Towards the end of last year we noticed that Andrew Castle, former tennis pro turned presenter at LBC radio, had, perhaps quite rightly, a ‘bee in his bonnet’ about equity release, the associated interest rates and the way in which it is sold.
Andrew suggests that regardless of the involvement of independent financial advisers and lawyers etc. not everyone, in particular the older generation, knows exactly what equity release is and what they are getting into. Andrew is obviously speaking from personal experience as we assume an older member of his family has fallen foul of the detail and full implications regarding an equity release mortgage. Andrew is obviously aggrieved at what he considered to be a ‘slickly sold and packaged’ complex financial product and wishes to shine a light on the subject.
Record Equity Release in 2018
Recently released data from the Equity Release Council suggests that the over 55′ s released a record £1billion of equity between July and September in 2018. This equity release is generally being used to fund home improvements, purchase cars and assist children to get on to the property ladder. You could argue that equity release is being used to prop up the bank of Mum and Dad!
One other key area that equity release is funding is long term care. David Burrowes, chairman of the Equity Release council said “the equity release market is making an increasingly important contribution to the later life landscape on an individual, social and economic level.” This is tempered by Baroness Altmann, the former pensions minister, who comments that it is a “worrying trend“, primarily due to it being a very expensive way of paying for care in later life.
Equity Release – Simple Concept, Complex Product.
If you are a homeowner in your 50’s, the chances are that you have a fair amount of equity tied up in your home. Equity is defined as the value of a property after you have paid any mortgage or other charges relating to it. An equity release product will unlock a percentage of this value so that you can utilise it whilst you still can and while, importantly, you remain in your home. Prior to equity release products being available, the only way of releasing the equity in your home was to sell the property and downsize, something many people don’t find appealing.
As with many financial products available today, and despite a push to simplify things across the board, equity release products themselves can be quite complex. From a product perspective, there are two equity release options:
- Lifetime Mortgage – a mortgage secured on your home while you retain ownership. The mortgage, plus interest, is paid back when you die or move into long term care.
- Home Reversion – part, or all of you home, is sold to a home reversion provider. You no longer fully own the property but have the right to live there until the plan ends, at which point the property is sold and proceeds shared accordingly.
It is not the intention of this blog post to document the finer detail of either of these two equity release options. Naturally, if you have any questions regarding any aspect of equity release, please call us on 0118 923 5090.
Equity Release – Things to Look Out For
As mentioned earlier in this article, Baroness Altmann believes that equity release can be more expensive in comparison to an ordinary mortgage. When considering your options for equity release, take time to seek professional advice and consider the following:
- Where the product offers any safeguards such as a no negative equity guarantee or a fixed interest rate
- That there is no fixed term by which you need to repay your loan
- The value of your home offered by the provider compared to that on the open market
- Your potential requirements for long term care
- Your potential restrictions on downsizing
- Your entitlement to state benefits
- Any arrangement fees
- The impact on your inheritance plans if you’re considering a policy where the interest ‘rolls up’ rather than is repaid throughout the term of the plan
- Any early repayment charges
The BBC has created an interesting commentary called “The Equity Release Trap“. It’s an enlightening listen and worthwhile for anyone considering venturing down the equity release route.
The Telegraph has also published an article debunking 5 of the biggest myths about equity release, including home ownership, negative equity, existing mortgages, repayments and inheritance. They have also written a short article on how safe an option is equity release?
Ultimately, equity release, as with all major financial transactions, is not something to be rushed into. Take the time, and advice, to ensure that it is suitable for you and your family. We’ll never rush you and only ever provide independent financial advice. For expert advice about equity release, contact Simon Claxton on 0118 923 5090 or email email@example.com