Issue no.7 July 2018
L I F E T I M E M O RTG AG E
INSIGHT Retirement Included in this issue
Equity release and the social care challenge
The changing face of Equity Release
Time to act on interest only
By Sean Smith, Head of Public Affairs, Equity Release Council
By Alice Watson, Head of Marketing, Retirement Advantage
By Sadie Russell, Affinity Partner Relationship Manager, Legal & General Home Finance
IMPROVEMENTS
& GARDEN
HOME
D AY TO DAY
23%
48%
LIVING
17%
GIFT TO FAMILY 37%
Page 8
Page 10
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ONLY
CLEAR DEBT & MORTGAGE
Page 13
Please note any information in this magazine is for registered intermediaries and NOT to be issued to members of the public.
Welcome To our July 2018 edition
The market seems to be in full flow with more and more borrowers turning to lifetime mortgages as the world is waking up to the opportunities of lifetime mortgages with no affordability restrictions, low fixed rates, and an attitude to spend. Are you ready? Together with the UK population living longer, house wealth soaring, continued growth in this market is guaranteed. Advisers should equip themselves to help and support this age group of clients in providing funds for a life changing experience for them in their silver years. The newsletter is designed to share the knowledge with all sectors of the industry in keeping all informed of the current market. Our special thanks goes to the Pure Retirement marketing team, who create the newsletter from all the individual articles from providers and present what I hope you think is an informative and valuable newsletter on lifetime mortgages.
Jane Hanlon, Club Manager, The Premier Equity Release Club
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LIFETIME MORTGAGE INSIGHT
Contents 4 Is the cheapest rate the best? 6 The increasing need for Equity Release 8 Equity release and the social care challenge 9 LV= - providing a more flexible underwriting approach 10 The changing face of Equity Release 11 Helping your clients realise their untapped wealth 14 Equity Release using a Home Reversion 16 Learning Zone 18 Perfect storm leading to older generations facing a financial crisis 19 Lifeline for 1.7 million borrowers 20 Rate changes from April 2018 21 Contact details and extra services
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Is the cheapest rate the best? %
%
By Jane Hanlon, Club Manager, The Premier Equity Release Club
Sourcing systems understandably are based on rate. The cheapest rate usually appearing at the top of the research, with some able to quote cost per £1,000 borrowed. The system can help with the advice process, it can identify rates and amounts available and if roll up or interest only. Can it really look further? As yet the systems have a long way to go, to cover all the features with our so innovate lenders. For the adviser it is important to look further than taking the cheapest product. Take the likes of Aviva who only put a sample rate on the sourcing system, so you could easily miss things as they price per individual client. Compare to buying a washing machine, get the cheapest with less bells and whistles against paying slightly more and getting better spin speed? The same goes for lifetime mortgages, some offer greater flexibility regarding payments, good processing service, speed and ease to access to reserve funds, ease of porting, with lenders that have a good range of property type, should you wish to move?
Equity release - Quote results Provider/Product
?
Initial sum
?
Interest type
?
MER
?
AER
?
Product fee
?
So, I think we can all agree sourcing systems and rates are a good starting point and guide for borrowing power and rates. This satisfies somewhat the compliance team, but only after printing the comparison report can the fine tuning begin whittling down options and finally coming to a recommendation. Nothing wrong with the cheapest rate if it ticks the boxes for your client. Cheaper rates tend to go with less borrowing power and can suit many especially if requiring a specific lump sum. But many like a reserve/draw down facility, the amount can vary so does the cost, so if you have gone for cheapest then your reserve facility will be smaller. Taking a higher rate for a higher reserve, is an option and therefore has
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to be justified. The problem occurs when they used all the funds available and want more. With the tiering of the product pricing now based on rate against borrowing power (LTV) means it can be difficult to raise more unless the property has gone up then maybe a chance to do additional borrowing, providing the lender is still in the lending market, if not the option to look at re broking. The first task of re broking would be to check out what if any redemption penalties would be payable which could be on recent deals up to 25% of initial loan. Careful consideration is required before proceeding. You also need to take into account the extra cost of broker fee, valuation and legal fees. This all should be justifiable and the breakeven point or true costs clearly evidenced to client. This can and does become an issue for complaints, so hence the reason it is so important that the client is not necessarly given the cheapest rate, but the product that is recommended fits the needs of the client today and possibly in the future. The fact find is the real key in recording the client’s needs wishes and preferences and should tell a story. You need to cover things like the gilt rates, early redemption charges against the fixed percentage over a period of time, the scope of reserve available is it required? What extra will it cost. Lender A
We have rates ranging from 3.63% mer through to 6.78% mer and cases are written at all levels, which means lenders are still lending at higher rates for a reason. In the table below is an example of lower rate against higher rate lender to demonstrate the features and options. The good news is they both have a place in this market allowing ones to lend when others will not. This is what makes our job in advising and recommending a lifetime mortgage so interesting, each fact find tells a story and our job is to make sure that we can tick most of the boxes the client requires to get the advice process to the best possible solution for their needs both now and in the future. Remember, Lifetime does not have to be lifetime, as I say at 60 you want a large garden at 70 a small garden and 80 no garden! Think on that when writing your next case.
Need any help or support please don’t hesitate to call us, here to share our known that we have built up over 32 years. Call 01326 567970
Lender B
•
Rate driven
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Priced for return
•
Gilt exit penalties £0 – 25% of initial loan
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Fixed percentage over a period- 8 years
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If 2 be 1- 3 year window no redemption
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If 2 be 1- 3 year window no redemption
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Optional payment 4 (min £500- 10%p.a.)
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Voluntary payments £50 – 15% p.a
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Monthly DDM collection
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Monthly DDM collection
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Flats only 85% of value used
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Flats 100% of value used
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Retirement accommodation (subject to lease etc)
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Retirement accomodation (subject to lease)
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Min lease 185 years – age of youngest
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Lease 155 yrs – age of youngest, min 75yr
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Properties can be referred to underwriters
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Unusual properties consider case by case
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Council properties min £150,000
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Council houses from £70,000
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BTL and second homes considered
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Flexibility with access to underwriters
Retirement
Experts in Equity Release The freedom in retirement your clients deserve
More for your customers with our Fee Contributions and Cashback options
Case Tracking facilities in our new online portal
Underwriters available as always for you Applications online, paper–based or even to speak to directly on the phone
Dedicated Telephone Account Manager, Broker Support Team and Face to face BDMs to visit you in the field
a hybrid of the two
Bespoke Marketing Support Team to help you build your business, educational materials and updates on the market
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.
PURE MAX RANGE
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
The increasing need for Equity Release
Retirement
By Paul Carter, CEO, Pure Retirement securing financial stability. This is partly due to an increasing trend in divorces amongst those over 60, contributing to mortgage repayment problems post-split. Financial planning firm LEBC estimates that by 2037, almost one in every 10 divorcees will be aged over 60 and that between now and 2032 there will be From the ‘bank of mum and dad’ helping 40,000 interest only mortgages maturing their children and grandchildren onto the annually, with no obvious method of housing ladder, to divorcees over the age of repayment. Many older people still with 60 requiring settlement funds and more mortgages or other debts may even need to women than ever before opting for later life take on new borrowing to buy out a former lending as a means of subsidising their partner. pension funds. Lower pensions and savings amongst women Recent figures suggest that nearly £6bn of are also a contributing factor, often having funds will be lent by parents this year to been the primary caregivers of the family, support their children in buying their first taking breaks from work to raise children and home, with the value of parental-supported therefore building a smaller pension pot than property purchases in 2018 set to rise to would otherwise have been the case. £81.7bn, £4.2bn more than 2016. But it’s not just women who are increasingly Equity release has increased as a source of opting for equity release, with eight out of ten this funding, with nearly half of over 55s homeowners over the age of 55 saying they open to the idea of using it towards a would use it, according to the latest Sun Life deposit for a loved one’s home. research.
It’s hard to read the news lately without coming across a new headline on the increasing use of equity release by those in need of its financial support.
Since 2016, 50% more women are choosing a lifetime mortgage as a way of
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At Pure retirement, more and more of our customers are opting for drawdown products,
where they can take the funds they need as they need them, but choosing a bigger pot of funds to draw from which they can utilise as they see fit. Paying off a mortgage or other debts and general home improvements are among the most common uses of funds, and the average age of our customers has also dropped in the last two years, indicating that people are considering their options for retirement earlier than before, becoming more aware of the need for something more than the traditional methods of funding retirement. Customers still need more education on the options available however, with Sun Life’s research indicating that more than half of those surveyed were unaware that they could still move house after taking equity release, with 85% unaware that they could use it to pay off an existing mortgage or loan. The retirement landscape has dramatically changed over the last few years, and it’s crucial that advisers are aware of all the options available to their clients, and more importantly that they have the tools and resources at their fingertips to be able to communicate these often crucial options to the client base that needs them.
Debate: The role equity release can play in helping to meet the social care challenge Committee Room 11, House of Commons Monday 9th July, 2pm – 3.30pm The Government is due to publish its green paper on social care in the summer, outlining how it intends to meet the challenge of ensuring sufficient provision of care for its citizens, against a backdrop of an ageing population and constraints on resources. This Committee Room discussion will consider the role equity release can play in helping to meet the social care challenge. Equity Release Council Chairman, David Burrowes will host the debate, with participants drawn from government and industry, plus contributions invited from the floor. Sponsor: Rt Hon Dame Caroline Spelman MP for Meriden Equity Release Council members and parliamentarians are invited to attend. If you have not received your invitation, or for further information, please contact sean.smith@equityreleasecouncil.com
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Equity release and the social care challenge
By Sean Smith, Head of Public Affairs, Equity Release Council
The UK population is currently over 65 million, predicted to increase by more than 10 million over the next 30 years. The fastest growing age group is those aged 65 and above, with this demographic expected to increase by 60 per cent during that time, meaning that by the mid-late 2040s, the number of people above the age of 65 will likely far exceed those aged 15 and under.1 2 While the prospect of living longer should be celebrated, an ageing population does bring its challenges, particularly against a backdrop of constraints on resources. Research published by the Office for National Statistics earlier this year showed that Britons have amassed £4.6 trillion in property wealth, and regard property as second only to employer pensions as the safest way to save for retirement.3 Equity release is the fastest growing mortgage sector. Compared to five years ago, twice as many older homeowners are releasing money from their property, via lump sum or regular smaller amounts, without having to make any monthly repayments. Annual lending surpassed £3 billion in 2017 – a 50 per cent rise on the previous year. There is an increasing array of flexible options, with over 80 product types currently available; and interest rates are competitive with other mortgages.4
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As nearly 70% per cent of all homeowner equity belongs to households aged 55 and over, it is inevitable that housing wealth will increasingly need to be used to help provide for retirement and care needs. The rapid growth of equity release over recent years suggests that many older consumers are already recognising the potential of property wealth to support retirement. Raising public awareness of the scale of the challenge, the remits of both the NHS and social services, the role government will and will not play in providing provision for care, are all essential to fostering improved public understanding. Alongside that, government, industry and consumer groups can all help to explain the support that other financial mechanisms, such as equity release, can provide. The Equity
Release Council is committed to playing its part by proactively engaging with stakeholders to develop policy solutions that can help meet the challenge of delivering sufficient provision of care for UK citizens. 1.https://www.ons.gov.uk/peoplepopulationandcommunity/p opulationandmigration/populationestimates/articles/overview oftheukpopulation/july2017#the-uk-population-is-at-its-larges t-ever 2.https://www.ons.gov.uk/peoplepopulationandcommunity/p opulationandmigration/populationprojections/compendium/su bnationalpopulationprojectionssupplementaryanalysis/2014ba sedprojections/howthepopulationofenglandisprojectedtoage 3.https://www.ons.gov.uk/peoplepopulationandcommunity/p ersonalandhouseholdfinances/incomeandwealth/datasets/pro pertywealthwealthingreatbritain 4.http://www.equityreleasecouncil.com/members-area/docu ment-library/equity-release-market-report-spring-2018/
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
LV= - providing a more flexible underwriting approach By Georgina Oxton, Strategic Sales Manager, Equity Release
Here at LV= we are keen to ensure our underwriting approach and lending policy evolves as the market changes and that we actively seek opportunities to introduce more flexibility where possible, whilst managing property risk. We continually review our criteria and processes; gathering feedback from you as advisers and analysing our own declined cases. This helps us to identify any key areas of focus and areas for further investigation and proposition improvement. Our Underwriting and Sales teams also meet regularly to discuss target areas for further improvement. It is of course a matter for each lender to determine their own lending criteria in line with their or their funders, attitude to risk. I’m sure you will agree that it can be challenging as advisers to understand exactly who will be able to lend on a particular property or in a particular scenario!
opportunity to consider more cases as more modern and durable roofing materials become more prevalent. Please note that our limit for felt construction remains at 30% as this construction method is known to have a limited lifespan and therefore poses an additional risk. Extensions – we have significantly improved our flexibility on properties with extensions, increasing the limit to 50% of the overall property footprint. This has dramatically decreased the number of cases we decline in this area as more and more people elect to extend a property, rather than sell and trade up, to give themselves more space. Flats above commercial activity – we recognise that in selected city centre locations, particularly in London, there are some high quality flats with good re-sale potential which are situated in mixed-use blocks. Often these developments will have commercial units on the ground floor with residential units above. Provided that the subject property is not on the floor
That’s where Jane and the team at Premier Equity Release Club can provide an invaluable service to help you navigate lender criteria, using their extensive knowledge of lender propositions in a rapidly changing market. I thought it might be useful to share with you six of our recent underwriting improvements. Flat roof areas – following consultation with experts, we have increased our flat roof limit to 50% for selected modern roofing materials, where there are guarantees in place. This gives us the
www.lv.com/adviser
directly above commercial activity, the commercial activity doesn’t cause any concerns and there are no other issues, then we are now able to take a much more flexible view on these cases. Social vs private ownership – following consultation with experts we are now able to take a more flexible view on properties in areas with social/ex local authority housing, providing the property has good re-sale potential. Home improvements – we recognise this continues to be a very popular reason for customers to release equity from their properties. Historically, we’ve not been able to accept any cases where structural work is planned. We have now created a calculator which allows the sales team to give you an instant indication of whether we can consider structural works on a particular case. Please bear in mind that we may require some additional information from you/your clients in order to provide a final decision. Flats without lifts – previously we would have been unable to accept a property in a block greater than four stories if no lift was present. We now apply a common-sense approach which will allow us to consider flats in such blocks, providing the subject property is on the basement/entrance floor and the valuer makes no adverse comments regarding the absence of a lift. We are already working through a further batch of improvements we hope to be able to share with you shortly. Finally, if you have spoken to the Sales team here at LV= you’ll know that we ask a number of questions at quote stage to make the journey as smooth as possible and provide you with more certainty that we’ll be able to lend. We would prefer to spend a little more time understanding the property and scenario better at outset to prevent you from wasting unnecessary time further down the line. Adviser feedback confirms that you generally find this service helpful and reassuring for your customers. However, we’re always keen to understand how we can improve our processes, so please don’t hesitate to let me know if you have any suggestions or ideas.
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
The changing face of equity release
How has the way customers use equity release changed? By Alice Watson, Head of Marketing, Retirement Advantage
With younger generations struggling to get on the housing ladder, and higher education more expensive than it was for today’s retirees, we’re also seeing a steady increase in the number of customers who want to support their relatives financially. In 2015, 13% of Retirement Advantage’s customers used equity release to gift to family, and this has increased to 17% in 2018. Life expectancy is increasing, and it seems that many retirees are choosing to gift to their loved
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what they owe when they retire, and the popularity of using equity release for this reason reinforces the fact that debt in retirement is becoming the norm. Innovation and product development in the sector means that over-55s can access products which behave in a similar way to mainstream mortgages, and the adoption of other mainstream product features, such as fixed early repayment charges, means that equity Alongside this, we have also seen an release is a becoming an increasingly increase in the number of customers using popular option in retirement. equity release to clear existing mortgages and consolidate unsecured debts. Over The shift in the reasons for taking out equity one third (37%) used their loan to clear an release has arguably been driven by existing mortgage in 2018 compared with continued product innovation and supported 25% in 2015. With more and more interest by safeguards. As consumers become more only mortgages coming to the end of aware of equity release and the industry term, we’re seeing that equity release can continues to innovate and grow, we expect be a potential solution to the interest-only to see the range of uses for equity release time bomb for many customers. People products to become even more diverse in are also increasingly comfortable with using the future. the wealth in their property to help clear
HOME IMPROVEMENTS
D AY TO DAY
23%
48%
& GARDEN
In the first quarter of 2018, 48% of Retirement Advantage’s customers took out equity release to make home and garden improvements – a sizeable increase from the 27% who did so in the first quarter of 2015. The number of customers using some or all of the funds they released from their property for day to day living expenses has also increased dramatically, from 7% in 2015 to 23% in 2018. This increase is a sure sign that wealth stored in property is now being considered alongside pensions, ISAs and savings by more and more people as part of a holistic view of finances.
ones early rather than waiting to pass on their wealth as inheritance when the need for financial help may have passed. Product innovation in the sector over the last three years, including the availability of lifetime mortgages with interest and capital repayments, even means that families could help to service the interest and reduce the size of the loan.
LIVING
GIFT TO FAMILY 37%
17%
The equity release industry is flourishing, and customers are increasingly recognising the role that property wealth can play alongside other savings. We’ve taken a look back at the reasons our customers took out lifetime mortgages in 2015 – just three years ago. It’s clear that whilst equity release was once considered a ‘last resort’, more and more customers are now using their property wealth to enhance their retirement lifestyle.
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CLEAR DEBT & MORTGAGE
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Helping your clients realise their untapped wealth By Jonathan McCaffrey, Specialist Account Director, Just
Your client’s home is more than just bricks and mortar. It houses a wealth of memories. So why would they necessarily sell when they can release some of the equity tied up in it to further enhance their lifestyle. The perception of equity release is changing and people are increasingly receptive, as shown by rapid market growth. According to the Equity Release Council (ERC): ‘Growing interest in the equity release market from consumers is a sign that more homeowners consider housing wealth to be a potential source of finance in later life, and are finding an increasingly flexible range of products enabling them to unlock some of its value.’ Good financial planning is about putting the right amount of money into the right hands at the right time.
Retirement should be fulfilling. The ERC says people are treating equity release as a supplement to other income they have rather than as the sole source or simply moderating their withdrawals of housing wealth. While equity release can be used by people to help alleviate debt problems, it can also be used by wealthier clients who want to: • Gift children / grandchildren the money to help them with house purchases. • Help with school fees. • Mitigate Inheritance Tax and see their family enjoy their inheritance while they’re alive.
Benefits of our Lifetime Mortgages • Assurance with the no-negative equity guarantee: Your clients won’t have to pay more than the sale proceeds of the property, even if it’s less than the amount owed. There’s no added charge for this guarantee. This applies when the house is sold following death or moving permanently into long-term care.
• Regulatory confidence with stringent safeguards in place to help to ensure products meet your client’s needs and they fully understand how potential legacies, state benefits and tax will be affected. • Flexibility: Clients wanting to make repayments can start anytime. They don’t need to wait a year before they can make a partial repayment. In each 12 month period, they can pay back up to 10% of each advance amount without being charged an Early Repayment Charge. This can be done in up to six instalments (minimum £500 for each instalment and ensuring the remaining amount on the mortgage is greater than £10,000). Equity release can also be used to help boost your client’s lifestyle, as well as the specific purposes mentioned above. If you’re unsure if your client’s home is acceptable, simply get in touch with us to see how you can help your customers realise their untapped wealth.
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
With OneFamily your customers now have the option of paying off Lifetime Mortgage interest as and when they choose By John Tweed, Head of Intermediary Sales, One Family If there is one word that sums up the OneFamily approach to new product development that word is flexibility.
interest. This highlights the desire of many customers to have the option to pay off interest.*
We listen to you our customers and use your feedback to help us develop our products to meet the increasingly diverse needs of homeowners over 55.
Nici Audhlam-Gardiner, Managing Director of Lifetime Mortgages commented, “By giving our customers the option to pay off the interest on their loan we are giving them increased flexibility. We know that our customers’ financial circumstances change, and we want our products to be able to flex with their needs. For example, we’ve seen cases where customers have been left an inheritance and want to be able to make a payment on their loan.”.
That’s why we have introduced our interest payment product to remove the big concerns homeowners have about equity release as it enables them to protect the capital in their home. This innovative approach in the lifetime mortgage market means that all new customers will be able to manage the growth of interest on their loan, either through regular payments or, through individual payments up to 10% of the original loan amount. This benefit is provided with no extra charge. Interestingly 54% of the lifetime mortgages taken with OneFamily are already used by homeowners who pay off interest. Of these existing customers, over a third -38% pay off both some of the capital and interest (maximum of 10% of the original loan value) each year and 16% choose to pay off up to 100% of the
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OneFamily’s lifetime mortgage range is available on either a fixed, 2-year fixed or variable rate basis.
To find out more about OneFamily’s lifetime mortgages please call:
0800 802 1645^
Or visit: https://www.onefamilyadviser.com / lifetime-mortgages/
* OneFamily internal lifetime mortgage data ^Lines open 9am - 5.30pm, Monday to Friday. We might record your call to help improve our training and for security purposes. Calls to 0800 or 0808 numbers are free from UK landlines and personal mobiles. With business mobiles the cost will depend on your phone provider. If you'd like to know more, please ask your provider. OneFamily Lifetime Mortgages Limited, registered number 09239554, is authorised and regulated by the Financial Conduct Authority (FCA) registered number 725168. OneFamily Lifetime Mortgages Limited is a subsidiary of Family Assurance Friendly Society Limited (FAFSL). FAFSL and all its subsidiaries are registered in England & Wales with registered offices at 16-17 West Street, Brighton, BN1 2RL, United Kingdom. 24393 001 06 2018.
The OneFamily Lifetime Mortgages Survey Prize Draw We are pleased to announce the winners of our OneFamily Lifetime Mortgages Survey Prize Draw! A big thank you to everyone who participated, it was great to see all the entries come in and gain an excellent understanding of your views on our OneFamily Lifetime Mortgages underwriting USPs Congratulations to our three winners Andy Wilson, Bill Crowley and Gerald Meek - we hope you enjoy your prize! We look forward to launching a future quiz in partnership with Premier Equity Release Club later this year. Do look out for details.
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Time to act on interest only
By Sadie Russell, Affinity Partner Relationship Manager, Legal & General Home Finance
Interest only mortgages have enabled thousands of people across the UK to get a foot on the property ladder or reduce their initial cost of borrowing. According to the Financial Conduct Authority there are about 1.67 million interest-only mortgages in the UK, meaning nearly one in five mortgage customers have an interest-only deal. However, many people are nearing the end of their mortgage terms whilst facing a shortfall in paying off their debt; either because their investment has not produced the required returns or because they didn’t set up a means to repay. The timeline for these residential interest only mortgages to mature has three peaks. We are currently in the first peak, a consequence of endowment mortgages sold in the 1990’s and early 2000’s. The next peak will be 2027-2028 as a result of interest only mortgages typically sold between 2003 and 2009. In 2031-2032 we will see the third peak, driven by residential interest only mortgages taken out between 2005 to 2008. About 70% of interest-only and part capital repayment mortgages are held by customers aged over 45. Some of these customers may no longer meet the criteria for a residential mortgages.
The need for new solutions At Legal & General we believe that innovation in the retirement lending sector is needed in order to address these challenges. As the FCA has said, communication with these customers is key, but we also need to have something to offer borrowers whose alternative options are limited. The FCA also modified the MCOB rules in 2016 to remove the requirement to carry out an affordability assessment for borrowers in certain circumstances. These included where there is no risk of arrears or repossession in the event of missed payments provided borrowers have the option to convert to a roll up mortgage at any point. This change was made to encourage product innovation to help those customers whose needs aren't met by traditional, roll-up, lifetime mortgages. Some of these new products give customers the option to pay some or all of the monthly interest without having to prove they can afford to. These new lifetime mortgage products could be appealing, for those interest only customers who are in the habit of paying their interest monthly. Flexibility is going to be the key going forward. The FCA has demonstrated this in its change to the handbook, the Retirement Interest-Only Mortgages Instrument 2018. Both retirement interest-only products and solutions that allow older borrowers to switch seamlessly between interest repayments and roll up will be part of that innovation which will bring the mainstream residential and retirement lending sectors closer together. We all need to work together to develop and raise awareness about these solutions for Britain’s interest-only borrowers. We need to act now while time is still on our side and drive innovation in this growing sector to meet the needs of our older borrowers.
ONLY
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Equity Release, using a Home Reversion By Mark King, Managing Director, Crown Equity Release
When I started in this industry in the late 1980s the only option for a homeowner looking to realise some capital from his home was via a sale on a reversionary basis. There had been some scandals about unsafe products which had been missold. This outraged the providers of reversionary products which had always guaranteed the reversioner of security of tenure in their home or, indeed, an alternative one if required; thus in 1990 I was one of the founders of SHIP – Safe Home Income Plans – now The Equity Release Council.
What is a Reversion? A reversion means that all or part of the property is sold in exchange for a lifetime rent free lease and a capital sum. A conveyance is conducted and the change of ownership and the lifetime lease are both registered at the Land Registry. The lease also allows the co-owner or tenant to move to an alternative property at any stage. There are no early redemption fees involved although the reversioner has to pay estate agency fees etc. as if it was their own property. The amount of capital raised takes into account that no rent is passing and that it may be many, many years before the investor is able to realise his asset. The size of the discount depends on the ages of the
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vendors and is available via “The Exchange”. A reversion often releases more capital than may be available via a lifetime mortgage and is currently being used by several vendors who are in the throes of a divorce as it may enable one spouse to remain in their home and produce enough capital to satisfy any court order concerning payments to the other party.
Who is the buyer? At Crown Equity Release we only handle cases introduced by FCA regulated advisers, we are regulated as “arrangers” which means that we place the reversionary interests with external investors. We do not act as principals in the transaction so each case is purchased by an investor who will consider each case on its own merits. This means that we are often able to place such interests on properties that are not acceptable to mortgagors. Such properties may be: • Ex local authority • Leasehold flats • Non-standard construction
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Furthermore impaired lives may qualify – subject to medical history – to an increased pay out.
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LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Advantages of a Reversion • Flexibility, if part of the property is sold another part may be sold to realise more capital at a later time. • Freedom to move at a later date without any early redemption fees. • Option to take capital as a single lump sum or a series of payments for up to 180 months or a combination of both. Should the reversioners die during the payment period any outstanding payments are commuted to a cash sum and paid to their estate out of the proceeds of sale of the property. • If a partial reversion is taken the property is sold and the proceeds disbursed in ratio to the level of ownership. This may not occur with a roll up mortgage as the interest payable could eat up all the capital stored in the property leaving the beneficiaries with nothing.
Disadvantage of a Reversion The disadvantage is that should the life tenants die early then they have not had good value from the arrangement.
Obtaining an illustration To obtain a KFI for your client either telephone Mark King on 020 8875 5665 or email mking@crownequityrelease.com with details of the property (including ex local authority, leasehold/freehold, type of construction, estimated values, ages of the clients and any charges you may make. At Crown we try and keep your clients’ fees to a minimum and if possible will not charge a valuation fee. We do not charge an arrangement fee as the investor pays our fees. Further details may be found on our web site: crownequityrelease.com
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LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Learning Zone Inspired by Pure Retirement’s new Learning Zone on their Online Portal, we are including 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.
Recent Webinars
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Latest updates in the Equity Release market with David Burrows, Chairman of the ERC Council and Paul Carter, CEO of Pure Retirement
Equity Release Explained: The latest in Pure Retirement’s educational video series
View Here
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LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Upcoming Events
Q3 Events Later Life Lending Events July 4th, 5th, 11th & 12th
Pure Retirement Summer Webinars August 2018
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Recent Headlines 8 out of 10 plan final retirement with property wealth
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LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Perfect storm leading to older generations facing a financial crisis By Stuart Wilson, Channel Marketing Director, more 2 life
Our latest Later Life Lending Review has thrown some worrying facts into sharp relief; retirees are facing an unprecedented rise in the amount of debt that they are carrying into later life, and, well... something truly has to give. The massive change needed is not going to be overnight, and it is not going to be straightforward, but one thing remains certain – older generations are facing a financial crisis due to a perfect storm of factors, including policy changes, inadequate pension savings (and historically low income rates), problem debt, interest-only mortgages and having to care for several other generations of family members, both physically and financially. Our research found that in 2018, the total debt held by those aged 65+ will reach £86 billion – an increase of £30 billion in just 5 years. At an individual level, total average debt held by those aged 65+ is now £15,700, up from £12,500 in 2017; so, in just one year, total debt held by retirees has ballooned by almost 26%. And this trend is set to continue – by 2027, our research conducted by Cebr predicts the Retirement Lending market will be worth £142bn. We have already seen a huge increase in demand for equity release products, and it’s not hard to see why. Equity release is a financial product designed specifically for those in or approaching retirement, which can enable consumers to service debt and make the most out of their property wealth whilst not having to make monthly repayments. There simply aren’t many other products like it on the high street. Not only this, but more recent market innovations have helped bring equity release to the attention of a much wider audience by offering more flexibility and a wider range of
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options to consumers, such as: • Flexible capital repayment options • Guaranteed inheritance features • Fixed ERCs and ERC exemptions to help meet changing circumstances in retirement (e.g. Downsizing Protection) It is clear that property wealth should play a bigger part in retirement finances, and should become a more mainstream borrowing method, due to its suitability for older consumers. However, equity release cannot, and should not, be one of the few solutions available for those carrying so much debt into retirement. There is a need to develop a wider range of options for the retirement finance market, and there is a need to educate consumers about property wealth and equity release without constant recourse to negative rumours and widespread scaremongering. With debt rising at such a rapid rate, more needs to be done to ensure that, after a lifetime of working hard, people can live a comfortable retirement without the dark cloud of debt overshadowing them. Consumer demand for lending solutions designed specifically for older borrowers is out there and growing…the industry must do more to design the solutions required. As Dr Louise Overton put it; ‘There is a clear consensus across government, the financial services sector, that ensuring, and improving, the suitability and effectiveness of financial services for older people is a priority concern.’ If you want to read more about the latest research we have conducted into the Retirement Lending market, you can download a copy of our report by visiting the ‘Learning Lab’ section of our website. We also have a video animation you can watch here. Also, watch out for an invitation to our Lending in Retirement webinar which has been updated to include the latest statistics from this research. All of our webinars are fully CII-accredited.
Policy changes
Inadequate pension savings
Problem debt
£ Interest only mortgages
%
Having to care for family members
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Lifeline for 1.7 million borrowers caught in interestonly mortgage timebomb Hodge Lifetime launch 55+ residential only mortgage for life
By Beth Jones, Marketing & Communications Executive, Hodge
• 1.7 million people in Britain with either a part or full interest-only mortgage • 55+ residential interest only mortgage with no end term, launched 11th June • 2 and 5-year fixes available with rates from 3.44% Homeowners with an interest-only mortgage and no way to repay it when their term ends have been thrown a potential lifeline with the launch of one of the UK’s first residential interest-only mortgage for over 55’s by later life lending specialists, Hodge Lifetime. Earlier this year, the Financial Conduct Authority (FCA) raised concerns that those on interest only mortgages – nearly one in five UK mortgage customers1 - could
have shortfalls in their repayment plans which could lead to them losing their homes. In direct response to the FCA’s mortgage market concerns, Hodge Lifetime has launched the 55+ RIO mortgage to serve those consumers who might struggle to repay the capital at the end of their mortgage term, forcing them to sell up or cash in vital pensions or investments. The product is also suited to older borrowers who want to re-mortgage or buy a new home or those who can’t re-mortgage with a mainstream lender as the terms on offer are too expensive, not for long enough or they don’t meet lending criteria due to age. The 55+ RIO mortgage requires interest-only payments are made until the customer dies or goes into long term care; it’s at this point the capital is repaid. Borrowers are also able to make voluntary overpayments of up to 10% per year from day one.
• The 55+ RIO mortgage is available on both 2 and 5-year fixes with rates from 3.44% • With an LTV of 60%, minimum property value of £100,000 and loans from £20,000 to £500,000, the mortgage can be used for purchase or re-mortgage. • It’s not an equity release product and is available whole of market which means borrowers can go to their regular mortgage broker or IFA. • It’s available from 11th June, 2018. Commenting on the launch of the 55+ RIO mortgage, Hodge Lifetime business development director Steve Cox said: “The launch of the 55+ retirement interest-only mortgage means borrowers over the age of 55 now have more options when it comes to managing their finances. Now, they will be able to re-mortgage or take out a new mortgage with no restrictive end term in place which means borrowers as old as 85 could still re-mortgage. “Until now, our ageing population has been underserved by mortgage providers and they have had limited choice when it comes to borrowing later in life, a time when their borrowing needs are more complex; this is simply unfair. Many homeowners later in life are asset rich but cash poor and it’s at that point, more than ever they need flexibility when it comes to managing their mortgage and finances.” Currently, there are 1.7 million people in the UK with either a part or full interest-only mortgage with 70% of these held by people aged over 45.2 By 2020 alone, there will be 200,000 interest-only loans due to mature.3
LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
Rate changes from April 2018 Lender
Product
Lowest Rate
Aviva
Flexi Lump
Please note that each Aviva case is individually assessed.
Hodge
Retirement Flexi Life Lump Lifetime Plus Lifetime Max Indexed >55 Indexed Plus Indexed Max
3.85% 4.29% 4.09% 5.09% 5.59% 5.57% 6.08% 6.60%
4.40% 4.44% 4.24% 5.09% 5.79% 5.57% 6.08% 6.60%
3.85% down 4.44% up 4.24% up 5.09% 5.79% 5.57% 6.08% 6.60%
Just Retirement
Roll Up Lump Sum Lite Lump Sum Lite C/B from £500 Lump Sum Plus Lump Sum C/Back £1000
5.29% 60-4.8% 4.85% 55 from 5.45% 55 from 5.55%
5.29% 5.29% 4.85% 5.62% 5.75%
5.29% from 4.8% down tiered 4.85% 55 - 5.45% down tiered 55 from 5.55% down tiered
Flexi Flexi C/B Flexi Plus Flexi Plus CB 2% Flexi Max London & SE Flexi Max CB 2% loaded by Flexi Max Plus 0.02%/0.03% more schemes Flexi Max Plus CB 2% with £599 Arr/fee Premier Range
3.77% 3.97% 4.02% 4.22% 4.91% 5.11% 5.54% 5.74% 3.69%
4.00% 4.20% 4.31% 4.51% 5.01% 5.21% 5.64% 5.84% 3.92%
3.77% down 3.97% down 4.02% down 4.22% down 4.91% 5.11% 5.54% down 5.74% down 3.69%
LV=
Flex Lump Sum
6.04% 3.70%
6.04% 3.90%-4.83%
6.04% 3.70%-4.63% down
More2life
Tailored Enhanced Tailored Choice Cashback 2.5% Capital Choice Capital Choice Cashback 2% 35K Capital Choice Plus Capital Choice Plus Cashback 2%>35K Maximum Choice Lump Sum Maximum Draw Down
6.33% 6.58%-6.78% 4.61% 5.06% 5.01% 5.38% 5.65% 5.85%
6.37% 6.58%-6.78% 4.69% 5.19% 5.22% 5.48% 5.65% 5.85%
6.33% 6.58%-6.78% up & down 4.61% down 5.06% down 5.01% 5.38% 5.65% 5.85%
Onefamily
Lump Lite CPI Lump Lite Fixed Lump Standard CPI Lump Standard Fixed Voluntary Lite CPI Voluntary Lite Fixed Voluntary Standard CPI Voluntary Standard Fixed Interest Lite CPI Interest Lite Fixed Interest Standard CPI Interest Standard Fixed
3.56% 5.00% 3.76% 5.50% 4.06% 5.50% 4.27% 6.00% 3.56% 5.00% 3.76% 5.50%
5.64% 5.30% 5.85% 5.80% 6.16% 5.80% 6.37% 6.30% 5.64% 5.00% 5.85% 5.80%
5.64% 5.00% 5.85% 5.80% 6.16% 5.50% 6.37% 6.30% 5.64% 5.00% 5.85% 5.80%
Pure Retirement
Max Drawdown 1 Max Drawdown 2 Max Drawdown 3 Cashback option 2.5%
6.29%-6.84% 6.04%-6.59% 6.44%-6.99%
6.39%-6.99% 6.14%-6.74% 6.54%-7.14%
6.29%-6.84% 6.04%-6.59% 6.44%-6.99%
Retirement Advantage
Interest Gold Interest Platinum Voluntary Gold Voluntary Platinum Lifestyle Lite Lifestyle Gold Lifestyle Gold Plus Lifestyle Platinum Lifestyle Platinum C/Back 3% Lifestyle Interest Select Voluntary
5.49% 5.99% 5.69% 5.89% 4.09% 4.48% 5.59% 6.58% 6.88% 6.44% 6.24% 6.64%
5.49% 5.99% 5.69% 6.29% 4.09% 4.48% 5.59% 6.58% 6.88% 6.44% 6.24% 6.64%
5.49% 5.99% 5.69% 6.29% 4.09% 4.48% 5.59% 6.58% 6.88% 6.44% 6.24% 6.64%
Legal & General
New New
New BTL & Seconds
Highest Rate
Current Rate
Correct at time of going to final 22/06/2018. Please always check lenders rates and commissions as this can change without notice.
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LIFETIME MORTGAGE INSIGHT Issue no.7 July 2018
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
Bridgewater 08451 4050600
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
BBH 0800 051 4218 www.bbhlegal.co.uk £695 incl VAT for club members
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 £495 + VAT for club members
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 WEB services
LV= www.lvadviser.com 0800 028 8974 Marketing deals available if using panel solicitors and lenders £50
Website for IFA made to measure from £145 for 12 months. From Freeben, call Jane 01326 567970
Pure Retirement www.pureretirement.co.uk 0800 0818 281
NEW LPA /WILL service
Equity Release Council www.equityreleasecouncil.com 0844 669 7085
Retirement Advantage www.retirementadvantage.com 0800 068 0212
The Right Will refer to 01326 567970
More2life www.more2life.co.uk 08454 150 151 Onefamily www.onefamilyadviser.com 0800 802 1645
Retirement
Please note any information in this magazine is for registered intermediaries and NOT to be issued to members of the public.