Figures from the Equity Release Council (ERC) show the total value of equity release lending continues to grow. From 2015 to 2016 there has been a 77% rise in the amount borrowed. The most recent figures show that the average amount borrowed has now increased to £70,000.
Although equity release can be right for some, you need to consider both the benefits and the potential downfalls.
There are two types of equity release -:
Home Reversion:
This is not a popular choice. The plans allow you to sell all or part of your home to a reversion provider. They in return provide you with a cash lump sum or regular payments
You have the right to continue to live in the property until you die, rent free, but you have to agree to maintain and insure it. You can choose to ring-fence a percentage of your property as an inheritance for your family. At the end of the plan, your property is sold. The sale proceeds are then shared out according to the remaining proportions of the ownership.
Lifetime Mortgages:
With this type of plan, you take out a mortgage secured against your home. When you die or go permanently into a care home, your house is sold and the mortgage repaid. Almost all equity release products sold these days are lifetime mortgages.
Below are the points you need to consider about Equity Release:
1) No negative equity guarantee.
This means that you can’t go into debt beyond the value of your home. This is part of the Equity Release Councils standard. This feature is found in most products but check to be on the safe side.
2) Rights to remain in the property for life.
You have the right to remain in the property for life or until you need to move into a care home. It is important that there are legitimate reasons for taking out equity from your property. This needs to be documented to show that you have not deliberately deprived yourself of assets. Thereby relying on the council to pay your care home fees.
3) Interest rates.
With a lifetime mortgage it is important to understand that the interest on your loan is being compounded, so over time it can roll-up well beyond the value of the original lump sum taken out. Most lifetime mortgages are fixed interest rates which helps with the budgeting.
4) The right to move.
All lifetime mortgage release products designed under the Equity Release Council standard are portable. This means you may be asked to reduce the level of your debt before moving to a lower value property. Portability might also depend on the type of property you intend to move to.
5) Early repayment charges.
If you decide later on that you want to sell your house and pay off the lifetime mortgage, lenders will charge an early redemption penalty. There are two types of penalty-
Fixed. – Where you can calculate at the outset how much this would be.
Variable. – Where the amount of penalty will be calculated based on investment returns at the time.
The advantage of fixed early repayment charges means that from the outset you know what you will be charged if you repay the loan early. With a variable one, you only know the maximum you may have to pay.
6) Professional standing for equity release advisers.
To be able to offer equity release mortgages financial advisers need to have taken additional professional exams They also need to demonstrate that their knowledge is kept up to date through continues professional development (CPD). It is also worth checking that they are members of The Equity Release Council which sets standards for advisers to adhere to.
How Anstee & Co can help you with equity release?
We have a team to expert financial advisers trained in equity release. Anstee & Co are also proud to be longstanding members of the Equity Release Council. We are independent financial advisers giving unbiased financial advice.
Meetings can be arranged at our offices in Kettering, Stamford and London. Our financial advisers also make use of meeting rooms in Bedford, Northampton, Warwick, Wellingborough and Towcester. In addition, the meeting can also be arranged at your home at a time convenient to you. We cover Northamptonshire, Warwickshire, Bedfordshire and Lincolnshire.
Equity release is not right for everyone and it is a long-term commitment. We would always recommend that you always take independent financial and legal advice.
When the time is right please contact us. The first meeting is free of charge.
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