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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
Can I move home after taking out equity release?
My partner and I are about to embark on our journey to take out equity release on our family home. I understand the equity release loan is repaid upon either death or moving to residential care but how does this work if we decided to sell our current home and move on?
Any advice on this would be gratefully received.
Answer
The big question I would have to ask based on your question is – if you did decide to sell up and move on, what are the circumstances of this move?
This would have a large bearing on what advice we would offer you.
For instance, if you sold and moved on, would this be due to downsizing, moving to another property for mobility reasons e.g. bungalow, moving in with family e.g. with son/daughter or even relocating to the coast/countryside – which has increased in popularity during Covid-19?
We encounter many such scenarios and all warrant different forms of advice and product recommendation.
Let’s have a look into these in more detail…
May I firstly point out that we only advise on plans that are fully portable, as that is one of the standards of the Equity Release Council. This means that your plan can be transferred across to your new home as long as your new property continues to meet the provider’s lending criteria.
Therefore, if you are just relocating and moving to a similar valued property, you can just port your existing deal over. There could be some fees involved such as valuation and maybe application fee, but these can vary between lenders.
If you are actually downsizing, then you can still port your plan, subject to criteria, however the lender will need to ensure the amount of your ported loan fits within the loan-to-value on the new property.
Here’s a simplified example of how this works – you’re age 65, with a property value of £300,000, loan of £90,000 and considering downsizing to a property value of £200,000.
Typically with this lender, at age 65 you could borrow a maximum of 40% of the property value.
Based upon this lender criteria, moving to a property of £200,000 would result in a maximum loan amount of £80,000. In such a scenario, you would therefore need to repay £10,000 off the loan on porting, to keep within the lenders loan-to-value criteria.
This £10,000 would simply come from the equity raised (£100,000) from downsizing anyway.
Lastly, if you were simply wishing to repay the loan completely upon moving house e.g. moving in with family, then dependent upon the plan taken out, this could result in you incurring an early repayment charge.
Fortunately, equity release plans have become very flexible over recent times, and one of the biggest improvements has been that the majority of lenders now design their plans with fixed term, early repayment charges (ERCs).
These work in the same way as ERCs on fixed rate, residential mortgages, which I’m sure that you’ll be familiar with.
Albeit the ERCs on lifetime mortgages run for longer e.g. eight, 10 or 15 years, but after this time the mortgage can be fully repaid, penalty free.
Again, to circumvent any potential early repayment charges upon settlement of the loan within the ERC period, certain lenders now have plans that include a downsize protection feature. This means that dependent upon the property you are moving to, and after what time period the plan had started, the lender will allow repayment of the loan with no penalty.
A good example of this would be Canada Life, whose Capital Select plan will allow you repay the loan with no penalty should you move or sell the property after 5 years from inception.
I just wanted to explain to you that equity release is now incredibly flexible, and so the idea that plans cannot be repaid or that you won’t leave your loved ones an inheritance is nonsense – despite what some newspapers would have you believe!
As a next step, I’d recommend that you speak to your local Equity Release Supermarket adviser, who will be able to explain your options in detail, at no cost to you.
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Question
Choosing the right adviser – guidance needed
I own a property in the Warwickshire and am hoping to release some equity from it in order to support my son through university. I am 59 and the property is valued at £430k.
I would like to know the best way to get advice to help me to find the right product. I understand I need advice before I proceed to ensure I am getting the right deal but, equally, how do I know I am getting the right adviser?!
Answer
As you rightly point out, you do have to receive financial advice to take out equity release. But before you speak to and adviser, there are two checks that I recommend you make.
Firstly, all equity release advisers must be regulated by the FCA and suitably qualified members of the Equity Release Council. This ensures that they abide by the Council’s Rules and have signed up to its Statement of Principles. You can check if yours is on the Council’s register here – https://www.equityreleasecouncil.com/find-a-member/advisers
Secondly, I believe that you should always speak to an independent and whole of market adviser.
Equity release is a big financial decision and so you’ll want to be sure that all your options have been explored and you’ve found the right plan for you both now and in the future.
If your adviser is tied to a particular lender or can’t advise across equity release, retirement mortgages and retirement interest-only (RIO) mortgages, then you should be aware of this and comfortable with the implications, before making any commitment.
And finally, if you are speaking to a whole of market adviser, consider the fee for their advice. Some firms charge a % of the amount you borrow, whereas others work on a fixed fee basis. For example, at Equity Release Supermarket our advice fee is guaranteed never to be more than £995, regardless of how much you borrow, and this is only payable when your plan completes, and your money is in the bank.
We also highly recommend that you discuss your decision with your family and if possible invite them along to the meeting – so that they are able to support you and also ask any questions they may have.
A good, whole of market adviser will put you at your ease and during your meeting they’ll simply want to understand your financial situation, why you are considering equity release and what your financial goals are.
Only at this stage will they then formulate a personalised recommendation for you, from a range of products across the whole of the later life lending market.
What’s also important is that if equity release isn’t right for you, they tell you. You shouldn’t feel in any way pressured into making a decision.
If you have any concerns, we’d be more than happy to help you and you can call Equity Release Supermarket for free on 0800 802 1051.
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Question
Can we use equity release to settle our divorce?
My husband and I own a property together which has about three years left of a 25-year term mortgage. We are about to go our separate ways and we are considering using equity release as a way to settle the matter of what to do with the home in our divorce. We wondered if this can practically and legally be done.
For background, I am 62 and my husband is 69. We have two children who are grown up but one lives with us. My husband plans to move out and buy another property and the equity release would enable him to pay for this but also provide me with an income. Our son who lives at home is working and can provide for himself.
Answer
The simple answer is that yes, equity release can be used as part of the financial settlement of a divorce, and it is increasingly being used for this purpose.
As I don’t know the value of your property, I cannot give you an idea of the amount you could borrow but as the amount is determined by the age of the youngest homeowner – and you are 62 – the maximum you could borrow is around 38% of the value of your property. For example, if your property is valued at £300,000, you could borrow £114,000.
You should also be aware that lenders insist that any outstanding residential mortgage must be repaid from the equity release funds. As you have three years left on your mortgage, this is something to be aware of as it will reduce the amount you have for your divorce settlement.
Your son living at home has no impact on the ability for you to take out equity release as it is simply determined by the value of the property, the age of the youngest homeowner and the location of your property. If they are over age 18, the lender may ask them to sign a waiver form which protects the lender should you pre-decease his moving out of the property.
The waiver means your son would need to move out of the property for it to be sold in order to repay the loan – a period of 12 months is usually given by the lender for this to occur.
Another plus of a lifetime mortgage is that income is not considered by the lender and there are no affordability checks to pass. Many after divorce find that their income decreases significantly, which can exclude them from taking on another residential mortgage, for this exact reason.
To give you more information, I wrote an article about equity release and divorce, which is on the Equity Release website here.
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Question
Are there any age limits for equity release products?
I am fully aware equity release is aimed at older customers – however, I wondered if there were any restrictions on maximum age. My mother is 85 and lives alone in her home but it’s getting too much for her and we are hoping to use equity release to utilise some of the cash to renovate the dining room into a wet room and bedroom for her. Is she too old to do this? There’s no mortgage on the house and its value is probably around £325k (judging by others in the area). She is a widow but gets an income through my late father’s pension.
Answer
Regarding the maximum age that you are able to take out equity release; it varies by lender and the type of lifetime mortgage you are considering. Having said that, as your mother is 85, there are plenty of options for her to consider and finding a suitable plan for her won’t be a problem.
Lenders such as Aviva and Just Retirement will accept applications up to 100 – as long as the customer had no vulnerability issues and the purpose of loan is genuine.
Given her age, she can borrow up to 58% of the value of her home – which is £188,500 if her property is valued at £325,000 – which should be more than enough to complete the home modifications she wants to make.
We always recommend that you borrow what you need, rather than what you can, and so to manage the interest accruing on the plan, she may want to consider a drawdown lifetime mortgage, whereby a percentage of the total amount available can be withdrawn (the minimum is £10,000) and the remainder is held by the lender for you, for you to borrow against in the future if needed, without penalty.
For example, if your mother needs £30,000 for her home modifications, then there’s £158,500 available for her to borrow if she needs it in the future. As you only pay interest on the amount borrowed, a drawdown plan is an effective way to minimise the interest accruing. It could be further reduced through making voluntary repayments, if your mother’s income allows and she wants to do this – to maximise the inheritance for her beneficiaries.
As a next step, I recommend that you talk with one of the independent and whole of market advisers at Equity Release Supermarket, who will be able to talk through the options with you and your mother. There’s no cost for a chat and our advice fee is only payable once the plan completes and your mother’s money is in her bank account.
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