As you can see, the equity release industry has innovated significantly over the last few years, providing flexibility and balance control where needed. All these options can help your parents to ‘design’ their own plan, and ultimately manage your inheritance accordingly.
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Question
Can I take out equity release if I have a mortgage?
My husband and I are very keen to help our son to buy his first property and would like to help him by paying for his deposit. One idea we are considering is equity release. However, we still have a couple of years left to run on our mortgage. Will we need to wait until 2021 or can we put the process into place now?
Answer
The great news is that you can take out an equity release plan if you have a mortgage outstanding on your property. However, it must be repaid using the amount you release. For example, in simple terms, if you borrow £100,000 and your outstanding mortgage is £30,000, then the actual amount you will have to help your son with the deposit on his first home is £70,000.
It is firstly worth speaking to your mortgage provider to understand the amount outstanding and if there are any penalties, such as early repayment charges, that must be paid if you want to repay your mortgage now. Alternatively, you could speak with one of the advisers at Equity Release Supermarket, who will be able to answer your questions in more detail.
You can find your local adviser here: https://www.equityreleasesupermarket.com/find-an-adviser
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Question
Downsizing or equity release?
My husband and I moved to our dream home 15 years ago, which was paid for fully with the proceeds of our previous home. Unfortunately, due to health reasons, my husband is finding it problematic to climb the stairs.
Therefore, we would like to build an extension on the back of our house to create a bedroom and wet room. Our savings and pension will not stretch to this, so we would like to explore the option of equity release. When we mentioned this to our son, he indicated he would rather we downsize, because he is not keen on us using his future inheritance to create a bigger home. We can see his point, by moving we could gift him some money and move to a smaller house, which would be easier for us.
However, we wouldn’t be as happy. We love our home. Is there a compromise? For your information, our house is worth £490k, we are both aged 70 and the estimates for the building work are approximately £75,000.
Answer
Downsizing is always an option to consider if you’re looking for ways to raise money in later life. That said, you also need to consider the costs associated – such as Stamp Duty, estate agents’ fees and moving costs – as well as the availability of suitable properties in your area.
You have previously experienced downsizing and will therefore be fully aware of the implications involved. However, it’s your decision as to whether to stay in what seems to be your dream home.
If you decide against moving home, equity release could be a solution as you could use the money raised to both build your extension and gift money to your son.
Based on your ages and property valued at £490,000, you could borrow up to a maximum lump sum of £220,500 (45% loan-to-value).
Depending on our husband’s health condition(s), this amount could potentially increase to £262,150 through an ‘enhanced’ lifetime mortgage after completing a health and lifestyle questionnaire.
Obviously, you don’t have to borrow the maximum available, but this shows that you are able to access more than enough money to both build your extension and provide your son with a generous gift.
It is also worth remembering that your extension may add value to your home and that over time house prices typically go up. If this does happen, then your son is still likely to inherit a significant amount of money.
If your son is concerned about his inheritance, it’s always worth discussing the options lifetime mortgage plans offer that can help protect this. There are repayment options and inheritance protection features that can guarantee a percentage of the property remains upon eventual repayment.
Therefore, sitting down with an equity release specialist and discussing your requirements with your son present, would always be something we’d recommend. That way, all parties can air their views are be aware of the options available.
You can use our free calculator to see how equity release and rising house prices affects the value of your estate: https://www.equityreleasesupermarket.com/calculators/equity-remaining
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