Cover
by
Chris Prior, manager, sales and distribution, Bridgewater Equity Release
One of the main factors which has prevented higher take-up of equity release plans in the past is older homeowners not realising the full range of uses that released funds can be put to, wrongly assuming that it is only for individuals who want to build extensions or go on cruises. These remain valid reasons for releasing equity, but nowadays retirees are just as likely to consider home reversion plans and lifetime mortgages for more practical reasons. Chief among these is the servicing of existing debts and loans such as mortgages and it is no coincidence that consumers’ focus on equity release has risen against a backdrop of “interest-only time bomb” headlines.
With a number of mortgage lenders showing little tact or willingness to negotiate with so-called mortgage prisoners who face the prospect of heading into retirement with no real way of redressing a shortfall in their home loans, it has been left to equity
help me? “Unfortunately some advisers just
aren’t very sure of the best way to help these people. Equity release is not the answer for everyone and if everyone who found themselves with issues turned to the equity release market there probably is not enough capacity to help them all.” The first and most important
recommendation that can be made to borrowers is to take control early. In the case of Interest-only customers the vast majority should have received a letter from their lender if their loans are due to end any time in the next few years. Borrowers should have also received their statements informing them of their commitments. However a worrying number of borrowers, 2.5%, said they were not aware when they took out the
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release providers to help pick up the pieces and provide such individuals with a potential solution. It’s not just the number of homeowners approaching retirement on interest-only mortgages that could see demand for equity release plans continue to rise in the future either. We have already witnessed an uptick in individuals using equity release to address long-term care issues.
Shifting attitudes towards inheritance have also been a significant factor too. Whereas once individuals would have left their properties to their children or grandchildren, they are now choosing to bring forward this gifting process to assist with educational requirements and housing needs.
The rising cost of living in general is another contributor to equity release plans increasing in popularity. A number of older homeowners are
releasing funds to make their day-to- day lives manageable as opposed to anything more frivolous. With the interest-only conundrum unlikely to be solved any time soon, equity release represents a viable solution for older homeowners who find themselves struggling to repay their mortgage.
deal that they needed a plan in place to repay the whole amount borrowed, not just the interest, and still had no strategy in place.
RETIREMENT
Most of us also know when we plan to retire and that is especially true of the over 55’s. As a client works up to retirement clearing their mortgage should be a priority but there are also other expensive debts such as credit cards and loans that need to be cleared. Should people be in a position that
they require cash to fund long term care for a spouse, loved one or even themselves then the timescales may be shorter but by seeking the help of a broker or IFA there are still options to be considered.
People who have retired are often asset rich and cash poor. Providing that your customer isn’t sat on a Picasso or a hoard of gold their home is likely to be their largest asset. There are also those who are looking to clear the remainder of their mortgage, be it Interest-only or a more conventional product, who may have enough equity in their property to clear off their mortgage and buy a property outright. Recent research from equity release lender more 2 life found that around four out of five interest-only mortgage customers are relying wholly or partly on selling their house to pay off the capital they owe.
Its nationwide study among mortgage advisers found 35% of advisers say clients are planning to downsize or sell their home to pay off loans while 43% plan to use a combination of downsizing plus other repayment vehicles. “There is growing demand for answers to the interest-only crisis and clearly advisers are concerned that not enough is being done by the industry.” Jon King managing director of more 2 life says. “Relying wholly or partly on downsizing to pay off interest-only mortgages is akin to burying your head in the sand as ultimately people may not want to move or may find it difficult to sell.” However, many people are attached to their homes, or don’t want the upheaval of moving. Downsizing also has its problems. First and foremost, borrowers might not sell their home for as much as they hoped and even if they do there could be difficulties.
All the costs associated with selling
a property, such as estate agency fees, valuation fees, stamp duty, legal fees and general moving costs will take a large chunk out of any profit the borrower is hoping to make. These are all issues that need considering when recommending downsizing to customers.
ADDITIONAL BORROWING Refinancing onto a repayment residential mortgage provides less disruption for the borrower than downsizing and the ability to remain in their own home will appeal to many people. Borrowers can also ask
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