Issue n. 3 | June 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 0 8 0 0 61 2 5 4 2 3
Why property wealth should be considered by those wanting to clear an interest only mortgage
Is property the new pension? By Dave Morris, more2life Page.3
By Alice Watson, Retirement Advantage Page. 4
Number of borrowers using equity release to clear interest only loans trebles* By Jane Hanlon, The Premier Equity Release Club
Last year News reported that clients would become mortgage prisoners, but in 12 months the providers have adapted… Have you? Perhaps the secret is not to use the words. • “Equity release” – Is releasing funds, but a saying not liked by the public. • “Lifetime mortgages” – Are still here a little more acceptable, but many clients dislike it as lifetime meaning it is long and for the old. At 55 with a life expectancy of 35-40 years, are the phrases ‘equity release’ and ‘lifetime’ difficult to swallow? They just want a mortgage. But to get around the system they fall into this category, rejected by the high street on the grounds that they are: • Too old • Self-employed • Income and expenditure issues • Failed credit score • Benefit claimants These are just a few with many more excuses, but these are perfect for equity release or lifetime, but call it a MORTGAGE with long term fixed rates.
base. You should be contacting your clients to offer what could be the cheapest and highest LTVs available in their lifetime. Remember the MORTGAGE can be used for purchase as well as remortgaging, it may even be up-sizing rather than down-sizing? Product knowledge? Need to know more? Then why not join us at one of our FREE breakfast workshops. More info on next page. Join us to improve your knowledge & your ability to identify opportunities, the new product ranges coming to market that allow choice like we have never seen before, including mortgages that do not have to be based on income! RESULT! Jane Hanlon, 0800 612 5423
New innovative lending has arrived, mortgages with options under the Equity Release Council guarantees, with rates starting as low as 4.94% monthly and with increases in LTVs of up to 5% cannot be ignored. A 3rd lender has introduced fixed rate ERCs so fully transparent. It’s never been a better time to target your mortgage data*reported by Mortgage Strategy 1st June 2015
7 year gilt rate at 08/06/15 = 2.44%
2 Lifetime Mortgage Insight - Issue 3 - June 2015
Breakfast workshops: “Get to know your lenders” - will create you more opportunities! Hosted by Jane Hanlon, The Premier Equity Release Club and Bob Boon, Ashfords LLP
Six months ago we didn’t have a non status mortgage!
• A question and answer session to finish
Find out more join: Jane Hanlon from The Premier Equity Release Club and Bob Boon (formerly Stonehaven) now at Ashfords Solicitors, for a breakfast workshop on product innovations, marketing and opportunities in this exciting growing market, for mortgages for the over 55’.
• Support material to take away and CPD sent by email after event.
Jane & Bob have announced the first two workshops starting from 9.30am and finishing within two hours, including issue of CPD certificates.
Jane & Bob would be delighted if you would like to join them. Spaces are limited so booking essential.
London - 7th July -
Ashfords LLP, 1 New Fetter
After the event there will be the option to discuss any compliance support requirements.
Click here for more info & to book your place.
Lane, EC4A 1AN
Exeter - 14th July - Ashfords LLP, Ashford House, Grenadier Road, EX1 3LH (Easy access just off M5 junction 29 ) More dates and venues to follow after the summer break, watch this space for more details.
The workshops, will cover: • Meet the innovative and invited lenders
Book your place:
• Jane will cover all remaining lenders’ unique selling points • Bob will cover marketing and identifying new opportunities
www.thepremierequityreleaseclub. co.uk/breakfast-workshops
Brought to you by The Premier Equity Release Club. Contact our free helpdesk on 0800 612 5423.
Is property the new pension? By Dave Harris, Managing Director, more 2 life
The question over whether it’s better to invest in a pension or a property has long been a matter of much debate, and continues to plague the younger generation. But now it looks like the argument could take on a whole new dimension - this time becoming a tax and inheritance issue for our baby boomer generation. When the Chancellor announced that the 55% ‘death tax’ was going to be removed from pensions, it was a change that was welcomed by both advisers and clients alike. Until then, the fact that their pension fund would be taxed at 55% when they die, or worse, be lost altogether if they had bought an annuity, was just another reason why people were starting to turn towards other ways of financing their retirement. The recent changes mean that if a person dies before they are age 75, the pension fund can be handed down to their beneficiary tax free. The beneficiary will then be able to draw an income or take it all as one lump sum, without paying any tax. If a person dies after they are age 75, the beneficiary will pay 45% tax (2015/16) on a lump sum, or they will pay tax at their marginal rate if they choose to take an income from the fund. Although the primary function of a pension is to provide an income in retirement, one of the repercussions of this change is that people could end up ring-fencing their pension for as long as possible, or at least until they are age 75. That way, if they die, the entire fund will remain untouched by the tax man. That’s all very well, but what if they need the money? Well, one source
of income could be their property. With lifetime mortgage interest rates reaching an all-time low, and continuing to slide, the idea of releasing equity from their home could become a serious contender for financing retirement. After all, any cash they take from their property is tax free, as opposed to the income taken from a pension which, apart from the first 25%, is taxed at their marginal rate. Taking out a lifetime mortgage is also a way of reducing any potential future IHT liability. And if clients feel uncomfortable with the idea of potentially not leaving any of the value of their property to their loved ones, they can take out a guarantee which ensures that a certain percentage of the value of their property is left to their beneficiaries when they die, no matter how long they live and how much interest they accrue.
generational shifts in attitude towards debt. Much the same could be said for property. People are living a lot longer in retirement, and it seems unrealistic to expect them to sit on what is likely to be the single biggest asset they own. People don’t necessarily want, nor need, to downsize, so a lifetime mortgage gives them access to this much needed money, which they can enjoy tax free. Research more 2 life recently carried out into Retirement Lending seems to bear this out – 44% of homeowners aged 45 and above now consider their property wealth as part of their retirement planning including 28% of those aged 65+. And a similar number of those over 65 say they would prefer to use their home equity to fund retirement because of the favourable tax treatment.
Historically, the British have had a slight obsession about leaving their This shift in attitude, combined with property to their loved ones. But per- better value and more flexible prodhaps the table is starting to turn. It ucts, will bring the lifetime mortgage wasn’t so long ago that as a nation we right into the centre of retirement baulked at the idea of debt unless it planning, perhaps dawning an era of was to buy a property, or maybe a car living on property, not pensions. at a push. That all Contact more2life changed with the advent of credit Tel: 08454 150 150 cards and cheap Email: info@more2life.co.uk borrowing, as Visit: www.more2life.co.uk well as
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4 Lifetime Mortgage Insight - Issue 3 - June 2015
Why property wealth should be considered by those wanting to clear an interest only mortgage By Alice Watson, Product and Communications Manager, Retirement Advantage (formerley Stonehaven)
For those approaching retirement, the biggest financial worry is often carrying residual mortgage debt into retirement. Research from the FCA sheds some light on the number of homeowners who are likely to be affected by this over the coming years. The overall message is worrying: 2.6 million interest-only mortgages due for repayment by 2041. As many as 48% of these homeowners face a shortfall at repayment day of an average around £71,000 and as many as 260,000 have no repayment vehicle of any kind in place. The recent arrival of the pension freedoms means that people aged over 55 who have such a shortfall can choose to use their pension pot to clear the debt, if they so wish. However, while the increased flexibility of the pension changes has been welcomed, the need for retirement planning has never been so important. Many consumers are unaware of the tax implications a withdrawal from their pension pot could have, and rather frighteningly, many aren’t aware that if you take cash from your pot and fail to inform all other pension firms holding your retirement savings within 31 days you could face a fine. With so many changes, it’s important that people approaching retirement seek advice from a financial adviser and understand the best option available for their circumstance. In turn, financial advisers must ensure that when they’re giving advice on retirement planning they’re taking a holistic approach. This means looking at all of their client’s assets, and considering the property alongside any pension pots and investments.
Releasing property wealth through a lifetime mortgage could be a more sensible solution for clearing residual debt when compared to releasing cash from a pension pot. Where a withdrawal from a pension which is above the 25% tax-free allowance carries significant tax implications, a lifetime mortgage is a tax-free way of raising a cash lump sum. Recent developments in the lifetime mortgage market also mean that customers have a wider range of options to choose from, allowing them to tailor a product to suit their individual needs while continuing to be protected from the product safeguards. This means that if they want to service the interest on the mortgage, they can. Or, if they want to pay down the mortgage, they can choose to make capital and interest payments. Where clients are raising money to clear their outstanding mainstream mortgage, releasing the capital locked in their homes through equity release offers a sensible alternative to withdrawing a pension pot in one go.
Contact Retirement Advantage Tel: 0800 068 0212 Email: er-support@retirementadvantage.com Visit: www.retirementadvantage.com
Brought to you by The Premier Equity Release Club. Contact our free helpdesk on 0800 612 5423.
Image: Howard William
Should the pension pot be used to clear an interest only mortgage? By Faye Moutzouri, The Equity Release Council Pension freedoms are enabling people to use their pots to clear interest-only mortgages soon nearing their expiry date. This solution may be suitable for many however it needs attention so that this option doesn’t affect an individual’s entitlement to benefits. This is an area that advisers need to take into consideration when looking at clients’ financial options in order to inform them of the potential repercussions. At the same time, the newly introduced pension rules have helped, and will continue to help, towards the mainstreaming of equity release in financing later life. For some, releasing equity may be a more efficient solution to clear their existing mortgage than extracting their pension pots. New pension rules can facilitate individuals to get more from their pots in their early retirement stages and help pay off an existing mortgage, while they could later use their equity to supplement their income, and/or fund home adaptations and future care costs. Alternatively, people may take advantage of the new rules to pass their pension pot on to their heirs tax-free; and turn instead to equity release. For that matter, holistic consideration of assets and what they can offer in terms of returns is crucial in planning for a long retirement. The pension pot, savings and the house, should all form elements of peoples’ long term financial planning based on their requirements, life
stage, and on the impact of each one of them on inheritance, benefits and tax. Times are changing and customer profiles do too especially if we are to look at the Equity Release Council’s Market Report findings illustrating an increase in the percentage of customers aged 55-64 (from 17% in H1 2014 to 20% in H2 2014). Equity release is rapidly becoming mainstream not least as a result of the standards and safeguards of the contemporary market. The concept of equity release as a ‘last resort’ per se is gradually being changed so that it forms a natural part of later life planning. Demand for equity release will keep on increasing. The industry needs to continue investing in its reputation to help erase once and for all the scandals of previous decades. Emphasis should also be placed on distribution. Advisers should increase substantially in terms of numbers but with caution to upholding standards and to ensuring carefully managed processes to avoid misselling cases. Additionally, more high street names in the sector along with product innovation will help the further development of the market.
Contact The Equity Release Council Tel: 07557 856 705 Email: fayem@equityreleasecouncil.com Visit: www.equityreleasecouncil.com
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6 Lifetime Mortgage Insight - Issue 3 - June 2015
Rate changes from 1st April 2015 Lender
Date change
Product
Original rate
Current rate
Rate change
Aviva
20/4/2015
Flexi
5.16%
5.1%
v
0.06%
20/5/2015
Flexi Enhanced
(5.74% system) 5.10%
5.40%
^
0.3%
Lump
(6.79% system) 5.21%
5.48%
^
0.27%
Please note with Aviva each case is individually assessed on the pricing tool – 0800 612 5423 Hodge
Just Retirement
Retirement
4.39%
Lifetime Flex
6.19%
Lump
5.99%
Roll up
5.59%
1/4/2015
Max lump
Increase LTVs
5.99%
5/6/2015
Max lump
Increase LTVs
6.29%
Enhanced
Higher LTVs up 3% ^
Higher LTVs
^
£250 CB
6.39%
Just Retirement - offer PRICE MATCH on Loans over £20,000 for 60-74 PLUS £500 CASH BACK LV= More2life
Flexible
6.24%
Lumps Sum
5.99%
Tailored 70
5.69%
Tailored Enhanced
6.43%
17/4/15
Interest
Increase LTVs
^
Higher LTVs upto 4%
20/5/15
Tailored
Increase LTVs
^
Higher LTV’s up to 2%
2/6/15
Tailored healthy
Increase LTVs
^
Higher LTV’s up to 1.9%
Higher LTVs
Newlife
Flexible
5.05%
Flexible Plus
5.25%
Lump
5.75%
Partnership
Lump
6.35%
Pure
Draw Down 1
5/6/2015
Retirement Advantage (formerly Stonehaven)
50K. £75=£900 75K.125=£1400 £125K.175K = £1750 & £175K+ = £2250
6.39%
Draw Down 2
6.39%
5.99%
Lump 1
6.19%
Lump 1
6.49%
^
Lump 2
5.99%
v
5/6/2015
Lump 2
6.29%
^
4/4/15
Lump 1
Increase LTVs
Higher LTVs up to 3%
4/4/15
Lump 2
Increase LTVs
Higher LTVs up to 3%
28/5/15
New Max DD1
Increase LTVs
6.45%
Higher LTVs £800 broker & £600 sols, no ARR and free val
28/5/15
New Max DD2
Increase LTVs
6.33%
Higher LTVs £600 Solicitors and free val
11/5/15
Interest-Gold
5.6%
Higher LTVs up 5%
11/5/15
Int Platinum
6.49%
Higher LTVs up 5%
11/5/15
Lump Gold
6.05%
Higher LTVs up 5%
11/5/15
Lump Platinum
6.31%
Higher LTVs up 5%
11/5/15
Voluntary Gold
6.16%
Higher LTVs up 5%
11/5/15
Vol Platinum
6.54%
Higher LTVs up 5%
11/5/15
ALL range
Increase LTV’s
Retirement Advantage 16th March switch from gilts to % ERCs Year 1-5 = 5% year 6-8 = 3% year 9 + = nil. Retirement Advantage 16th March offer reserves on all of range with rate loading of 0.2%
Higher LTVs
Higher LTVs up 5%
Brought to you by The Premier Equity Release Club. Contact our free helpdesk on 0800 612 5423.
Should the pension pot be used to clear an interest only mortgage? In retirement clearing any debt is a good thing as this provides immediate increased disposable income, however there are a number of issues that retirees need to consider. If the client is going to consider using their pension fund/s for paying off debt then they need to look carefully at the pros and cons and for this and independent advice must be taken. There are a number of potential pitfalls involved in using the pension pot to achieve this desired goal, however there are also a number of alternatives that should be considered too, such as help from family, using other available
funds/assets or as an alternative, using equity release, to name but a few. No decision should be taken lightly, there are consequences from all options and it’s about the client finding the right one for them. Therefore, independent advice is an absolute must to ensure the correct course is taken.
Contact Bridgewater Tel: 0800 032 2118 Email: enquiries@bridgewaterequityrelease.co.uk Visit: www.bridgewaterequityrelease.co.uk
Intermediary guide for the Retirement Mortgage The Retirement Mortgage from Hodge Lifetime has filled the gap between the residential mortgage market and the traditional roll up equity release market. Designed to offer the flexible features of a residential mortgage alongside the benefit of a lifetime term, customers are required to make monthly interest payments and can also make capital repayments of up to 10% per annum in the first five years. From year six onwards, the loan can be repaid in part or full with no early repayment charge. The Retirement Mortgage is available solely via financial intermediaries and this short guide has been produced as a ready reckoner on product features, customer profiles and offering hints and tips on affordability and evidence For a copy of the guide or for further information please contact your Business Development Manager on 02920 371 725, email info@hodgelifetime.com or visit
www.hodgelifetime.com
This article is intended for the use of financial intermediaries only.
Contact James Young, Hodge Lifetime Tel: 07977 562 422 Email: james.young@hodgelifetime.com Visit: www.hodgelifetime.com
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Equity Release & Holistic Planning By Rob Brennan, Compliance Director, The Right Equity Release
Experts in the Equity Release industry have been debating the expected fallout from the recent pension reforms. Will it effect lending? If so, by how much? I suspect that we will not know the actual answer until later in the year, perhaps into the following year but one thing is for sure, the consumer now has far more choice about how they fund their retirement. It follows that options allow for choices and this means that there are more opportunities to make bad decisions. Going forward quality advice will be even more essential and possibly more complicated than it has been in the past. Advisers that have mortgage and equity release permissions will need to work hand in hand with those who are qualified and licensed to provided holistic financial planning where unvested pension pots exist. It is probable that our clients may be best served with a combination of tax efficient, flexible pension advice, hopefully ensuring that income is available into the future whilst using their property to fund capital expenditure.
Debt repayment,
whether it is secured or unsecured will continue to be an issue in the years to come. Ask most retirees if they would like to pay ÂŁ10,000 off credit card debt or have ÂŁ500 per annum for the rest of their lives and they are likely to opt for the debt repayment option. It is usually the same answer with mortgage debt given that lenders are not extending lending terms. These options
could require advice in terms of pension options, attitude to risk, tax implications and investment opportunities. This advice must come from properly licensed advisers. For the British, house ownership is emotional, in general, we don’t see our home solely as an investment. The combined resources of property and pension must be used in order to ensure that our clients receive the best possible outcome in their retirement. The government were right when they said they trusted us not to go out and blow our pension pots on Lamborghinis, I for one will not be buying shares in the company but the consumer does have needs. Those needs might not be as exciting as a super car but they are there and they are real. A combination of good advice and correct asset utilisation will ensure that those needs are met for those who have the luxury of choice.
Contact Rob Brennan, TRER Tel: 07816 821 309 Email: rob.brennan@therightequityrelease.co.uk Visit: www.therightequityrelease.co.uk
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