What is Equity release / a Lifetime mortgage?

 

 

Equity release or a Lifetime mortgage is a way of supporting yourself later in life by unlocking tax-free cash from the value of your home, without having to move out.

 

If you are looking for extra money to help out your family, start home improvements or just make retirement a little easier by providing additional income, it could be a welcome boost to your bank balance. This type of mortgage can also be used to remortgage, pay off an existing mortgage or even purchase a home, whether you are moving or buying for the first time. Now available on Buy to Let properties too.

 

An equity release mortgage is a loan on your home, but without monthly repayments. Interest is added onto both your loan and interest already added (we call this compound) – then, everything’s repaid when you die or go into long-term care, usually from the sale of your home, subject to terms and conditions.

 

Some providers have diversified from this now and offer what is essentially an interest only mortgage for life, which can be very useful for anyone who wants to release cash but doesn’t want the interest to roll up in the future. The market is increasingly competitive for this type of mortgage and we have some of the lowest interest rates available through our network of providers.

 

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

 

For further information please feel free to contact us - our fee is often thousands of pounds less than the competition.

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Case studies

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Case study1: Assisting with care at home

• Mrs Harding

• 84 years old

• Widowed

• Property worth: £1,000,000

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Mrs Harding lives at home alone with her dog, Jack. After her husband died, she never wants to part from the memories held in their home. Unfortunately, Mrs Harding was diagnosed with Parkinson’s a few years ago and although very mentally stable, she is now unable to complete day-to-day tasks without the need for care. The cost of her care at home is £1,400 per week. Mrs Harding does have her state pension, private pension and attendance allowance but still has a shortfall of £707 per week. That is £37,000 per year! Her two sons have suggested to their mum that she should go into long term care, to gain the assistance she needs. However, Mrs Harding is adamant that she will continue to stay at home with her dog for the rest of her life.

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The solution? One of Mrs Harding’s sons set up a meeting with his financial adviser to talk about the options available for the circumstances. The financial adviser explained to the family that equity release in the form of an Enhanced Lifetime Mortgage with the feature of a ‘cash reserve facility’ is a great option for Mrs Harding. Mrs Harding took an initial amount of £20,000 and then drew down around £18,500 every six months to meet her care costs.

 

2 years later After living the next couple of years without the need of going into care, Mrs Harding sadly passed away comfortably at home as she wanted with Jack. The total amount Mrs Harding owes to the Equity Release provider upon her death is around £119,000. However, the value of her house has gone up to £1,100,000, so her two sons still have a worthwhile inheritance after the sale of the property. They are very grateful as the lifetime mortgage meant their mum got to be happy and secure until her passing.

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Case study2: Clearing outstanding debts

• Mr Pike

• 66 years old

• Property worth £520,000

• End of Interest Only Mortgage and in need of debt consolidation

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Mr Pike has reached the end of his Interest Only Mortgage term. He was initially allowed 12 months to remortgage or sell the property to his mortgage lender. Despite several requests for an extension made by Mr Pike, they were all turned down. In addition to Mr Pike’s outstanding mortgage of £74,000 where he pays £350 per month, he also has a credit debt of £22,000 where he pays £386 per month!!

He only has his state and workplace pension as income. His financial adviser has confirmed he is not entitled to any other benefits, nor does he qualify for a conventional mortgage due to affordability. Mr Pike has completely exhausted his savings, leading to the increasing credit card debt to pay some general bills and essential purchases. Mr Pike lives in a 4 bedroom house in Surrey, valued at £520,000. He is a prime example of ‘asset rich and cash poor’.

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The solution? Mr Pike’s objectives are to primarily clear his outstanding mortgage and pay off the credit cards to improve cash-flow. If possible, he would also like to have money on the side too incase his money levels are low again, as a comfort blanket. His financial adviser has recently become qualified in equity release. The adviser is able to educate Mr Pike with a new solution that will tick every box. Firstly, they discussed all options before taking on another secured loan, such as ‘rent a room scheme’ or asking family for help. Mr Pike didn’t like the idea of a stranger living in his home, neither does he have anyone he can lean on financially. In conclusion, the financial adviser recommended a drawdown lifetime mortgage with an initial release of £106,000 to meet his immediate needs, with an additional drawdown facility of £86,000 to withdraw further funds if and when he needs – without accumulating extra interest. The adviser was able to show that with this solution, Mr Pike would be £734 per month better off!! Mr Pike can now carry on his retirement without the worry of not being able to put hand to mouth each month and staying in his home until he dies or goes into long term care.

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Case Study3: Grandson’s house deposit

• Mr & Mrs Edwards

• Late 60s

• Property worth £300,000

• Grandson with a baby on the way

 

Mr and Mrs Edwards are both in their late 60s, they have their only daughter Rebecca who has a son of her own called Michael. Michael, Mr and Mrs Edwards grandson, has recently finished his degree and started full time employment as an accountant. His girlfriend has recently fallen pregnant, so Michael is desperate to move out from living with his mum to be able to provide for his new baby on the way. Michael has next to no savings as he needed them to help him through his time at university. He wants to stay in the same area as his mum and his grandparents but due to costs of houses in the area, he and his girlfriend are unable to save enough for a deposit.

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The solution? Mr and Mrs Edwards contacted their financial adviser to see if they would be able to help Michael and his girlfriend. However, in conversation, their financial adviser let them know that Mrs & Mr Edwards were able to gift Michael his inheritance early. As Mr and Mrs Edwards own their house outright, they were able to use equity release to take out £20,000 of tax-free cash from their property and gift it in its entirety to Michael – giving him a great head start to be able to get on the property ladder. In fact, he was able to get a property right in the village with his mum and grandparents.

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7 years later After a few years in retirement with their state pensions and a bit of a private pension, Mr and Mrs Edwards wanted to seek advice again from their financial adviser about the prospect of using equity release to enable them to enjoy their retirement a bit more comfortably. Their financial adviser has now been able to go back to the lender and re-mortgage their equity release. As the property has already gone up in value, they are able to receive another £30,000 in a form of a drawdown. Mr and Mrs Edwards can take out the money as and when they want to spend it and they will only be accumulating interest on the amount they spend. Rebecca is more than happy for her parents to use their tied-up equity as funding, so she can see them live the rest of their lives as best they can.

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Case Study4: Purchasing a dream home

• Mr & Mrs Smith

• 70 and 75 years old

• Property worth £450,000

• Dream of moving to the seaside

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Mr and Mrs Smith have lived in the same town, in the midlands, their whole lives together. The couple have always had the aspiration that once retired they will have the savings to move down to their favourite place in the world, by the seaside in sandbanks. Their son, Richard, flew the nest many years ago; he now works and lives in London with his young family. Mr and Mrs Smith are very proud of how much Richard has achieved, but they really wish they could spend more time with him and his family. What they would really love is their seaside home for the whole family to come and holiday to. Mr and Mrs Smith started to look into the house buying process down in Sandbanks and came across their dream house… at £700,000! Unfortunately, the house is way more than the sale of their house, their savings and monthly income can afford.

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The solution?  Mr and Mrs Smith got in touch with an estate agent in Sandbanks to see whether they can find something just as perfect, but a little more in their price range. The estate agent told them a way of potentially being able to get the dream house they saw online. The answer being equity release. Mr and Mrs Smith knew about equity release but were unaware that you could do such a thing on a property you don’t even live in yet! The couple had their current property valued, and it is now worth much more than they bought it for in 1965, and as a result they were offered £450,000. They can now pay the short fall of £250,000 with a lifetime mortgage on the new house. The plan is on an interest roll up with the option of an annual repayment to stop the £250,000 accumulating interest to the property. Richard would rather his parents not worry about more payments so he decided he will service their interest annually for them. Mr and Mrs Smith can now enjoy their time relaxing by the seaside, with enough room for the family to come and stay during school holidays.

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