Equity Release guide discussion

Nick_Lovell

There is no such thing as an interest free lifetime mortgage.  Advice is around £1000 upwards for an advisor - but a whole of life broker can save you £1000's in interest, rather than a tied advisor who can only quote from one lender. The only product that does not charge interest is a home reversion plan and that involves selling part or all of the property. But absolutely you must take financial advice and legal advice both before committing to an ER plan.

Nick_Lovell

TELLIT01  it is annoying these tactics, but they should ask if your details can be added to their database and how they may contact you - and of course you have the right to refuse.  This is a GDPR requirement now. I would report them if they continue - or speak to their Compliance Officer they will soon stop very quickly!

missile

Nick_Lovell said:

There is no such thing as an interest free lifetime mortgage.  

Sorry, a typo. I meant interest only, e.g.

• Retirement Interest Only (RIO)

  A retirement interest only mortgage is very similar to a standard interest only mortgage, but with some differences.

  The main part of the loan (capital) is usually only paid off when the last borrower moves into long term care or dies and you only have to prove you can afford the monthly interest payments.

  Because you only pay off the interest on this type of mortgage your payments can be lower than a typical mortgage.

  The maximum loan amount is £500,000.

Nick_Lovell

RIO's have been very unpopular which is surprising - but the issue of affordability for most, rules them out. Plus they often have a fixed rate but after 5 years revert to standard variable rate which can make them very expensive. A lifetime mortgage is much more flexible as you can fix the interest rate for life - and rates are under 3% in a lot of cases, some even around 2.5%.  There are no affordability requirements and you can make the repayments of the interest, and both capital of up to 10% as well per annum. Then if you can no longer afford to make the repayments you can stop and allow the interest to roll up and compound. Hence why lifetime mortgages are a much more popular solution than RIO's and are no different in terms of the first legal charge on the property. Lifetime mortgages are a much more credible proposition for retired clients offering far greater flexibility than most people realise. 

missile

Hi Nick, Many thanks for that useful info

TELLIT01

RIO doesn't appeal to me precisely because there are repayments to be made each month.  If/when I release capital from the property I want simply to be able to spend that money on whatever I want.  I don't see the point in borrowing money and then have to use part of that borrowing to repay it.  The amount remaining when I die is of absolutely no interest (pardon the pun) to me.

missile

Swings and round a bouts.

ashpan

Rather than downsize, id rather stay where i am and im considering an enhanced equity release so that i can give each of my 2 children around £20k for house deposits. calculator says i can release £180k (not enhanced)
how do i find out what the questions are re health for enhanced equity release and what are the tax implications of giving my two adult (lower tax bands) children this £? 

Keep_pedalling

ashpan said:

Rather than downsize, id rather stay where i am and im considering an enhanced equity release so that i can give each of my 2 children around £20k for house deposits. calculator says i can release £180k (not enhanced)
how do i find out what the questions are re health for enhanced equity release and what are the tax implications of giving my two adult (lower tax bands) children this £? 

Enhanced ER is only for those in poor health, and not likely to live a long old age, so if you are fit and healthy then there is little point applying.

We do not have gift tax in the U.K. so there are no tax implications. 

Nick_Lovell

ashpan: The medical questions differ slightly from the 3 lenders who will look at this, and you do not have to be in poor health necessarily to qualify, BMI can play a part. If you have had previous health issues in the last 5 years these can be considered. The main ones that will qualify are cancers, heart diseases and respiratory issues, but simply being diabetic can also qualify for enhanced terms. The lenders will look to your GP report so you would have to give permission for this to be accessed. If you qualify for enhanced you can release a larger sum, which in your case is not an issue given the amount you require. One lender can give you a slightly better interest rate. For the tax implications this can largely be down to your estate value, and you should seek independent advice from a tax specialist if in any doubt. IHT can come into play - this example is direct from the .Gov website: Example

Sally died on 1 July 2018. She was not married or in a civil partnership when she died.

Sally left 3 gifts in the 7 years before her death:

• £300,000 to her brother 6.5 years before her death
• £50,000 to her sister 4.5 years before her death
• £150,000 to her friend 3.5 years before her death

Sally is not entitled to any other gift exemptions or reliefs.

There’s a £325,000 inheritance tax threshold. Anything below this amount is tax free.

£300,000 is used up by the gift Sally gave her brother. There’s no tax to pay on his gift.

The remaining £25,000 is used up by her £50,000 gift to her sister. There’s tax to pay on the amount not covered by the threshold. That means there’s tax to pay on £25,000 of the gift to Sally’s sister at a rate of 24%.

The £150,000 gift given to her friend is taxed at a rate of 32%.

Sally’s remaining estate was valued at £500,000 and charged at the usual 40% inheritance tax rate. Sally used up the tax-free threshold on gifts given before her death.

Hopefully this helps? 

ashpan said: