By Darren Amos, Independent Financial Adviser and Equity Release expert.
We’ve all heard horror stories about Equity Release and how people have lost everything, but are they true? To be brutally honest, the answer is probably yes…. or at least it used to be.
Like most things in life, most schemes were perfectly suited to clients and were recommended by advisers who had their clients’ interests at heart, but unfortunately, a few were not.
But that was before this area of financial advice became properly regulated. The first step was for the providers to create a Code of Conduct known as SHIP. This stands for Safe Home Income Plans. In 2012 these rules were adopted by the Equity Release Council who are now the governing body of the Equity Release market.
So, what is the Equity Release Council?
All the major providers of Equity Release mortgages are members of the Council. As are many advisers and solicitors that offer specialist advice. Whilst the lenders may advertise their products, they will only accept applications made on your behalf by a suitably qualified financial adviser. The number of advisers that offer this advice in the UK is still relatively low. The Council actively encourages advisers to consider looking at attaining the necessary qualification.
Equity Release mortgages have changed over the years, and in many ways, they are now much more like the traditional mortgage that we all used to buy our home. At all times you remain the owner of the property. The mortgage is usually paid off when the house is sold, possibly at the time of death or going into care. In the case of a jointly owned house, this would only be the case upon the second death or when both go into care.
How does an Equity Release mortgage differ from a traditional mortgage?
Just as with a conventional mortgage interest is charged, and the mortgage is set up on an Interest only basis. In most cases, the interest is added to the loan and no payment is required, although voluntary payments are usually allowed. The Equity Release mortgage rates are usually a fixed rate for life. With rates starting at slightly higher rates than you might pay for a conventional mortgage on a 5 year fixed rate. When you consider that the mortgage might be fixed for 25 years, 30 years or possibly even longer the rates do seem fair.
However, this is one area that is frequently misunderstood as the debt can look as if it has grown significantly when your beneficiaries are sorting out your finances. This perception is not necessarily true. What is often missed is the fact that on a traditional interest-only mortgage you have been paying the interest. If you added the amount that you have paid over 25 years back onto the amount left to pay, then it would be a very large number. Much more than the original amount borrowed. Let me give you an example. If you pay a traditional interest-only mortgage at 4%, borrowing £100,000, you would repay in total £200,000 over 25 years. This is exactly how the Equity Release mortgage works too.
What is the application process?
Once an adviser has recommended the most suitable product for your needs and the application has been processed the Council’s rules state that you must use an independent solicitor. This is of your choosing to finalise the mortgage conveyancing. The solicitor must be approved for Equity Release – not all are. They are required to meet with you and go through everything again. This is to ensure that you know exactly what you are doing and that you are not being coerced in any way. Either by the adviser or perhaps members of your family. Once they are satisfied that you wish to proceed, they sign a certificate to the lender to confirm everything.
So, it’s not a bad thing anymore, but it might not be suitable for everyone.
How we can help you with your Equity Release
We are a firm of Independent Financial Advisers (IFA’s). This means that the advice we offer is unbiased. We will look at all the financial solutions that are available to you, not just Equity Release.
The first meeting is at our expense and without obligation. Only if you choose to proceed and your case completes would a fee of £895.00 be payable. This fee can be paid to us by your solicitor from the funds released. Why not arrange a meeting today?
A meeting can be arranged at a time and location that is convenient for you. This may be in the evening or at a weekend if you wish to have family members involved. We can visit you at your home or you may prefer to come into one of our office in Kettering.
These products are lifetime mortgages or home reversion plans. Equity released from your home will be secured against it.