Issue no.9 January 2019
L I F E T I M E M O RTG AG E
INSIGHT Retirement Included in this issue
The future is bright:
Celebrating successes and looking forewards
Product innovation and flexibility drive growth
By Paul Carter, CEO, Pure Retirement
By David Burrows, Chairman Equity Release Council
Page 7
Page 9
Using equity release to buy a second home By Alice Watson, Head of Marketing and Communications, Home Finance, Canada Life
Page 14
Please note any information in this magazine is for registered intermediaries and NOT to be issued to members of the public.
Welcome To our January 2019 edition We have continued to see fantastic growth in 2018, and as a result we have every reason to look forward to 2019 being even better. We hope that you enjoy the latest issue of LMI, and that it provides something of use. Our special thanks go to Pure Retirement’s Marketing team who (as ever) have assisted in the production of the magazine to help spread the word, and please feel free to share and pass on. Thanks,
Jane Hanlon, Club Manager, The Premier Equity Release Club
2
LIFETIME MORTGAGE INSIGHT
Contents 4
Love them or hate them: Early redemption charges on Lifetime Mortgages
7
The future is bright: Celebrating successes and looking forwards
9
Product innovation and flexibilty drive equity release growth
10 A second home means a second option for equity release 12 Looking back and springing forward 13 Life goals 14 Using equity release to buy a second home 15 Residential mortgages for over 55s choosing the right customer 16 A guide to residential leasehold extensions 18 Rate changes from September 2018 18 Contact details and extra services
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Love them or hate them:
‘Early Redemption Charges’ on Lifetime Mortgages. By Jane Hanlon, Club Manager, The Premier Equity Release Club
At present, if you pass away (if joint on 2nd death) or have the misfortune on medical grounds that you need to go into care there will be no penalty. But what happens if neither of those scenarios are applicable and you still want to repay early? Currently there are two types of early repayment charge (ERC): one is variable and linked to gilts, and the other is fixed percentage over a set number of years. Variable The Early Repayment Charge (ERC) is calculated to recover costs that a provider
incurs when setting up a Lifetime Mortgage – i.e. transaction costs incurred in reinvesting the money - or due to changes in long term interest rates. The ERC is usually based upon the FTSE UK Gilt 15 Year Yield Index (called index and published daily in the Financial Times). A benchmark figure can be set on date of Offer or on the day the mortgage completes, and if the lifetime mortgage is redeemed a comparison will be made between the benchmark figure set at the start of the lifetime mortgage and the Gilt rate of the day of redemption.
then there may not be a penalty to pay or if the lender has capped to a certain age. However, there may be additional adjustments to cover administrative expenses levied by the lender. So, it could be zero % or could be as much as 25% of the initial motgage amount, details of lenders below and also the exceptions, when it may reduce or be waived.
If the Gilt rate is lower than the bench mark figure there will be a penalty to pay. If the Gilt rate is higher than the bench mark figure,
Variable Gilt linked lender details below:
4
Lender
What it could cost
For joint on first death
Aviva
Gilt linked max 25%
No ERC for 3 years after first death or entry into LTC
Hodge Lifetime Flexible and Lump
Swap rates max 25%
Just
Gilt linked max 20%
No ERC for 3 years after first death or entry into LTC
Legal & General Home Finance
Gilt linked max 25%
No ERC for 3 years after first death or entry into LTC
more 2 life Tailored Choice
Gilt linked max 25%
more 2 life Maximum Choice
Gilt linked in year 6-10 to a max of 6%
Pure Retirment Draw Down
Gilt linked max 20%
Downsize protection
Downsizing protection ERC’s applicable in first 5 years only.
Downsizing protection only after 5 years If new property unacceptable to lender.
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019 Fixed Early Redemption Charge is a fixed percentage for a set number of years and whilst these are easy to understand in the early years, if you choose to redeem outside the exceptions it will have a guaranteed penalty. Some lenders base the percentage on the initial loan whilst other lenders go on the balance of account at settlement. The lender percentage on the balance can have a significant effect if someone is intending on repaying before year 5 on the rolling balance - in fact, the redemption penalty figure goes up. However, if repayments have been made over and above the interest and the clients have been paying some of the capital then it would work to their advantage. Fixed Early Redemption lenders below: Lender
What it could cost
For joint on first death
Downsize Protection
Canada Life
5% in year 1-5 and 3% in year 6-8 based on initial thereafter nothing.
No ERC for 3 years on first death or entry into LTC Except Lifestyle range.
ERC’s are applicable in first 5 years- Except Lifestyle range.
Note: Lifestyle Platinum cash back 8% in year 1-5 and 6% in year 6-8. LV=
5% in 1-5 and 3% in 6-10 based on initial thereafter nothing.
No ERC for 3 years on first death.
Downsizing protection only after 5 years IF new property unacceptable to lender.
more 2 life Capital Choice
5% in year 1-5 and 3% in year 6-10 based on balance outstanding, thereafter nothing.
No ERC for 3 years on first death.
Downsizing protection only after 5 years IF new property unacceptable to lender.
more 2 life Maximum Choice
5% in year 1-5 on balance outstanding and 6% in year 6-10 or based on the gilts whichever is the lower.
No ERC for 3 years on first death.
Downsizing protection only after 5 years IF new property unacceptable to lender.
OneFamily
6% in year 1-5 and 3% in year 6-10 based on initial thereafter nothing.
Pure Sovereign
5% in year 1-5 and 3% in year 6-8 based on initial thereafter nothing.
Both have their place, but with the exceptions offered by some of the lenders should help reduce penalties for the future. So, Variable calculation The amount repaid - (Sometimes remainder of ERC term) - difference between benchmark rate and index = £ could be 0 or could be as much as 25%. Fixed percentage calculation £’s x % = if within the penalty £’s if outside £0 The Premier Equity Release Club is independent, experienced and knowledgeable. We are here to help you through the maze of products and criteria, so please feel free to give us a call to chat things through on 01326 567970
ERC’s in first 5 years.
O
N
S
G E
SO
V
N EIG RAN G
E
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VE
REIGN
A R
Range
Experts in Equity Release Release the potential for the future with our new whole of market Sovereign Range
A new whole-of-market product suite, adding a greater degree of flexibility that better caters form the changing needs of your customers
Minimum age as low as 55 Max total facility of ÂŁ1mil (and potentially more on referral to Pure) Fixed ERCs based on initial advance (not the balance) Varied drawdown options to best suit your clients needs Wider property criteria, allowing more of your clients to benefit New ERC free settlement options (Downsizing, Porting, Long Term Care)
0113 3660 599 www.pureretirement.co.uk For intermediary use only. Pure Retirement Limited, 4305 Park Approach, Thorpe Park, Leeds, LS15 8GB Company registered in England and Wales No. 7240896. Pure Retirement Limited is authorised and regulated by the Financial Conduct Authority. FCA registered number 582621.
Retirement
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
The future is bright: Celebrating successes and looking forwards
By Paul Carter, CEO, Pure Retirement
If 2018 is anything to go by, then 2019 is truly set to be a landmark year for equity release. The sector has seen unprecedented levels of interest and support from a number of areas and agencies over the last twelve months, which, when allied to the market’s own development and innovation has seen some headline-grabbing figures from across the later life lending market. Innovation has been a key theme throughout 2018, and the overall number of products available to consumers almost doubled compared to where it was just two years ago. With that expanded availability has come greater flexibility, with many new introductions now featuring a wide range of options when it comes to both ERCs and catering for the changing needs of clients over the course of the loan period. We expressly aimed to open up equity release to yet more consumers when we launched our Sovereign range last autumn which introduced a number of key ERC options, as well as provisions for long-term care (something that is increasingly being mentioned in the same breath as equity release). In addition the range features a wide range of acceptable property criteria, further expanding its reach and opening up later life lending to as many of our potential clients as possible. To be operating in the market at
such a competitive time has been an exciting proposition for us, and we hope that everyone else has felt the same way. Perhaps as a result of the market’s development during the year and the way it has released products with greater flexibility that cater for the ever-changing priorities and needs of customers, equity release has increasingly been seen as a viable and legitimate later life financial planning tool both among consumers and powers-that-be. We’ve routinely seen £11m+ of housing equity being released on a daily basis, contributing to the sector achieving £1bn of lending in a single quarter, a milestone that had long been on the cards and which cemented later life lending’s increasing usage and acceptance in wider society. This position was further enhanced by the government’s decision to recommend the signposting of later life lending as a retirement planning tool as part of its forthcoming financial advice service – a real boom for the industry that can only enhance its reputation and assist its growth moving forward. All in all, everyone’s hard work has truly driven the marketplace to new heights over the past twelve months, and we hope that everyone took a moment over the holidays to reflect on our collective achievements as a sector throughout 2018. It’s undoubtedly laid a strong foundation for the new year, and we’re all looking forward to seeing where the next chapter of the later life lending story takes us.
Retirement
Equity Release Council Consumer Brochure Available to download or Council members may purchase printed versions to use with their customers.
Equity Release Council How to access property wealth in later life
www.equityreleasecouncil.com
Contents include: • Information on what Equity Release is and how it can be used, along with the different types available • How the consumer can find an adviser via the Equity Release Council and why they should select a member of the Council • Statement of Principles • Product standards • Regulations • Complaints procedures
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Product innovation and flexibilty drive equity release growth By David Burrowes, Chairman, Equity Release Council
• Product options more than double in two years: 139 in August 2018, up from 58 in 2016 • Number of homes in England bought with a gift or loan from family or friends reaches a new high of 1.1m • New customer numbers driven by increased product flexibility and more competition in the market as people seek to meet pressing social needs such as giving help to younger generations and meet mounting care costs
innovation across the later life lending market. The growing base of equity release customers in recent years – up by 81% from H1 2016 to H1 2018 – has been met with an increase in product choices, helping to meet homeowners’ increasingly complex needs in later life. In a sign that property wealth is emerging as a mainstream retirement funding choice today’s equity release products also offer greater flexibilities to help customers manage their finances in later life and limit costs. Four in five (80%) product options offer consumers the choice to make ad-hoc, penalty-free voluntary or partial repayments of their loan - up from 68% a year ago - while lifetime mortgages now include the option to ringfence equity. This means homeowners can retain some of the value of their property as a guaranteed minimum inheritance.
Additionally, increased choice has come with lower pricing driven by greater competition in the sector: the average interest rate for equity release products was 5.22% as of July 2018, down from 5.27% in July 2017 and from 5.96% a year earlier2. Comparing average rates by customer rather than by product shows that the typical new customer paid less than 5% across both drawdown and lump sum The growth in equity release has been driven plans. by innovation across the later life lending Housing wealth’s role in the retirement market, as the number of product options landscape available has more than doubled in two Due to the changing demographic years. landscape – in 50 years’ time As of August 2018, 139 product options1 the nation is were available to consumers, more than double the number (58) seen two years ago, according to the Autumn 2018 Equity Release Market Report from The Council. By contrast, just 24 product options existed in 2007.
• For every £1 of savings withdrawn via flexible pension payments in the last 12 months, 50p of housing wealth was unlocked via equity release – up from 40p a year earlier
Discussions about the potential for housing wealth to help meet diverse social needs from funding social care to providing intergenerational support have brought opportunities for
expected to have an additional 8.6m people aged 65 and over3 – demand for equity release is likely to continue to rise as more people look to supplement their savings and help meet pressing social needs, including mounting care costs and intergenerational lending. Government figures show the number of households in England purchased via a gift or loan from friends or family recently reached a post-2007/8 high of 1.1m4, highlighting the importance of transferring wealth from one generation to the next. Changing attitudes to property wealth and retirement savings are also playing an important role. Investing in property is continuing to be consistently cited by the public among the safest ways to save for retirement, second only to paying into an employer pension scheme5. Additionally, the latest industry data shows for every £1 of savings withdrawn via flexible pension payments in the last 12 months, 50p of housing wealth was unlocked via equity release – up from 40p a year earlier6. 1. Product data supplied by Key 2. Equity Release Council analysis of data from Moneyfacts/Bank of England. Rate changes measured in basis points (bps). Average equity release rates exclude products which do not meet the full Equity Release Council product standards 3. Office for National Statistics, 2016-based population estimates, principal population projections 4. English Housing Survey data, 2008-09 to 2016-17 5. Office for National Statistics, Early Indicators from the Wealth and Assets Survey, August 2018 6. Equity Release Council lending activity, HMRC flexible payments from pensions
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
A second home means a second option for equity release By Chris Smyth, LV= Business Development Manager, Equity Release
As the Equity Release market continues to grow at a substantial rate, at LV= we are continuously working to ensure that our proposition offers a flexible approach to borrowing. Of those equity release plans that have already completed, how many customers owned a second property or holiday home? How many were aware they may be able to release equity on a second property or holiday home (in the UK)? For those cases which were declined due to property criteria, how many of the customers owned a second property or holiday home which was reviewed as an option? Over the last 12 -18 months we have seen a number of customers leveraging their main residence and second/holiday home in order to achieve their financial objectives. For example, there may not be sufficient value in their main residence to release funds to repay a mortgage or to gift to family, but combining two properties makes it possible. Another thing to consider is the fact that customers may have less emotional attachment to a second/holiday home when compared to their main residence. They might feel much more comfortable to have a charge over their second property. There are great opportunities in this space for you as advisers.
homes / holiday homes on a case by case basis, subject to a 10 percentage point reduction in loan to value. Otherwise, our terms remain as standard.
the sole occupancy of the applicant for a minimum of 4 weeks per year and should not be located within close proximity of an applicant’s main residence.
We take a bespoke underwriting approach to each case we see and have recently built When you add this to our competitive additional flexibility into our second/holiday interest rates and fixed early repayment home criteria: charge structure, our second/holiday home proposition becomes an extremely • We have increased the time a property compelling solution. may be let each year from 4 weeks in total, to four weeks per individual let For further information, please contact us: (can’t be consecutively to the same T: 0800 028 8974 (option 1) person) with no annual limit.
Figures published by the Resolution Foundation in 2017 show that 1 in 10 British adults or 5.2million people own a second property.* Releasing equity from a second home / holiday home is a new concept to some, but one which offers an alternative E: equityrelease.sales@lv.com way of thinking and planning. Ultimately, it • Whilst the property should not have any allows more flexibility to borrowers in later life. prominent signage, we may now *Source – Resolution Foundation - Published on 19 consider some sort of advertisement on a August 2017 – Link below: At LV= we were at the forefront of this flexible site such as Airbnb or similar. https://www.resolutionfoundation.org/media/press-r thinking as the first lender offering this option eleases/21st-century-britain-has-seen-a-30-per-cen t-increase-in-second-home-ownership/ • The property must still be available for to customers. We will consider second
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LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Our lifetime mortgages just got even better By Julia Dobell, Business Development Manager, Onefamily
Those of you who’ve already submitted a case to us will know how easy it is to work with OneFamily - you’ll already know how flexible our products are, and you’ve probably already discussed a case with one of our underwriters before submitting it.
period on our 2-year Fixed and Variable Rate products from 10 years to 8 years, which means your clients would be more likely to pay a lower charge if they decided to repay the loan early. The table below shows how this will now be applied. Years
1
2
3
4
5
6
7
8
(after mortgage start date)
ERC (as a % of loan amount)
6% 6% 6% 5% 4% 3% 2% 1%
Flexible underwriting We’re committed to working with you to secure the best outcome for your clients. As well as giving you direct access to our underwriters, our flexible approach to underwriting means we may be able to provide you with a solution for your clients when no one else can. To find out more, please give us a call on 0800 802 1645 or email us at lifetimemortgages@onefamily.com and one of our sales support team will be delighted to help you.
What you may not know is that we’ve made a number of product enhancements that make working with us even better.
£
Reduced rates across our product range Your clients can now benefit from reduced rates across our Variable, 2-year Fixed and Fixed Rate products (starting from 4.34% MER on our Fixed Rate product). More details can be found at www.onefamilyadviser.com. £1 million maximum loan By increasing the maximum loan amount to £1 million on all our products, your clients can now use a OneFamily Lifetime Mortgage to release even more equity from their home. Reduced Early Repayment Charges (ERC) We’ve also reduced the ERC
£
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Looking back and springing forward 2018 and equity release
By Stuart Wilson, Corporate Marketing Director, more 2 life further highlights the suitability of equity release in meeting the complex needs of those in later life, but also the lack of other suitable products on the high street. Equity release has bridged a gap in society which has long been needed, and which will continue to be needed as long as care costs continue to mount, as long as savings The amount of new products launched across the equity release sector this year has continue to perform badly and pension been phenomenal, with new funders entering provisions continue to be poor for those the market in light of the growth experienced reaching retirement age, and as long as the housing crisis for younger generations during recent years. Indeed, according to continues. Equity Release Council and Key Group research, there has been a 78% increase in However, the market will not stop here. As the amount of equity release plans on the more and more funders and products enter market in 2018 alone, and a 206% increase the market, competition and innovation will since the beginning of 2016. continue to thrive, which can only be good
As 2018 begins to draw to a close, we can’t help but be amazed at the sheer progress that the equity release sector has made in less than 12 months.
There has also been a considerable uplift in the amount of flexible features offered on equity release plans, due to the increasingly complex needs faced by those entering later life. 80% of all equity release plans now offer ad-hoc, penalty-free partial repayments, 51% offer fixed early repayment charges, 46% offer inheritance protection (which secures a portion of the loan or future house value as inheritance for loved ones), and 45% of plans offer downsizing protection (which allows borrowers to repay their loan ERC-free if they move into a property which does not meet lending criteria).
Filling a gap in the market The increase in customers and plan features
12
for the consumer; rates will only become more competitive, product features will only become more flexible, and only more options will be available for a wider range of needs.
Innovations in technology Increased consumer volumes has also lead to innovation and development in the technology used throughout the sector. As a mostly paper-based industry, this surge in technological development has been long-needed, and long may it continue. Today’s typical consumer, no matter what age, is more demanding than ever. We have become used to instantaneous gratification; and not in lieu of great customer service,
through the use of apps such as Just Eat, Uber, and online banking. At more 2 life alone, we have invested heavily in tech, and throughout 2018, we developed and launched our market-leading online portal, fastpath. Within weeks of launching, we found that, on average, fastpath is 10 days faster than using paper-based processes, and our fastest times for creating KFIs, submitting offers, and going from app to offer plummeted to 41 seconds, 4 minutes, and 4 hours and 41 minutes respectively.
Looking forward As we head towards 2019, as an industry we have an excellent springboard from which to develop further. 2018 was the first year in which equity release lending reached £1billion in a single quarter; could 2019 be the first year in which the industry lends over £1billion in every quarter? Here at more 2 life, we are preparing for our biggest year yet; more products, more features, more support for advisers, and more lending than ever before...
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Life Goals By Jo Wilson, Key Account Manager, Legal & General Home Finance
Legal & General interviewed 2,000 homeowners aged over 55, to ask them about their goals and aspirations for the future. We wanted to find out what excited them about their retirement, and how big a role money played in their dreams. Travel and self-improvement featured heavily in the top 30 answers. Sports cars, motorbikes and tattoos appeared, but so did volunteering for charity and mountain climbing. We heard inspiring stories of people finding love, getting their black belt in karate, or enthusiastically getting involved in their local drama groups. The research showed that having life goals was credited with a range of positive outcomes, including: staying young, feeling alive, and even challenging other people’s expectations of life after 55. For many, life in this age bracket offered an exciting and vibrant lifestyle. Half said money held them back. Only 4% had released equity. As an adviser, you’ll already realise that money plays a significant role in the lives of over-55s. It probably won’t surprise you to learn that the number one barrier to reaching goals cited by respondents was, in fact, money. More than half (51%) cited this as a stumbling block. Rather than a ‘lack of time’ (29%) or ‘fear’ (just 8%), it was primarily a lack of money that held them back from achieving their goals.
To watch our ‘Life Goals’ video or read the full report, you can visit the Legal & General Interestingly, just 4% had released equity website from their home to give themselves a better (https://www.legalandgeneral.com/adviser/retire quality of retirement. We are working with ment/news-and-insight/2018/how-ambitious-life advisers to understand how our products -goals-are-changing-the-lives-of-over-55s.html) could help more of your clients achieve their life goals in the future. build a bigger pension pot.
Life goals of over 55s 1. Travel more
11. Volunteer for a charity
2. Visit Australia
12. Buy a sports car
3. Learn a foreign language
13. Take up painting
4. Retire
14. Learn to play guitar
5. Drive along Route 66 in America
15. Learn to swim
6. Move abroad
16. Get a personal trainer
7. Downsize the home
17. Have liposuction or a tummy tuck
8. Go to more gigs and concerts
18. Get a degree
9. Pay off the mortgage
19. Climb a mountain
10. Eat in a Michelin-starred restaurant
20. Get a six-pack
72%
17%
51%
still have goals in life they would like to achieve.
said their 60s was when they achieved most of their life goals.
were optimistic they still had time to fulfill all their goals.
85%
22%
of both men and women agreed that they thought people over the age of 55 have a better quality of life now than they would have done in previous generations.
had got fit and healthy so they could enjoy their spare time more.
When asked what steps they were taking to ensure that their retirement years will be as good as possible, there was a range of responses.
29%
Many people talked about their health. 22% had so that they could enjoy their spare time more. Our interviewees took part in dancing competitions, martial arts classes and even mountain climbing! A similar number had booked a holiday to relax when they retired. Many opted for cruises and extended trips to visit long-distance relatives and friends.
65%
58%
agreed they were doing everything within their power to achieve their goals.
said they intended to retire earlier than the state pension age, or had already done so.
83%
51%
Others, in contrast, had taken a more sacrificial approach, downsizing their homes, working more, or delaying their retirement to
feel younger than their age.
said the number one barrier to reaching goals was money.
said that a lack of time or difficulty fitting in time around work was stopping them achieving their goals.
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Using equity release to buy a second home
By Alice Watson, Head of Marketing and Communications, Home Finance, Canada Life
At Canada Life we understand that no two retirements are the same. Our customers use equity release for a whole host of reasons, and our flexible and innovative products allow them to make the most of the wealth tied up in their properties in a number of different ways. Home improvements and adaptations have been the most popular reasons for taking out a Home Finance product with us so far in 20181. However, we’re seeing a rise in customers using the funds they release to enrich their retirement in other ways. For example;
make capital repayments as well, or simply let the interest roll up until they’re ready to make the move down South.
Having consulted their financial adviser, they decided to take out a lifetime mortgage. Their property in London is worth £900,000, and by taking out a Voluntary Select Platinum lifetime mortgage with us, Mr and Mrs Robertson were able to release a maximum of £315,000 of equity. The average house value for a semi-detached property in Weymouth in the last 12 months was £273,0952, so the Robertson’s had two options. They could take the amount they needed for the purchase or alternatively, they could choose to add a cash reserve facility to the lifetime mortgage and drawdown the additional funds as and when they need them – perhaps to help make their new property feel like home.
We’re increasingly seeing that choosing where to live in retirement isn’t as simple as just deciding to downsize as soon as you retire, and our products are designed to allow your customers the flexibility to make the right decisions for them, because every retirement is different. You can find out more about our Voluntary Select Options on our website. And if your client already has a second home, did you know that they could release equity from their second property using our Second Home Options? Find out more at canadalife.co.uk
The Robertson’s are aged 62 and 65 and they’ve lived in London for more than 30 years. They’ve seen their property increase in value exponentially over that time, and they’re aware that this is their most valuable asset, as neither of them have particularly large pension pots to fall back on.
The Robertson’s eventual aim is to move down to the coast permanently, but they don’t plan to move for a few years, until their grandchildren have grown up and left school. Our lifetime mortgages have fixed early repayment charges, so on our Voluntary Select Options, if after 8 years they decide to sell their property in London and move down to Weymouth to live in their second home permanently they will only need to pay back the initial loan amount, and any interest that has accrued.
They always loved taking holidays to Dorset with their family when they were younger, and now that they have retired they’ve decided they’d like to spend more time there. They’ve still got lots of friends and family living in London, so they’re not ready to leave the city just yet. They would like to buy a second home down in Weymouth
The Voluntary Select Options will also allow the couple to make voluntary payments of up to 15% of the initial loan amount each year, meaning that they’ll be able to choose whether to make payments to combat the effects of interest roll up,
Here is a scenario in which our products could help a potential couple, for the purpose of this illustration, we’ll call them Mr and Mrs Robertson.
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instead, with the view to moving there permanently once they decide it’s time for a slower pace of life.
1
Source: Canada Life, Q3 2018
2
Source: Zoopla Zed-Index November 2018
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Residential mortgages for over 55s choosing the right customer By Carys Frampton, Content Writer, Hodge
While equity release is the right option for many there are still those who would prefer an alternative, so Hodge Lifetime has created a wider product range appealing to as many types of customer as possible. Introducing the residential 55+ and 55+ RIO Mortgages was a response not only to the FCA’s mortgage market concerns, but also a growing demand from clients who wanted more choice.
According to the Office for National Statistics (ONS) the UK’s population is ageing, and ONS projections show that in 50 years’ time there’ll be an additional 8.6 million people aged 65 and over. As the number of older people increases, so too do the number still in work meaning more and more are opting for residential mortgages rather than standard equity release. Hodge’s range includes the 55+ Mortgage and the 55+ RIO Mortgage, and both are designed for borrowers aged 55 and above looking for a mortgage in later life or seeking
alternatives to traditional equity release. Hodge Lifetime customer service administrator, Sarah Wallington said: “We are always looking to lend where we can, this means we’re often able to help clients who have been refused elsewhere. “We’re always open to feedback from clients about our 55+ Mortgages, this has enabled us to update and expand our acceptable criteria.” What do later life customers look like? Hodge’s customer base for the 12-month period between November 2017 and October 2018 had an average age of 68 for new 55+ and 55+ RIO Mortgage customers, 66% of those were joint mortgages for couples. For individual mortgage customers 20% were female, compared to just 13% who were men. The average home value of customers during this time was £476,000 with the majority based in the south east of England. Mortgage Underwriter Ian Taylor said: “We’ll do whatever we can to help make a case fit. Amended term lengths, different loan size, alternative sources of income or other assets we can use – we’ll look at all possibilities to try and help.” So, for advisers struggling to find a product to suit their client, the 55+ and 55+ RIO Mortgages could be an option.
Carys Frampton - 0800 731 4076 www.hodge.co.uk
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
A guide to residential leasehold extensions
By Peter Barton, Partner & Head of Equity Release, Ashfords What is a lease?• A Lease grants a homeowner an exclusive right to own and occupy a property (typically a flat, though it can also be a house) for a set period of years known as the term. This right is typically granted out a freehold interest but could also come from a long lease. There is no such concept as a “Standard Lease term” and much depends upon the deal agreed between the original Landlord and the Tenant at the time the lease is granted. Many leases nowadays are only granted for terms between 99 and 125 years as Landlords wish to retain financial value in their interest in the property.
based on the valuation report for the extension. • The landlord’s solicitors will prepare the new lease and forward this to the tenants’ solicitors for approval. • The Tenant will normally be required to pay the landlord’s legal and professional fees for the lease extension. These fees vary depending on the location of the property and the type of landlord. However, legal fees of between £750£1,000.00 plus VAT are quite common.
2. Statutory • Provided set conditions are met, a tenant of a flat can extend their lease by a further 90 years and, of a house by a further 50 years on top of what is left under their current lease. • Qualifying criteria and procedure in both house and flat extension cases are different. However, in both cases, the lease must have originally been granted for a term in excess of 21 years and the tenant must have owned the property for at least 2 years. Certain other long leases may also qualify. • A premium is payable for a lease flat extension calculated by set statutory criteria but again it is broadly a reflection of the difference in the value between the tenant and the landlord’s interests in the property with and without the extension. As with an informal lease extension, a valuation report is obtained by the tenant in the first instance.
• Notice is served on the “competent • Aside from the term, the lease extension landlord” (normally the freeholder) stating is generally granted on the same terms as the premium and terms upon which the the current lease. It may be possible to tenant is requesting the extension. make some amendments to the lease If you are looking to purchase a leasehold Notice may also need to be served on terms (for example to meet a lender Property with the aid of a mortgage, a other parties. A landlord must be given requirement) but this will also require the lease with only a short term could be a at least 2 months to respond to this agreement of the landlord. problem. Lender traditionally require a notice by way of serving a minimum lease of 65 years and with equity • The lease extension is completed at the counter-notice on the tenant. same time as the mortgage, with both release Lenders, 75 years or more. It is • A deposit of 10% of the premium being sent for registration at the Land however possible to extend a lease term proposed by the landlord or £250 Registry. to create a brand new, longer lease (whichever is greater) is payable by the acceptable to lenders. • If purchasing a property from an existing tenant at the same time that their notice tenant, usual due diligence such as How can I extend my lease? is served. searches and enquiries will need to be There are two main ways in which this can • Any counter-notice served by the raised of the landlord in addition to be done: Landlord must state whether the agreeing the extension. The lease Tenant’s claim is extension will also need to be approved 1. Informal by the lender’s solicitors. A) Admitted; • Agreement for an extension is reached with a landlord on an open market basis. • Completion of an informal lease extension B) Rejected; or is generally cheaper and quicker than a • A valuation report is often obtained by C) Admitted but rejected on the grounds statutory process, normally taking in the the landlord to assess the value of its of redevelopment region of 3 months. This may be shorter if interest in the property with and without no valuation/premium is payable and the If admitted, the landlord will normally an extension. tenant is simply mortgaging/remortgaging, dispute the premium offered by the • A tenant often pays a premium at the depending on the Landlord and Lender tenant and will commission its own time the lease extension is granted, requirements. valuation report. Both the premium and
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LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019 the terms for the lease extension must then be agreed between the parties within six months. If agreement within this timeframe does not seem likely, an application to the Leasehold Valuation Tribunal will be required. If rejected the landlord can only do so on the grounds that the statutory criteria are not met and must make an application to court within 2 months of serving the counter-notice. If seeking to redevelop, again it must still serve a counter-notice and thereafter apply to court within 2 months.
tenant’s statutory rights and any premium requested for an informal lease extension would normally be valued and calculated in a similar fashion to that under the statutory route. There may be legal reasons why a statutory route is more beneficial. For example, if a landlord has a mortgage on it freehold/long leasehold interest, consent from their lender would be needed for an informal extension which may not be quickly forthcoming (seldom is it refused outright however). This is not the case for
Failure of the Landlord to follow the correct procedure and timescales could result in a court ordering a new lease being granted to the tenant in lieu of the landlord doing so. • Once terms for the new flat lease extension have been agreed a legally binding contract is formed and completion must then take place within 2 months. A defaulting party can be ordered to do complete by a court. • The lese extension will generally be granted on similar terms to the existing lease, though there are some additional provisions required to be included by law (for example, a landlord right to redevelop). Again, any additional amendments will need agreement from the Landlord. • A tenant will be responsible for the landlord’s reasonable legal and professional costs for the flat lease extension, again set and limited by law. A broadly similar process applies to extending a lease of a house, though it should be considered whether it is more advantageous for the tenant to look to purchase the freehold (where a statutory right also exists). Unlike with flats leases, a tenant is only entitled to extend their house lease once under the statutory route and must also exercise their statutory right to acquire the freehold during this period. Which route is best? Given that the statuary route for lease extension set out a minimum timescale for parties to respond, it will take longer and be more costly than an informal extension. It is not uncommon for a non-contentious statutory lease extension to take towards a year if all parties worked to the last day of limits. Equally, landlords will be aware of a
t e n s e a e L reem ag
a statutory extension as only in very limited circumstances would a landlord’s lender need to be involved. Whether an informal or statutory route is considered, it will be important to obtain proper legal advice and assistance throughout the conveyancing process. If any of your clients are considering raising funds on their leasehold property and require an extension, we would be only too pleased to assess the options available and discuss the best way forward. Please contact 01392 337000
LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Learning Zone Inspired by Pure Retirement’s new Learning Zone on their Online Portal, we continue to include a new Learning Zone section in our 2018 magazines, highlighting the events and resources that are readily available to you, keeping you updated on this ever-growing market and helping you to build your business in equity release.
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LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Upcoming Events
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LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Rate changes from 26th Sept 2018 Lender
Product
Lowest Rate
Aviva
Flexi Lump
Please note that each Aviva case is individually assessed.
Canada Life
New Capital – Gold Capital Platinum Interest Platinum Volutary Platinum Lifestyle Platinum C/Back 3% Lifestyle Voluntary
4.35% 5.55% 5.99% 6.29% 6.88% 6.16% 6.36%
4.35% 5.55% 5.99% 6.29% 6.88% 6.44% 6.64%
4.35% 5.55% 5.99% 6.29% 6.88% 6.16% down 6.36% down
Hodge
Lump sum Flexible
4.14% 4.34%
4.24% 4.44%
4.14% down 4.34% down
Just Retirement
Roll Up Lump Sum Lite Lump Lite Lump Sum Plus Lump Sum Plus
5.29% 60 - 4.8% 70= 4.60% 55 from 5.59% from 72+ 5.30%
5.29% 5.10% 4.90% 6.00% 5.71%
5.29% 5.10% up 4.90% up 6.00% up 5.71% up
Legal & General
Flexi Flexi Plus Flexi Max Flexi Max Plus Premier Range
3.71% 3.94% 4.65% 5.33% 3.56%
4.13% 4.39% 4.95% 5.74% 3.98%
4.13% up 4.39% up 4.95% up 5.74% up 3.98% up
LV=
Flex Lump Sum
6.04% 3.8%-4.36%
6.04% 4.83%
6.04% 3.85%-4.56% up
More2life
Tailored Enhanced Capital Choice Capital Choice Plus Maximum Choice Lump Sum Maximum Draw Down
from 6.33% 4.51% 4.85% 5.46% 5.65%
6.33% 4.61% 5.01% 5.46% 5.65%
from 6.33% 4.56% 10/01/2019 4.85% 10/01/2019 5.46% 5.65%
Onefamily
Interest / Vol Lite CPI Interest / Vol Lite Fixed Interest / Vol Standard CPI Interest / Vol Standard Fixed
4.80% 4.43% 5.22% 4.90%
5.43% 5.30% 5.85% 5.80%
4.80% down 4.43% 5.22% down 4.90% down
Pure Retirement
Drawdown 1 Drawdown 2 Drawdown 3 Cashback option 2.5% Sovereign - 5 levels
6.29%-6.84% 6.04%-6.59% 6.44%-6.99% 3.93% - 6.92%
6.39%-6.99% 6.14%-6.74% 6.54%-7.14% 3.93%-6.92%
6.29%-6.84% 6.04%-6.59% 6.44%-6.99% 3.93%-6.92%
BTL & Seconds
London & SE loaded cheaper if £599 Arr/fee
New - pay val New - pay val
New Fixed ERC
Highest Rate
Current Rate
Correct at 28/11/2018. Please always check lenders rates and commissions as this can change without notice.
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LIFETIME MORTGAGE INSIGHT Issue no.9 January 2019
Contact details and extra services Lenders
Solicitors
PI Cover
Aviva www.aviva-for-advisers.co.uk 0800 015 4909
Marketing deals available if using panel solicitors and lenders £50
The PI Desk market leading with 18 years experience in FS Call Jane 01326 567970
Canada Life www.canadalife.co.uk 0800 068 0212
Ashfords 01392 334060 £495 + VAT + disbursements for club members
Crown 0208 875 5665 Mark King
Ashfords London Premier Service £750 + VAT + disbursements for quicker turnaround by 5-10 working days
Sourcing
Hodge Lifetime www.hodgeforintermediaries.co.uk 0800 731 4076
Aldington Law 01257 686386 www.aldingtonlaw.co.uk £630 + VAT for Club members including home visit
Iress- free www.thepremierequityreleaseclub.co.uk Registration on home page left scroll down
Just Retirement www.justadviser.com 0845 302 2287
Gilroy Steel 01604 620890 www.gilroysteel.co.uk £595 + VAT for Club incl home visit
Benefit software
Legal & General www.landghomefinance.com 03330 048 444
Poyntons Law 01625 837937 www.poyntonlaw.co.uk £595 + VAT and Dis for club, inc home visit by sols
Freeben www.freeben.co.uk 30 day free trail and £40.50 per annum with 10% discount per annum for club members
LV= www.lvadviser.com 0800 028 8974
Marketing deals available if using panel solicitors and lenders £50
WEB services
More2life www.more2life.co.uk 08454 150 151
Website for IFA made to measure from £145 for 12 months. From Freeben, call Jane 01326 567970
Onefamily www.onefamilyadviser.com 0800 802 1645 Pure Retirement www.pureretirement.co.uk 0800 0818 281
Equity Release Council www.equityreleasecouncil.com 0844 669 7085
Retirement
Please note any information in this magazine is for registered intermediaries and NOT to be issued to members of the public.