Equity Release Query

ppeetteerr

Hello all,

Hope this is the correct forum for this.

We are considering releasing equity on my property and would like as much info as possible please.

My wife and I are both in our mid-seventies, own our property and have no mortgage.

If anybody could provide info on any of the following:

·         Previous experiences with equity release companies?

·         Any tips on what to avoid/what is good to do?

·         Any tips on good or bad companies/good or bad equity release plans?

·         Any alternative options to equity release?

Best regards.

MWT

This is a big topic but I'll make a start...

Let me comment on the last question first, the usual alternative to equity release is a Retirement Interest Only Mortgage (RIO) or these days a normal repayment mortgage is sometimes possible.

Both of these will require that you can pass an affordability test and where the RIO does not have any specific term, the traditional mortgage will, and probably quite a short term based on age. The RIO affordability test will usually need to be passed for each of you individually as it has no term and is only repayable after the death or entry into long term care of the final surviving party to the mortgage so it is important that guaranteed income for each of you individually is sufficient.

Equity Release is different as there is no affordability test and their are no required repayments, but you can usually elect to make repayments if you wish, although these are likely to be limited to say 10% of the loan per year, or something similar.

The other key difference is that a RIO or other normal mortgage can be obtained directly from a broker or lender with minimal or no advice  fees, but an Equity Release product requires that you take advice before proceeding and those providing the advice can charge very significant fees, running into a few thousand pounds at times.

The good news is that there are some sources for advice on Equity Release that are free..  so don't just respond to one of the many adverts out there without determining what the costs are likely to be...

I went through this process recently and the quote I had ranged from paying nothing but legal fees of around £400 through to paying legal/product fee/valuation fee/advice fee all of which totalled up to over £3,500 ... ... and considering that whoever you go with for advice is going to get a payment from the lender on top of anything you pay, it is worth choosing wisely.

Just as an example, I elected to use Step Change Financial Solutions, they are part of the Step Change charity. They make no charge for their work and I felt comfortable with the thought that the income they would receive from the lender was helping fund the charity at the same time. There are other options for low/no fee paths with some of the high street banks/building societies as well.

It is important to understand the features of these products that are important to you and these will be explained during the advice phase but going in with some knowledge is helpful.

Early Repayment Fees are an oft quoted problem and yes with some plans the fees are high if you decide to sell the house and repay the loan early, but there are others that will give you a fixed ERC schedule that starts at say 10% of the loan but reduces over time so after 10 year it might be down to only 1%, after 15 years it might be 0%...

There is much more I could write, on topics like the suitability of your home for equity release, the dangers of deprivation of assets in relation to care home fees and the impact of equity release on means tested benefits, but possibly better to see if you have any questions at this point...

I'll end with one piece of advice though, if you have children or other relatives who might have an interest in the eventual value of your estate it would be good to let them know what you are planning to do, especially if it is children who perhaps might want to look at alternative ways to fund the reasons you are looking at equity release in the first place...

ppeetteerr

Thank you very much for the information. Lots to think about.

susleggott

Hi, the previous response is really comprehensive.... just to add to it a little.... there are variations on standard lifetime RIO which are fixed term, so affordibility test can be joint rather than single tested for each of you (eg if term will expire before either of you is 84).... if you are considering an interest only plan. For most people though, equity release is more versatile and lower risk. Yes, there is possibly an advice cost but it's probably not a bad thing to take regulated advice before committing to something like this anyway. 
In terms of finding equity release advice, IFAs will sometimes do equity release work with no fee because they get paid a commission from the lender, however they don't necesssarily have access to all the plans, some of the lenders don't deal with generalist IFAs at all or restrict their product offering. Always shop around, make a few calls - don't necessarily go with cheapest on advice although it's all part of the consideration! And I would say most brokers will negotiate on fees if they know you are shopping around. You should have a conversation with at least one whole of market adviser before going down the road of a tied/restricted option. Happy to answer any other questions you may have. 

MWT

susleggott said:

You should have a conversation with at least one whole of market adviser before going down the road of a tied/restricted option. Happy to answer any other questions you may have. 

I agree, that does make good sense, and need not actually cost anything either, as Step Change Financial Solutions for example is a free 'whole of market' advisor.

... but if you already have an advisor you trust and especially one that already knows your financial circumstances, don't begrudge paying them for their time and knowledge.

Some may feel they will need more advice and time than others, which can be another reason to increase your advice budget a little.

Whoever you arrange the product through will be getting a payment from the lender, so decide who you wish to receive that payment and how much you want to pay in addition to the payment they will be getting direct from the lender.