Issue n. 2| April 2015
LIFETIME MORTGAGE INSIGHT B r o u g h t t o y o u b y T h e P r e m i e r E q u i t y R e l e a s e C l u b
Equity Release: better for clients, better for business By Neil Uttley, Aviva Page. 2
Lending rules and economic pressure push home owners to equity release By Faye Moutzouri, The Equity Release Council Page.5
The Premier Equity Release Club gets ready for exciting times ahead… By Jane Hanlon
Now, the big pension pot cash bonanza... How will it go? A rush to invest or spend, spend, spend? How will Equity Release/Lifetime Mortgages fair? In the last 12 months funding lines wobbled at the decision of 2014 budget, but in hindsight it has given the industry a wake up call and the chance for a major rethink. It has reworked lending criteria to fit more in line with traditional mortgages, taking away the stigma of equity release and made it attractive to new borrowers, wanting just a lifetime mortgage to meet everyday needs.
What we have seen in the last 12months: • Returning of the fixed rate redemption penalties • Early repayment exceptions for joint to single if change in circumstances • Interest payment s other than direct debits • Payments can be made the old fashion way that our borrowers over 55 remember, standing order, cheques and the modern BACS! • 10% rule brought in from the conventional mortgage market • Enhanced and medical lifestyle products to accommodate larger LTVs • Fee free style re-mortgage packages to assist clients with no savings • Increase in LTVs of up to 3% backed by low a rates • Choice of a reserve limit with no further underwriting
Common sense has prevailed, the industry has listened to the needs of the borrowers. Equity Release is the NEW LIFE LINE... Pension pot or not! A big thank you to all our lenders.
A new lifeline
Jane Hanlon & Lyn Perrett The Premier Equity Release Club
15 year gilt rates 15 year gilt rate at 06/04/15 = 1.96% 15 year gilt rate at 13/04/15 = 1.98%
Gilt rates supplied by Just Retirement
2 Lifetime Mortgage Insight - Issue 2 - April 2015
Equity Release: better for clients, better for business By Neil Uttley, Retirement Solutions Manager , Aviva
Once associated with negative equity and repossessions, equity release is no longer the black sheep of the retirement portfolio. In fact, it’s forming a key part of many people’s retirement plans.
With a whole host of new features in Aviva’s suite of equity release products, we’ve removed many of the old barriers to purchase, making equity release a valuable addition to any adviser’s retirement product
toolkit.
Meet new improved equity release. With equity release from Aviva, clients no longer have to worry about losing their homes. In fact, they can stay until they die or go into long term residential care and even move in the meantime. They can also draw down money without losing sleep over interest building up on funds they haven’t accessed yet. And should they want to leave something behind for children, that’s not a problem either - they can choose to safeguard a proportion of their home’s value. All of which should make equity release a much easier sell to those customers who can genuinely benefit from it.
longevity? Here’s another reason equity release’s time has come: increased life expectancy is putting a huge strain on thousands of pension pots. Coupled with new pension rules allowing easier access than ever to retirement funds, running out of money could be a stark reality for many retirees – making equity release a timely solution for cashstrapped pensioners. A product that’s welcomed by older clients Research from Aviva supports this, showing older clients are open to using the equity in their home as a form of income, with 16% of over 65s saying they would consider it compared to 12% of 55-64s. With failing health a real concern too, 26% of those surveyed said they would consider equity release to fund long term care.
A timely boost for business All of these changes mean there’s rarely been a better time for clients to consider equity release as part of their retirement plans. Especially when you consider many baby boomers now reaching retirement age are asset rich but cash poor. With equity release they can have cash to spend as they please on everything from home-improvements to helping out family. So all things considered, perhaps it’s time for you and your clients to bring equity release back into the fold once again? Find out more at aviva-for-advisers.co.uk
Contact Aviva Tel: 0845 300 2837 Visit: www.aviva-for-advisers.co.uk
An answer to the question of *Research based on 1,200 homeowners aged over 55 in an online poll conducted by ICM Research for Aviva in June 2014
Brought to you by The Premier Equity Release Club
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New beginnings: an era of flexible retirement lending By Dave Harris, Managing Director, more 2 life
With all the talk of increased flexibility in retirement income planning, it won’t be long before the focus shifts towards the retirement lending market. Although massive strides have been made towards better customer choice and value, it’s unclear if the lifetime mortgage market is actually delivering the best of what it has to offer. Unfortunately industry reporting at product level is sadly lacking, which makes it difficult to gain a full picture of what is going on. As one of the largest providers of enhanced lifetime mortgages, more 2 life believes that perhaps as little as a quarter of the market is written on an enhanced basis. Bearing in mind that, according to specialists in the enhanced annuity market – like MGM, Partnership and Just Retirement – around 60-70% of customers are thought to qualify for an enhanced due to a medical impairment, this figure should be setting our alarm bells ringing. Admittedly we’re talking about two very different markets; where one is trying to secure as large an income as possible and the other is trying to secure as large a loan as possible. An enhanced lifetime mortgage merely gives the client access to a larger borrowing facility, and many customers will simply not want or need this… yet.
playing nicely into the idea of flexibility and giving power to the pensioner. (And by the way, let’s not forget that their withdrawals are tax-free.) The difference it can make is substantial. A healthy 65-year old currently receives a standard LTV of around 25%. If they had a mild to moderate health impairment, this could rise to 30%, while someone with a severe impairment could receive an LTV of up to 45% or even higher. For a customer with a property worth £250,000, this is the difference between a loan of £62,500 on standard terms, £75,000 on moderate terms, and £112,500 on severe terms. Combining the maximum loan possible, with a drawdown facility that never runs out, gives customers a lot more flexibility. And the beauty of the flexible drawdown option means that customers are not forced to take the money if they don’t need it, but they know they can easily access it if they do.
The trouble with closing the client off to a larger borrowing facility is that they will never again have access to that money, even if they need it in the future. Combining a larger facility with a flexible drawdown option means your client can withdraw what they need, when they need it. Or they may not withdraw any at all. The choice will ultimately be theirs,
Contact more2life Tel: 08454 150 150 Email: info@more2life.co.uk Visit: www.more2life.co.uk
Source: www.financialreporter.co.uk/retirement/up-to-70-of-retirees-missing-out-on-enhanced-annuities-says-mgm-advantage.html www.pensions-pmi.org.uk/about-us/pmi-expert-partners/post-retirement-income/
4 Lifetime Mortgage Insight - Issue 2 - April 2015
Why innovation in the lifetime mortgage market is key to its growth By Alice Watson, Stonehaven
Last month we launched fixed early repayment charges (ERCs) across our entire range. The new ERCs, which are in place for the first eight years of the mortgage, were introduced after receiving feedback from advisers and customers who wanted greater simplicity and certainty. Crucially, the new ERCs are also designed to encourage growth in the market. 2014 was a record breaking year for the industry, with lending reaching almost £1.4bn, and we believe innovation in the sector is key to helping such growth; especially when the needs of customers are evolving. In 2008 Stonehaven launched interest paying lifetime mortgages to the sector, and since then the market has seen the introduction of a broader range of flexible products where customers can choose to pay all of the interest and some of the capital, too. Our fixed ERCs, which are available on these interest paying products, have helped bring the sector one step closer to the mainstream. These innovations are making lifetime mortgages more compelling for a new audience. We’ve seen an increase in the number of customers using the cash they release from their home to
clear a mainstream mortgage. Over the last 6 months 36% of Stonehaven customers have used some, or all, of their cash for this reason. We’re expecting this to be a growing trend following the FCA’s 2013 Thematic Review which discovered there were 2.6 million interest-only mortgages due for repayment by 2041. As many as 48% of these homeowners faced a shortfall at repayment day of an average around £71,000 and as many as 260,000 had no repayment vehicle of any kind in place.
the market which have aligned lifetime mortgages more closely with mainstream mortgages make this option more appealing to older borrowers, and we’re expecting to see these figures increase in 2015. Whilst the future can’t be predicted, the pension freedoms bring another change to the retirement landscape, and we can expect them to influence the reasons why customers are taking out lifetime mortgages. Innovation in the market has helped financial advisers tailor products to suit their customer’s needs, and is key to encouraging further growth in 2015.
Alongside homeowners carrying residual mortgage debt into retirement, 1 in 5 Stonehaven customers have used some of the cash they release Contact Stonehaven to help purchase a property. Tel: 0800 068 0212 Again,
innovations in
Email: support@stonehaven-uk.com Visit: www.stonehaven-uk.com
Brought to you by The Premier Equity Release Club
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Lending rules and economic pressure push home owners to equity release By Faye Moutzouri, The Equity Release Council Economic pressure and pension reforms have increased opportunities for equity release products, creating more demand and opening the way for more market players and more flexible products addressing various needs. In the second half of 2014 our sector saw a record-breaking growth with younger borrowers turning to lifetime mortgages, following the Mortgage Market Review (MMR) and the 2014 Budget pension announcement, based on data from the Spring 2015 edition of the Equity Release Market Report. Prior to these rules, the share of customers aged 55-64 had been in decline. Specifically, the in-depth report from the Equity Release Council shows that the ratio of new equity release customers aged 55-64 dropped from 24% in 2011 to 21% in 2013 and just 17% entered new schemes in H1 2014. Indeed, the 3% jump of this age group from quarter to quarter (H1 2014 to H2) to make up 20% of new equity release customers in the second half of the year is very impressive!
Firmer lending rules and pension reforms seem to be creating obstacles for homeowners looking to access residential mortgage finance later in life particularly if the desired term may stretch beyond their normal retirement age. Additionally, some younger borrowers may also have used equity release in H2 2014 as a resource for immediate finance, instead of accessing their pension savings ahead of 6th April 2015.
Looking more closely at customers’ preferences to the different types of product, we note that drawdown lifetime mortgages are steadily the most popular type with twothirds (66%) of new customers selecting a drawdown product in 2014, compared to 34% and <1% for lump sums and home reversion plans respectively. Along these lines, there is a comparison where it is clear that the market is able to lift peoples’ retirement finances as opposed to their pensions’ savings. A typical first instalment of £46,356 (during 2014) far exceeds the average single defined contribution (DC) pension pot of £25,000.¹
Economic pressure is hitting the elderly severely as the recent Equity Release survey across the UK has also highlighted. In fact, one of the stark findings is that money shortfalls mean one in ten older homeowners miss a meal every week across the country. More demand is and will continue to be generated for equity release as a solution that can fund later life. The future of the equity release market looks more promising than ever and with that comes more innovation, more choice for consumers and more opportunity for professionals to help those people unlock the wealth tied up in their homes. Graph 2: How the typical amounts of equity released compare to average pension pots
Graph 1: Growth of equity release customer numbers by age group
Contact The Equity Release Council Tel: 07557 856 705 Email: fayem@equityreleasecouncil.com Visit: www.equityreleasecouncil.com 1
Source: The Pensions Regulator, 2013/14
6 Lifetime Mortgage Insight - Issue 2 - April 2015
Rate changes from 1st January 2015 Lender
Date change
Product
Beginning of year Current rate
Rate change
Aviva
26/1/2015
Flexi
Lowest at 5.56%
5.16%
0.4%
Using tool
7.39%
5.21%
2.18%
Please note with Aviva each case is individually assessed on the pricing tool – 0800 612 5423 Hodge
Just Retirement
9/2/15
9/2/15
Retirement
4.75%
4.39%
0.36%
Lifetime Flex
6.39%
6.19%
0.2%
Lump
6.35%
5.99%
0.46%
Roll up
6.39%
5.59%
0.8%
Max lump
6.75%
5.99%
0.76%
Enhanced
6.85%
6.39%
0.46%
Just Retirement 18th March offer PRICE MATCH on Loans over £20,000 for 60-74 PLUS £500 CASH BACK LV=
More2life
Newlife
Partnership
Pure
Stonehaven
10/2/2015
Flexible
6.44%
6.24%
0.2%
Lumps Sum
6.19%
5.99%
0.2%
Enhanced
7.22%
6.43%
0.79%
Protected
6.70%
6.17%
0.53%
Feb 2015
Protected
6.17%
5.69%
0.48%
8/1/2015
Interest
6.25%
5.75%
0.5%
17/2/2015
Flexible
6.43%
5.05%
1.37%
Flexible Plus
6.43%
5.25%
1.18%
Lump
7.39%
5.75%
1.64%
16/2/15
Lump
7.75%
6.95%
0.8%
18/2/15
Lump
6.95%
6.35%
0.6% = 1.4%
Feb 2015
Draw Down
7.22%
6.79%
0.43%
12/2/2015
Draw Down
6.79%
6.39%
0.4% = .83%
Feb 2015
Lump Sum 1fees package
6.95%
6.21%
0.74%
Feb 2015
Lump
6.75%
5.99%
0.03%= .96%
Jan 15
Interest
6.1%
5.6%
0.5%
Interest
6.2%
5.7%
0.5%
Interest
7.39%
6.49%
0.9%
21/1/15
Stonehaven 16th March switch from gilts to % ERCs Year 1-5 = 5% year 6-8 = 3% year 9 + = nil. Stonehaven 16th March offer reserves on all of range with rate loading of 0.2%
Brought to you by The Premier Equity Release Club
Reputation is everything By Les Pick, National Sales Manager, The Right Equity Release
I have commented on the ever growing popularity of Equity Release products in recent months, even dared to hope that they have turned the corner to becoming mainstream but could there be a problem? Equity Release figures have been driven by “need” in recent years. The economy, MMR restrictions and rising levels of debt have created the perfect storm. Interest rates have dropped to unprecedented lows and providers continue to improve flexibility that will appeal to those who are caught in the interest only time bomb but there is a problem, reputation. As advisers we see the real difference that Equity Release can make to people’s lives. We see the improvement in lifestyle that it gives to those who use it, sometimes transforming their lives by relieving stress and worries. Ask the average retiree in the street what they understand about equity release and they will still say that they would not touch it. They will say that you are likely to lose your home, that you have to sell your home to the provider, that your beneficiaries will not inherit anything and that you might be thrown out of your house when something goes wrong.
Really? All of these things can be avoided and guaranteed against with a modern, regulated equity release scheme. So how is it that the public still believes these facts to be true when so much has changed since the 80s/90s? Since the beginning of the millennium the way we learn has changed due to the information available on the internet and in the media. Apple have become a phenomenon, Facebook has transformed how we stay in touch, the internet has become something we could never have imagined 20 years ago and something called Google has transformed lives in almost every country in the world but still Equity Release struggles with it’s reputation. I wonder how this can be, given all the information available?
As an industry we must continue to do all that we can to maintain high advice standards, we must continue to produce excellent products and to ensure that the consumer is treated fairly. It is a travesty that so many people will not enjoy their hard earned retirement to the best of their ability due to lack of information and a poor reputation in an era that could not be better placed to avoid such issues.
Contact Les Pick, TRER Tel: 07966 399 805 Email: les.pick@therightequityrelease.co.uk Visit: www.therightequityrelease.co.uk
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8 Lifetime Mortgage Insight - Issue 2 - April 2015
Top tips from Brigewater Equity Release Limited’s Chris Prior
• Become a member of the Equity Release Council; if you’re not a member already of course. • Increase your knowledge in the later life area. • Start or finish off your 2015 business plan. • Put a plan in place to secure introducer relationships or add even more (remembering that you should target one case a year, per introducer). • Attend as many equity release events as possible – continuous knowledge is vital. • Attend networking events/meetings within your local area. • Understand all the products available in the market, in-
cluding home reversion plans. • Revisit your fee structure; when discussing this with equity release specialist advisers it appears that the average fee charged is approximately £1,000. • Work to increase the number of referrals you receive from your client bank and new customers. If you don’t ask, you don’t get • Work smart. In this business time management is crucial – could someone else be doing your administration work?
Contact Bridgewater Tel: 0800 032 2118 Email: enquiries@bridgewaterequityrelease.co.uk Visit: www.bridgewaterequityrelease.co.uk
Hodge Lifetime welfare benefit guide 20152016 now available When assessing your customer’s requirements for borrowing in retirement, it is important to check whether any benefits will be affected by your recommendation. Hodge Lifetime have produced the welfare benefit guide in association with Ferret Information Systems Ltd to give an overview of the benefits available to your customers aged 60 and over. The guide is designed as a ready reckoner, for a fuller assessment of your customer’s circumstances consider using one of the software options available via Ferret amongst others. Download a copy today by visiting our website
www.HodgeLifetime.com/downloads.asp
Contact James Young, Hodge Lifetime
or call the Hodge Lifetime Customer Services Team on 0800 731 4076.
Tel: 07977 562 422 Email: james.young@hodgelifetime.com Visit: www.hodgelifetime.com
Brought to you by The Premier Equity Release Club
The inaugural Great Retirement Money Debate Upcoming event hosted by The Equity Release Coucil
The Equity Release Council will be hosting the inaugural Great Retirement Money Debate on Tuesday 19th May 2015 and our readers are invited to attend.
The panel is made up of:
The debate will take the same format as BBC Question Time, with Paul Lewis taking on the role of David Dimbleby and accompanied by a panel of at-retirement specialists.
o Baroness Greengross, Chief Executive of ILC-UK, President of the Pensions Policy Institute
Discussions will examine the key issues that will shape the future of paying for retirement in the UK following the arrival of the new pension freedoms, product development and changing consumer demand, the role of advice and paying for care.
o Nigel Waterson, Chairman of the Equity Release Council
o David Thomas, President of the Personal Finance Society o Jane Vass, Head of Public Policy at Age UK o Paul Johnson, Director at the Institute for Fiscal Studies
The event begins at 2:30pm in Central London and will include refreshments and networking time. For those unable to make it on the day, the entire debate will also be live streamed. For more details, or if you would like to attend or watch the live stream, please register your interest here.
For more details or to register: Visit: http://goo.gl/spKrFQ Tel: 020 7427 1400 Email: grmd@wriglesworth.com
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Work through the email inbox answering broker queries, replying to Brokers regarding existing cases. Answering queries sent from our solicitors. At Pure Retirement we are constantly trying to evolve and improve, so each week, we as underwriters look at different areas on where we can make things easier for our Brokers. What is your favourite part of your job?
A day in the Life of Steven Bromley Pure Retirement Underwriter Who do you work for and how long have you been underwriting? I am the property underwriter at Pure Retirement based in Leeds. I have been involved with Pure since it began in 2013. Before then I spent four years working in the Buy to Let Team at Barclays Bank. What does your typical day look like and what are your key responsibilities? 8.30a.m –Run the daily reports and set the GILT rates for the day. 9.00a.m – Begin working the day’s valuations. This, for most people, is the most crucial part of the process as it will be the valuation that determines if we proceed on the requested amount. 11.00a.m – Set up and request the funds for completion, ensuring all documentation has been met and satisfied. Afternoon – Work through the day’s applications carrying out initial property checks and credit checks.
Approving a case! I think for anybody involved in Mortgages it’s great to know you are helping people with what is essentially one of the biggest decisions they will ever make. The feedback from Brokers regarding the quality of service is something I am proud of. The Great MYTH! Contrary to popular belief underwriters do not want to decline cases, if that was the case we wouldn’t have a business. We do our upmost to judge each property on its own merit and whilst it would be nice to approve every case we have a responsibility to not put the future saleability at risk. What attributes and personality must one have to be an underwriter? Flexible, meticulous and accurate. Change is constant in the mortgage industry. As new products and guidelines come through, an underwriter needs to be adaptable and positive, keeping up to date with the company and the market changes. Products and policy that were allowed three years ago may not be allowed in today’s market. For me it’s a challenging but fulfilling career. To survive being an underwriter you need to be fun, witty and full of laughter and if this person exists then please let me know!
Contact Pure Retirement Tel: 0844 854 2120 Email: info@pureretirement.co.uk Visit: www.pureretirement.co.uk/professionals
The Premier Equity Release Club Sharing with you the right way to do Equity Release
www.thepremierequityreleaseclub.co.uk helpdesk@thepremierequityreleaseclub.co.uk 0800 612 5423