There are still many people who believe that Equity Release mortgages should be avoided at all costs. Do they have a point? I have had this conversation with many “professionals” such as solicitors/accountants with interesting outcomes. The fears they tell me about include “there will be no inheritance left for children”. “They are very expensive”. “You could lose your home”. “You will no longer own your home”. Very serious concerns indeed, but thankfully all of them can be cast aside as Equity Release mortgages are none of these things. Compared to what was available just a few years ago, the security, choice, features and benefits of Equity Release mortgages are huge! Interest rates are at an all time low and are fixed on day one of mortgage and never change – not a lot of people know that! An Inheritance Guarantee can be added to your mortgage which means that a chosen percentage of the value of your home will ALWAYS be paid to your chosen beneficiaries – not a lot of people know that. You maintain FULL ownership of your home – not a lot of people know that. All in all, Equity Release mortgages were reborn some years ago and are not the same beast that they were in the 90’s. Sadly, they have not shaken off the bad reputation they earned back then. Another VERY important point to note is that they are often confused with Home Reversion Plans – a completely different arrangement. A Home Reversion DOES mean that you will no longer own your home. In exchange for an agreed sum paid to the client at the outset, the lender takes ownership of the property. This WILL result in you not owning your home and it means that there will be NO property inheritance for your children! These are NOT the same as Equity Release and in my opinion deserve the bad rep that they get. Many people are taking the time to learn more about these products that can be life changing. At The Independent Mortgage Partnership, we are happy to talk you through everything, giving you unbiased, honest advice. You can then decide what you think of Equity Release mortgages and know if it something that could be for you.
More and more I am meeting with clients who have found themselves facing financial hardship as a result of accumulating debt in retirement. In some situation, the fact that the loan/credit card was approved given their financial circumstances at time of applying was questionable. nonetheless, for some it has resulted in having to live hand to mouth as after the monthly payments are made to the various credit commitments, there is little of the pension income left.
Luckily for some, there is a wealth of equity tied up in their home. Releasing a portion of this is allowing them to clear their feet which in turn eliminates monthly payments and therefore increases their disposable income. The improvement to so many lives has been immense! Gone is the misery of having little or no money and welcomed are the doors opening to a much improved lifestyle.
Mr & Mrs X owned a home which was valued at £200,000. Over the years they had accumulated debts of over £20,000 on various credit cards and further £7,000 personal loan. The monthly costs to these amounted to over £400 which was putting a considerable strain on their finances. Paying only a little more than the minimum payment to the credit cards meant that much of the payment was being absorbed in interest costs and very little being paid to reduce the balance. In effect – they were treading water with no end in sight. Releasing £40,000 from their home at a very competitively priced fixed rate of interest for life, has allowed them to clear off all of their debts, cover the set up costs of the Equity Release mortgage and leave them with an emergency fund/nest egg in the bank for financial security going forward. All of this and they were also over £400 per month better off! To say they were overjoyed would be an understatement!
They were not sure that they wanted to commit to making payments toward the Equity Release mortgage, but liked the fact that there was a built in option allowing them to pay up to 10% of the original amount they borrowed to reduce the balance in any one year!
These fantastic products are proving to be a lifeline for many and well worth considering. To find out more, carefully choose an adviser. A Fantastic directory for doing so is The Equity Release Council website.
Trusting and feeling comfortable with your adviser is vital. You want to make sure that your personal and financial matters are in good hands, and a good way to measure this is by finding our what other clients thoughts are. At the beginning of the year, I found out about a website called Vouched For. It runs along the same lines as TripAdvisor but is for Financial Advisers, Solicitors and Accountants. Clients can share their thoughts on various aspects of the service they received so that others may benefit from their experience. I am very proud of my 5 star rating with Vouched For. To find out what others had to say, please feel free to check out my reviews on the Vouched For website.
With £1.6 trillion held in property wealth compared to £336 billion held in retirees pensions – the numbers speak for themselves.
At a time when the average retirement lasts 18 to 20 years and with an expected income of £24,000 needed each year, if a retiree has no other savings, recent research by One Family shows the average pension will last less than two years even when taking into account state pensions.
With the value of property having risen over many years, it is no wonder that homeowners are turning to Equity Release to help fund their later years.
Lifetime mortgages are becoming an ever more popular way to fund retirement, and in 2018 nearly £4billion in equity was released which was an increase of approx. £1billion from 2017.
The Equity Release schemes of today offer a great deal of flexibility with many options available that can tailor the mortgage to suit an individuals needs. Seeking professional advice will take you down a route of considering all options you may have which could make life easier such as downsizing or perhaps your family can offer financial support. All avenues should be looked at before it can be determined that Equity Release is right for you.
Equity Release mortgages continue to gain popularity as more and more people tap into the value of their homes. Here are some of the top reasons –
- YOU DON’T WANT TO DOWNSIZE. Many people find themselves to be asset rich but cash poor with the majority of their wealth tied up in their home. Rather than having to sell their home in order to realise some of the value, they would much rather stay put. Equity Release plans allow you to do just that! The mortgage is repayable when you die or move into long term care. Until then, you can enjoy your home but make life easier by access the wealth therein. Having released equity does not then mean you cannot move home. Plans are becoming increasingly more flexible with “downsizing protection” which enables you to repay your Equity Release mortgage in full by downsizing and moving into a cheaper property.
- YOU NEED TO REPAY AN INTEREST ONLY MORTGAGE. If you took out an interest only mortgage years ago and are shortly due to repay the balance but have no funds to do so, Equity Release could be a lifeline for you. Possible benefits of this could be that you remain in your home and no longer have a monthly mortgage payment to make. Bear in mind that Equity Release is not for everyone, as it can affect your entitlement to state benefits and may reduce the value of any inheritance you plan to leave. Please take advice on this with which I would be happy to help with. You can contact me via my website https://www.equityrelease.info/
- YOU WANT TO MAKE HOME IMPROVEMENTS. If you are looking to carry out home improvements – Equity Release could be a way to fund them.
- YOU NEED TO SUPPLEMENT YOUR RETIREMENT INCOME. Low interest rates and steep living costs can make it a real struggle for retirees to make ends meet. Also, the desire to still enjoy life by having holidays, a new car and such like are still there but the means for this are no longer there in retirement as your pension income may not provide the provision for this.
- YOU WANT TO PROVIDE FINANCIAL SUPPORT FOR YOUR FAMILY. Equity Release could help you a “living inheritance” for your family which could help them buy a house, contribute toward costs for school/university fees or general living expenses.
These are just a few reasons why Equity Release is the answer to many peoples prayers.
You should always seek professional advice and a great directory is https://www.vouchedfor.co.uk/ where I too am listed and you can see my clients reviews and thoughts on the services I provided.
Equity Release/Lifetime mortgages are an option that many in this position are turning to.
More than 11,000 families are at risk of losing their homes this year after being trapped on interest-only mortgages they cannot afford to repay.
New figures reveal that more than 80,000 interest only mortgages will come to the end of their term in the next 12 months – but more than one in eight of these borrowers will have no way to pay back the remaining debt they owe to the bank.
Around 11,200 individuals face throwing themselves on the mercy of their banks because they have not been able to repay the capital of the loan either because investments they planned to pay off the deal have failed, or because they haven’t squirreled away enough money to cover what they borrowed.
With a traditional capital and repayment mortgage, a homeowner will make monthly instalments to pay off their loan. At the end of their mortgage term – typically 25 years – they owed nothing to the bank and the house is their own.
More than 11,000 families are at risk of losing their homes this year after being trapped on interest-only mortgages they cannot afford to repay
With an interest-only deal borrowers only paid off the interest on their mortgage, but never made payments to cover the actual loan they had borrowed from the bank. It means that when the deal ends they must find money to pay back the capital they originally borrowed.
Millions of these deals were sold in the 1980s and 1990s as homeowners were told by salesman that rises in house prices would more than cover the debt they owed to the bank.
At the height of the frenzy as many as four in five deals were interest only.
But with no means of repaying this money they must beg the bank to allow them to continue making repayments and to hold off demanding the capital until their house is sold when they die.
Wes Streeting, an MP who sits on the Treasury Select Committee said: ‘It seems outrageous that banks have been able to profit enormously from these loans.
But more than one in eight of these borrowers will have no way to pay back the remaining debt they owe to the bank
‘By contrast elderly pensioners who signed up to these deals now face being turfed out of their homes because the banks show scant regard to them when they need it most.’
And Stephen Lloyd, the Eastbourne MP who has campaigned on the issue of interest-only loans, said: ‘Tens of thousands of families face losing their homes after being snared by this desperate situation. This is unacceptable. If someone can keep up their mortgage whatever their age, they should be allowed to stay in their home securely. It’s what living in a civilised nation is about and is what people deserve.’ Around 1.8 million borrowers have an interest-only deal – around one in five of all mortgages.’
Last week it emerged that banks are instead taking homeowners to court to claw back the cash and repossess their properties.
Len and Val Fitzgerald, a couple in their 70s, face being evicted by Spanish bank Santander because they are unable to repay their £180,000 loan.
Their case has sparked outrage and has led to experts calling for banks to rethink how they treat interest-only customers.
Like the Fitzgeralds, around half of the borrowers who face being evicted this year are pensioners, according to the figures based on research by City watchdog, the Financial Conduct Authority.
These borrowers are in an even more desperate situation because it is harder for them to remortgage their property as lenders now shy away from older customers.
Many customers are unable to repay the capital on their loans and stand to lose their home when the mortgage runs to its end.
Millions face huge shortfalls because they took out endowments – savings plans issued by insurance companies that were supposed to pay out when the deal matured.
‘We almost lost our home’
Felicity and Chris Johnston feared they would never be able to repay their £170,000 interest-only mortgage.
The Johnstons, pictured, were forced to use up their life savings after Mr Johnston, 71, was made redundant and their income plunged. Worse still, their investments underperformed, leaving them facing a huge shortfall.
The couple, from Waltham Cross in Hertfordshire, searched for another mortgage company to cover the loan on their four-bedroom terrace – but they were turned away because of lenders’ tight age restrictions and a clampdown on interest-only deals. They finally had to resort to an equity-release mortgage to stay in their home, which they arranged through Key Retirement.
Mrs Johnston, 64, who has a card making company, said: ‘I was really worried … Every time we tried to renew and extend it we were hit with a dead end.’
Other borrowers expected to be able to pay back the capital when they too out the deal but later found themselves unable to save because of illness or unemployment.
And thousands have been caught out by a mortgage crackdown by the banks since the credit crisis a decade ago.
Banks insist that customers applying for interest-only mortgages must have at least 50 per cent equity in their properties to be eligible for a deal.
They must be able to clearly state how they plan to repay the loan with the sale of the property not often being allowed as a viable option.
In addition many banks refuse to lend to customers who are older than their mid-70s.
It means that many customers who reach the end of their current deal are unable to remortgage on to a new interest-only loan.
Instead they must hope that their bank allows them to continue making their interest-only payments on the understanding that the capital will be repaid when the house is sold on their death.
Experts warned that borrowers who fear that they will be unable to repay their interest only deals should not hide their head in the sand.
Andrew Montlake of mortgage broker Coreco said: ‘People who think they may not be able to repay their interest-only mortgage should contact their lender as soon as possible. There may be various things that they can do but it’s vital they act sooner rather than later.’
Recent data reveals the staggering potential wealth available to the UK’s elderly homeowners
Accessing a portion of the equity stored in your home now could provide you with a timely financial boost in later life. If you’re a UK homeowner over the age of 55, you may be eligible for a lifetime mortgage that could see you access as little as £10,000 of the wealth in your property which could help to provide you with financial security and freedom in retirement.
A lifetime mortgage allows you to convert some of the value of your property into a tax-free cash sum, without having to give up ownership of your home. Lifetime mortgage plans have no fixed-end date and come with no required monthly repayments, so the funds you release are yours to spend as you wish. The mortgage and accrued interest are not due for repayment until both you and your partner either pass away or both enter long-term care.
If you are concerned about the build-up of the loan value over time, plans are available that allow you to pay off up to 10% of the mortgage balance each year without penalty. This can help offset the interest accrued and help to secure some of the property’s wealth for your future use.
What’s more, with plans from Equity Release Council-approved lenders you will benefit from the safety of the no-negative equity guarantee, ensuring that you and your family will never owe more than the value of your home. Approved plans also allow you the option of moving to a suitable alternative property, subject to the lender’s criteria.
On top of this, competitive rates of fixed interest are available, which allow you to get an accurate projection, so you know exactly what is happening with your money at all times.
There’s no need to face the golden years of retirement with the clouds of mortgage debt or limited incomes looming on the horizon. After years of responsible saving and hard work, your property could provide you with the financial boost to face the future with confidence, so you can have the retirement you deserve.
If you have an interest only mortgage but no repayment vehicle in place, it could be quite a worry if the end date of your mortgage period is approaching. A lifetime mortgage is used by many to repay their existing interest only mortgage which then alleviates those worries. In addition, once the interest only mortgage is repaid, the monthly payments you have been making can stop therefore releasing funds into your monthly budget for you to enjoy!
You may be surprised at just how much wealth is tied up in your home. Although not an exact science, you can get an idea of what your home may be worth from websites such as Zoopla. By simply typing in your street name, Zoopla will provide a list of the recent sale prices of homes throughout the UK
Releasing only a small proportion of your home’s value could provide you with a key to enjoy more financial freedom. With interest rates being very low, many are finding out just what a Lifetime Mortgage can do for them.
Mr & Mrs X owned a property which had an interest only mortgage outstanding with Santander. The repayment date was to be summer 2018 and there was no repayment vehicle in place which would clear the balance due. They were looking at all options available which would allow them to continue to live in the home they had been in for over 30 years but thought that the only real option would be to sell up in order to clear the mortgage they had. When I discussed Lifetime Mortgages with them they were pleasantly surprised at how much equity they could release from their home at a very competitive interest rate. They were delighted to learn that they would always have full ownership of their home and it would not be signed over to the lender. Their wishlist also comprised of gifting money to their grandchildren as their view was that they would rather help them now when they needed it rather than wait for years on an inheritance. Within a matter of a few weeks, their existing mortgage was repaid which also meant they no longer had monthly payments to make and they had a lump sum in their bank account to use as they wished.