Cover
a year hitting retirement that have a significant amount outstanding on their mortgage.
“Over the last couple of years we have seen an increasing large number of customers use equity release to create a lifeboat to get out of their mortgage problems.” As with borrowers looking to fund later
life care or retirement a number don’t want to leave their homes. If borrowers have grown up children living with them, a need for an extra room or are sentimentally attached to their property then equity release could be a better fit. As Jon king from more 2 life says: “Equity release has always been about people staying in their own home and people do it for the very reason that they do not want to move house.”
PLANS
When it comes to equity release there are currently two main solutions being offered by the industry – lifetime mortgages and reversion schemes.
A lifetime mortgage sees a sum of money being borrowed against the value of the borrowers’ property to provide them with either a lump sum or a regular income. The lender recoups their money once the property is sold. The most common product of this type, accounting for over 60%, provides a drawdown option for the borrower. As such the borrower has access to a set amount of funds as they require them and will not pay interest on these funds until they are withdrawn from the drawdown facility. Traditional lump sum solutions still accounted for over a third of the market and are the most likely of use to Interest- only customers. However the drawdown option should be considered depending on circumstances. The reversion or part reversion scheme involves selling the home, or part of it, to the reversion company.
This scheme allows the owner to continue to living in their home for the remainder of their lives. On a joint plan where there are two owners it lasts until the couple are deceased. Upon either death, or if the borrower moves home, the proportion that belongs
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to the reversion company is then goes back to them with the remaining value being passed to the borrower or their estate.
SPECIALISTS Equity release lenders and insurers have shored up the market since the banks withdrawal from the market and there are a number of innovative products on the market.
Martin Reynolds, chief executive of SimplyBiz Mortgages, says he believes that a number of equity release providers have been quick to spot the opportunity. He says: “A number of equity release lenders have been bringing out hybrid products as a solution for the clients who face difficulties relating to their interest- only mortgages. Equity release providers are already reacting to how they see this market going and they obviously believe this is an issue that is going to increase in the future.”
Hodge has launched its Lifetime
Retirement Mortgage which provides retirees with a way to break the shackles of their interest-only mortgage. The plan is similar in concept to the Halifax Retirement Home Plan and aims to offer similar features with an eye on the impending Mortgage Market Review and a more responsible lending attitude towards retirees. Mark Gregory, director of Equity Release Supermarket, says the Hodge Lifetime Retirement Mortgage can provide an alternative for retirees trapped in an interest-only mortgage. “Subject to meeting the Hodge Liftetime criteria, a homeowner could exit their existing arrangement and remortgage to the Hodge plan, thereby consolidating a new mortgage for life. “We believe it could be particularly beneficial for 55 to 65 year olds who may be limited in their options because other interest-only lifetime mortgage schemes will only lend on age and property value. However, the new Hodge plan, subject to income verification, could allow someone to raise up to 50% of the property value. “We believe this sort of product is vital for the market, meeting responsible lending guidelines whilst giving older homeowners more choice.”
BROKERS Hopefully brokers do look at equity release as a solution, but not all are able to advise on equity release. If you are only conducting lifetime mortgage business then you do not require any further permissions if you are already able to give advice on regulated mortgage contracts. But if you if you are advising on both lifetime mortgages and home reversion plans you need additional permissions covering home reversions as well as permission to advise on or arrange regulated mortgage contracts. Should you not be qualified to offer advice it may be worth looking to link up with an equity release adviser in your area.
By no means is it worth every adviser getting the Certificate in Regulated Equity Release qualification. Garrod agrees that there is a good opportunity for brokers but in many most cases it would be better to refer the client to “to a qualified person if they are not qualified themselves”. Garrods thoughts were echoed by Reynolds of Simply Biz. “Equity release is becoming more and more relevant. There are more people looking at it and I think as part of the more holistic advice process it is becoming more relevant,” he says. “We’ve been forecasting the growth of the equity release market for the last 15 years now but with the micro and macro economic factors in play we could see it take off. “The referral route is a good fit for many brokers. Equity release is not the kind of product you want to write the odd bit of business in. It is a specialised product and as an adviser you want to be comfortable. Rightly so some people are now looking to find a referral partner they are happy with to cover that part of their business.”
What is clear is that there are opportunities out there for advisers. Equity release is playing a major role in helping homeowners that are close to retirement age maximise their income. Whilst taking advantage of the opportunity is by no means child’s play it is certainly doable.
MORTGAGE INTRODUCER SEPTEMBER 2013 39
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