Issue n. 5 | January2016
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
The porting process explained...
Could a ‘two phase’ retirement solution become the new norm?
By Rachel Pease, Pure Retirement
By Nick Brown, Just Retirement
Page. 3
Page. 5
25th Anniversary of the self imposed control By Jane Hanlon, The Premier Equity Release Club
The 25 th Anniversary of the self imposed control, originally under SHIP and now the Equity Release Council has shown self regulation working and driving up standards to meet with consumer demand. New schemes have improved flexibility beyond expectations. Lifetime does not have to be lifetime as changing lifetime events dictate the products need to be flexible, and the lenders have listened to consumers’ demands. So the question “Have you reviewed your paperwork?” Is it in line for the modern features of lifetime mortgages, does it record medical in detail, state priorities and can it identify possible change of events in the future? With current mortgage regulation in the residential sector experiencing issues on affordability, more older clients will be turning to lifetime to solve their mortgage requirements. Great news for equity release advisers, however these clients will require more than a lifetime mortgage in the true sense. So it is crucial that the adviser listens to the clients, records overview opinions and raises issues that may give cause for concern in the future. These have to be recorded with discussion notes and responses from the clients as to what options they may consider; a MUST that will help with advice and your recommendation.
• Can I purchase? – Yes, subject to lenders criteria • Can I move? – Yes, porting mortgages subject to loan amount within lender LTVs. Problems: Debt too large to transfer or partial repayment required and property has to be acceptable to lender (CARE with age restrictive property. However, porting can cut out the adviser as the borrower goes directly back to lender. It is worth noting that this may not be the best option and a whole financial review may be a better option involving financial advice. • Can I repay? – Under the Council rules there are no redemption penalties on death or long term care of the survivor, otherwise you may incur redemption penalties. Continued on page 2 >
Common issues that arise:
7 year gilt rate at 7th Jan 2016 = 2.14% Rate supplied by Just Retirement
equi
2 Lifetime Mortgage Insight - Issue 5 - January 2016
Common issues that arise (continued from page 1) By Jane Hanlon, The Premier Equity Release Club
• Can I pay some of the interest to stop the roll up? – Yes , there are range of schemes with some you can pay monthly a set amount by direct debit and comes under MMR affordability. Some of the other lenders will allow optional partial repayments throughout the term and usually there is an upper limit to avoid incurring redemption penalties.
So we can purchase we can port and we can redeem, the difference in this mortgage is that it is fixed for the life at outset and has no end date, with products that allow choice of repayment. I think we will all agree the most important ELEMENT is knowing your client, to be able to advise and recommend an appropriate product.
• What happens if I want to down size? – You can look at porting, as above, or look at repaying all with possible penalties or new a lifetime mortgage.
NEED an MOT? We provide file checking service, that will identify any shortfalls. Call 0800 612 5423.
• What happens if I want more money? - This will depend on whether there is a reserve is in place or not, and if funds are available or finally a further advance if funds based on LTV are still available but will most probably need good house growth. • In the event of tenants in common and one dies can I still access the draw down? – This depends on the lender, some underwritten facility upfront so sole can access the underwritten facility. Others require the home to be put in a single name before any further release of funds. • Power of attorney’s can act it will need to be registered at the court and cannot be your spouse.
Please contact Jane Hanlon: Tel: 0800 612 5423 Email: jane@thepremierequityrelaseclub.co.uk Visit: www.thepremierequityreleaseclub.co.uk
Brought to you by The Premier Equity Release Club. Contact our free helpdesk on 0800 612 5423.
The porting process explained... By Rachel Pease, Marketing and Communications Manager, Pure Retirement
Purchase of a new home is an ever-growing branch of the Lifetime Mortgage business. Older customers are moving to be nearer family members or to a new retirement complex, to upsize or upgrade to a more expensive bungalow. A standard residential mortgage is often not an option, whereas a lifetime mortgage can provide the solution they are looking for. Porting of an existing lifetime mortgage can sometimes be an option, though the mechanics of this can often be a source of confusion amongst advisers and customers alike.
The Porting Process 1. Details Request • Lender receives the initial porting query and requests full details of new property and proposed transfer date.
2. Preliminary Assessment • Underwriter performs preliminary assessment using current property criteria.
3. Porting Letter • If new property is acceptable, a porting letter similar to a KFI is sent out to the customer. This illustrates the costs which will be incurred over the estimated term of the mortgage, including any partial repayments to the loan which are required. • Partial repayment is calculated using the total amount owed on the mortgage at present, and the total max loan available (based on the new property value and the LTV parameters of the loan product).
4. Application Form & Valuation Fee • Lender sends an application form for the customer(s) to complete and requests that the valuation fee is paid upfront. • Once received, lender instructs the valuation and engages their solicitor to act on their behalf in the purchase of the new property.
5. Survey & Porting Offer • Survey is conducted and if the property is acceptable, lender will calculate what partial repayment is required (if any) and produce a Porting Offer. • Porting Offer will state the transfer date and the partial repayment required (if applicable). Bank details are given alongside the offer for transfer of the partial repayment. There may also be an administration fee to be paid to the lender.
6. Signed Offer & Partial Repayment • Customer signs porting offer and returns it to lender • On the transfer date, the customer’s solicitor notifies the lender that they have paid the partial repayment and the administration fee . • Customer’s solicitor may charge a bank transfer fee for the transfer of partial repayments.
7. Change of Address • Lender confirms payments have been made and changes the address on the customer’s account, applying the partial repayment to the loan (if applicable). • Lender sends a letter to the customer confirming that the transfer has taken place. • If for any reason the transfer does not take place on or before the transfer date, the lender will obtain the new transfer date and recalculate the partial repayment accordingly. • Once completed, the lender’s solicitor will register the lender’s charge on the new property, and the lender will instruct the land registry to remove their charge from the old property. Though it may seem complicated, porting can be an effective solution. Whatever the route however, it’s important for customers to choose the right product that best fits their needs, considering the options of high LTVs, help with the costs of setting up a plan and the ability to lend on sheltered and age-restricted accommodations. Sheltered accommodation is an area that can be problematic for many customers and there are only a few providers in the market who will consider lending on such properties. In the case of Mr and Mrs Robinson who required a loan on a retirement apartment, an equity release adviser turned to Pure Retirement. The adviser explains, “Pure provided sufficient funds to allow the clients to purchase the apartment while still allowing the clients to pay their existing lifetime mortgage. This allowed the clients to maintain an independent life without the worry of the upkeep of the property or gardens and knowing they are close to shops, DRS, transport and all life’s needs.” There are many choices to be made when considering equity release and this can sometimes feel a little overwhelming for customers, so it’s crucial that they receive full and dependable advice on all of the options available to them.
Contact Pure Retirement: Tel: 0113 366 0599 Email: info@pureretirement.co.uk Visit: www.pureretirement.co.uk/professionals
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4 Lifetime Mortgage Insight - Issue 5 - January 2016
How released equity can be used in the property market By Les Pick, Business Development Manager – Equity Release, LV=
Retirement lending is fast becoming the new way of describing Equity Release. This is because the products available are evolving and the reasons for release are changing. Long gone are the days where equity was released purely to improve a property, buy a car or pay for holidays of a lifetime. We are increasingly seeing released equity being used to fund either a property purchase (by the client or their family) or to pay off mortgages allowing someone to stay in their property when they may otherwise be repossessed by a traditional mortgage lender. Property inflation continues to be an issue in the UK as supply struggles to keep pace with demand, some consumers are looking to use the equity built up in their homes to help themselves or their family.
Gifting to family It is an unfortunate fact of life that divorce levels in the UK remain high. As an industry we are seeing parents and grandparents releasing equity in order to provide deposits to family members so that they can get back on the property ladder. This early inheritance could ensure that the family, as a whole, are not left behind by property inflation if it continues in future years. We also see gifts being made to first time buyers within families, helping children and grandchildren with the deposit to purchase their first home. Using equity in this way can ensure that family members are able to purchase properties earlier than would normally be possible and enjoy the benefits and security that ownership can provide.
Moving with family Families tend to be more fluid in their
location and moving away from loved ones is more common than it used to be. It may be that the parents will follow their children to more expensive areas of the country and this can cause an issue due to the costs of moving and the fact that they may need to downsize in order to purchase a property in the area that they desire to live in. A lifetime Mortgage could help them maintain a certain standard of property and lifestyle despite living in a more expensive area. Using a Lifetime Mortgage to purchase a property is easy and follows a very similar process to a traditional mortgage.
Buying a second home We are seeing retirement lending being used to purchase second homes, both in the UK and abroad. Other countries in Europe are not enjoying the same levels of property inflation that we are experiencing in the UK and we understand that some consumers are looking to take advantage of low property prices in warmer countries.
provided. It could be that a client in retirement may benefit hugely in terms of security and quality of life if they purchase a sheltered accommodation property. Some lenders allow you to use their Lifetime Mortgage to purchase a retirement property and a reserve facility may be able to help them with on-going maintenance charges if their disposable income is low compared to the cost of living in the property. Care should be taken to consider what happens at the end of the reserve facility if it is being used in this way but the principle of purchasing a retirement property in conjunction with a lifetime mortgage is a popular one. These are just some of the ways that released equity can be used in the property market. Using built up family wealth that is tied up in property can be a very sensible financial planning tool for the right customer, in the right circumstances at the right time of life.
Security in retirement accommodation Retirement properties can often be quite expensive to purchase from Contact LV= new and sometimes Tel: 0800 028 8974 have high service charges because of Email: Leslie.Pick@lv.com Visit: www.lv.com/adviser the facilities
Brought to you by The Premier Equity Release Club. Contact our free helpdesk on 0800 612 5423.
Combining retirement income and equity release. Could a ‘two phase’ retirement solution become the new norm? By Nick Brown, Propositions Manager – Lifetime Mortgages, Just Retirement
Could we be seeing the future of retirement funding become a two phase process, especially in light of the pension freedoms? This is where retirees use their pension savings first but then use equity release to cover any shortfalls thereafter. Those under 65 are more likely to take most or all of their pension savings early, while the amount of over 65s taking out equity release has increased. A two phase approach may well become the solution for most in retirement. According to new figures released from the Association of British Insurers, four out of five people using pension freedoms to access their savings are under 65 with 95% of lump sums being for the full pension pot. Figures from the Equity Release Council also show that retirees are finding their pension savings are unable to cover the rising costs in retirement. This is where equity release is proving an invaluable solution. In the wake of the pension freedoms, could we be seeing an increase in two phase retirement solutions? It is too early to see the long-term effects the pension freedoms will have on retirement funding. These latest figures do suggest that we could be seeing more retirees running out of their pension savings earlier than planned. Equity release could be a solution that helps many cover the resulting shortfalls in their retirement income. We have seen the profile of equity release rise in recent years, with lending surging to an all-time high. When planning retirement, equity release could be a very viable solution. If your clients are experiencing shortfalls from their pension savings, or are likely to, and are looking to release capital to help fund their retirement, equity release is a possible solution. Downsizing or relocating could be
another option. For some, this wouldn’t be worthwhile as they may want to remain in their community, close to their friends and family. Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. It is important for those who are currently planning their retirement and are intending to take some or all of their pension savings, to understand the implications of taking a lump sum. They need to be aware of the effects this may have on their future retirement and their future income needs for long-term care funding. As a leading provider of lifetime mortgages1, Just Retirement Limited have helped tens of thousands of customers release over £2bn. By considering your clients’ home as part of their retirement planning, you (and they) may be pleasantly surprised by how much could be released or even that it is an option in the first place. In fact those aged 65 and over have more than £891bn2 of equity in property, which means that your client’s house could be one of their biggest assets and could be key to boosting their retirement.
Contact Just Retirement Tel: 0345 302 2287 Email: support@justretirement.com Website: justadviser.com/equity-release 1
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Equity Release Council (SHIP) Q3 2015 Key Retirement Solutions, September 2015
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6 Lifetime Mortgage Insight - Issue 5 - January 2016
Purchase and porting an equity release mortgage By Faye Moutzouri, The Equity Release Council
Management studies mainly focus on subjects concerning business transition, funding models and revenues - rightly so, as profit and its contextualisation are straightforward objectives for a business. Up to present, few studies have been made on the practical application of behavioural findings into everyday business, and even fewer tools have been developed based on behavioural aspects that could actually lead practitioners to successful outcomes. Evidence of behavioural science has revealed that a lot about human behavior is not triggered by rationality but rather simply happens through instinctive process of which our conscious mind is unaware of. Findings of behavioural science can help in your business practicalities, and reinforce your impact throughout your everyday life. Purchasing a plan is obviously not only transactional. It concerns understanding a customer’s motivations. Some guidance would reinforce your impact in your conversations with them so that you get the right outcomes, and offer customers the solution that is best suited to their needs. You should reflect on how you phrase your discussions in a way that they understand, and is meaningful to them. Framing decisions on what might be lost rather than on what can be gained is a tool that can prove very influential in your discussions with your customers. This applies as much to the 60 year old person thinking about retirement as to somebody who is 30, and contemplating on what pension plan to purchase. As a believer that theory has to give its place to practical application, I will now look at the very technical term of a plan’s portability or at least I will try, being a social scientist myself. Equally to mainstream mortgages all Equity Release Mortgages have Early Repayment Charges (ERCs) applicable when the loan is repaid before a customer’s death. They
are fixed, and not applicable when a customer moves into long-term care. These are commonly, and perhaps misleadingly referred to as ‘penalties’ however they are based on the provider’s calculations and specifically, on how much it actually costs them to end a customer’s contract. Additionally, they are not applicable given the customer’s right to port the ER Mortgage to a new property - for plans which comply with The Council’s full product standards (this year we celebrate our 25th anniversary of standards). A plan’s portability means a property which a provider would accept if they were setting up a plan for a new customer. Where a customer wished to buy a smaller property which was worth less than the one on which the original ER plan was secured, a balancing repayment would be required to make sure that the customer was not left in a position where the value of the loan was much higher in relation to the value of the (smaller) property. Additionally, there are some properties which providers would not be able to accept - please see our FAQs section for more questions and answers.
Contact The Equity Release Council Tel: 07557 856 705 Email: fayem@equityreleasecouncil.com Visit: www.equityreleasecouncil.com
Brought to you by The Premier Equity Release Club. Contact our free helpdesk on 0800 612 5423.
Rate changes from 1st September 2015 Lender
Date change
Aviva 3/12/2015
Product
Original rate
Current rate
Flexi
5.16%
5.19%
New tool
5.19%
5.15%
Flexi Enhanced
Hodge
Flexi Enhanced
5.19%
5.12%
Lump
(standard 7.39%)
5.78%
Aviva arrangement fee reduced to £5 18/11/15 £600.
Retirement
4.39%
Flexi Life
6.19%
Lump
5.99%
Roll up
5.42%
Roll up 60-64
Legal & General 15/12/2015
5.42%
Enhanced
6.59%
Flexi
5.25%
Flexi CB
5.25%
5.19%
5.45%
5.39% 5.54%
Flexi Plus CB 2%
5.74%
Lump
6.04%
Lump CB
6.24%
*New* Max Lump
November
Max Lump *New* Max Lump
Increase LTVs
6.49%
in most cases
^
0.10%
v
0.06%
v
0.06%
*NEW*
6.29% Increase LTVs
6.69%
Max Lump + CB
6.49%
*NEW* Premier Flexi
4.99%
Flex
6.04%
Lump sum more2life
v
5.45%
Flexi Plus
17/9/2015
LV=
5.52% 6.59%
Flexi CB 15/12/2015
in most cases
Please note Aviva assess each case individually
Lump sum
Flexi
v
5.19%
To 11th November
Just Retirement
Rate change
*NEW*
*NEW*
5.79% 6.11%
6.01%
v
17/9/2015
Tailored Enhanced
6.75%
6.35%
v
22/10/2015
Tailored Enhanced
6.35%
6.22%
v
1/12/2015
Tailored Enhanced
6.22%
6.49%
^
22/10/2015
Premier Choice
*NEW*
5.95%
*NEW*
1/12/2015
Personal Choice
5.95%
6.26%
^
0.27%
v
0.20%
Interest Partnership
Pure
Lump
6.65% 6.65%
Lump 1
Drawdown 1
24/09/2015
Drawdown 2
24/09/2015
*New* Max DD2
Max DD1
November Retirement Advantage
6.45% 6.79%
Lump 2 24/09/2015
0.28%
5.75%
Lump 12/10/2015
0.21%
6.29% 6.49%
6.34%
v
0.15%
6.34%
6.59%
^
0.25%
6.29%
6.14%
v
0.15%
6.14%
6.44%
^
0.30%
6.74%
6.59%
v
0.15%
6.59%
6.70%
^
0.11%
6.54%
6.59%
v
0.15%
6.59%
6.90%
^
0.21%
7.32%
*NEW*
5% Max Drawdown Interest Gold
5.60%
5.99%
Interest Gold
5.99%
6.52%
29/09/2015
Interest Platinum
6.97%
Back
0.53%
14/12/2015
Voluntary
6.58%
6.99%
^
0.41%
14/12/2015
Lump
6.37%
6.57%
^
0.20%
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Case studies in borrowing in retirement By James Young, Business Development Manager, Hodge Lifetime
The concept of retirement has fundamentally changed. For many, age 65 will not be the default retirement age and a phased retirement may become the reality. A new segment of the market is therefore emerging, which in general reflects borrowers in the 55 to 75 age range who are in transition from a working life into retirement and will require products that can change as their circumstances do. The Hodge Lifetime Retirement Mortgage has been designed with these borrowers in mind, offering: • A loan based on their ability to repay (maximum 50% loan to value from age 55) • The ability to manage their loan with monthly interest payments (and to make 10% overpayments if required) • 5 year fixed interest rate • Option to convert to roll up equity release should their circumstances or affordability change in the future (available from youngest customer age 80) • Lifetime term with fixed early repayment charges in the first 5 years only
Outgoings Household £16,500 Credit £3,000 A loan of £140,000 was approved enabling them to gift their daughter the deposit for a new property purchase, in essence giving her an early inheritance The Retirement Mortgage was chosen as the customers could afford to make monthly interest repayments with comfortable retirement income. They have peace of mind that after the age of 80 they could convert to a roll up option should their circumstances change.
In a series of case studies we will take a look at some of the reasons this new cohort of customers are using the retirement mortgage.
As this is a lifetime mortgage as opposed to a fixed term mortgage, the customer maintains the control as to if and when they redeem the mortgage.
Gifting an early inheritance:
Full details of the Retirement Mortgage are available at www.hodgelifetime.com or Freephone 0800 731 4076
Property value - £280,000 Joint application aged 68 and 66 with: Income State pensions £6,250 and £7,300 per annum Pension income £28,000 and £6,500 (index linked with spouses benefit)
Contact Hodge Lifetime Tel: 0800 731 4076 Email: james.young@hodgelifetime.com Website: www.hodgelifetime.com
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