Issue no.1 Jan 2017
L I F E T I M E M O RTG AG E
INSIGHT
Brought to you by The Right Equity Release
Included in this issue
Would you recommend a lifetime mortgage to your mother?
2017: Looking ahead By Nigel Waterson, Chairman, The Equity Release Council
By Jane Hanlon, Club Manager, The Premier Equity Release Club
Page 3
The importance of interest-only lifetime mortgages By Alice Watson, Head of Marketing Equity Release, Retirement Advantage
Page 5
Page 6
Please note any information in this magazine is for registered intermediaries and NOT to be issued to members of the public.
LIFETIME MORTGAGE INSIGHT
Contents
3 Would you recommend a lifetime mortgage to your mother? 4 Equity Release: Looking back at the year 5 2017: Looking ahead 6 The importance of interest-only lifetime mortgages 7 Why should I make a Lasting Power of Attorney (LPA)?
2
LIFETIME MORTGAGE INSIGHT Issue no.1 January 2017
Would you recommend a lifetime mortgage to your mother? By Jane Hanlon, Club Manager, The Premier Equity Release Club
Advising on Equity release can be enjoyable, rewarding and no longer with the fear factor that it has had in the past as long as you follow the simple rules. The test is “Would you allow your Mother to take a lifetime mortgage?” Result, means she will be able to stay in her own home! Borrowing in retirement is at last becoming acceptable, rates are good, so welcome the opportunity. Figures released by the equity release council during 2016 show 28% annual growth, meaning only one thing, the consumer is ready to buy. From the adviser’s perspective, it has always been considered high risk, a compliance nightmare and time consuming with the addition of mystery shoppers trying to catch you out. It does not have to be so arduous if you follow the simple code along these lines Discuss with your client and record: 1. Alternatives both now and in the future. 2. State benefits, eligibility or the effect, if applicable. 3. Beneficiaries, usually family, include them in discussions. 4. Health and life expectancy, along with house values and the effect on will and estate planning. 5. Explain fully the pros and cons of the lifetime and reversion plans before any recommendation. 6. Recommendation, could be not to proceed (THE MOTHER TEST), or clear
3
recommendation to a provider’s product on lifetime or reversion plan. 7. Golden rule, it is inadvisable that any funds released are reinvested into any medium or long term investments. 8. Explain the risks and fees associated: Compound interest Early redemption penalties Reversion sold at a discounted price 9. The Equity Release Council role. 10.Moving home, restrictions to property type and amounts possible. If they are likely to redeem early then imperative that early redemption penalties are covered with client in line with attitude to risk. You as an adviser have to satisfy and record that you have: 1. Reviewed the needs and objectives, taken account of future plans and outgoing commitments. 2. The amount released does not exceed the customer’s current requirements. 3. There is a clear realistic detailed list for the use of funds, both on initial release and any further draw down.
Once you have done one or two, you will see the enjoyment and reward of giving clients a new meaning to life.
Time to get started? Contact Chris Jones for more info on 07768 200 815
Or Via Email chris.jones@therightequityrelease.co.uk
LIFETIME MORTGAGE INSIGHT Issue no.1 January 2017
Equity Release: 26% Looking back GROWTH at the year 62%
It’s been a phenomenal year for Equity Release, with annual lending on course to exceed 2bn for the first time ever, in a landscape which has changed dramatically over the last twelve months. The number of people taking advantage of the wealth tied up in their homes has grown to record levels, and with increased recognition across the board from consumers, politicians and regulatory bodies, Equity Release is playing a much greater role in financial planning for retirement. Increased support from the FCA this year has resulted in an internal review of some of its rules and regulations, over concerns that they may be restricting the market. Proposals to remove the requirement for affordability checks and discussion around a potential stand-alone qualification for Equity Release, are testament to the fact they are taking the role of Lifetime Mortgages more seriously, and that they wish to assist rather than restrict development within the industry going forward. This regulatory acknowledgement couldn’t have come at a better time, as more conventional routes to funding retirement have seen yet more upheaval in 2016. Pension changes this year mean that it’s not only harder to qualify for a full state pension, but that without proper advice, there is a far greater risk that pensioners may run
4
out of money before they die. Add to this the historically low annuity rates and interest rates on savings, and there is a very real need for something more to help the population in later life. The demand for Equity Release has been further heightened by the ever-increasing choice and flexibility in the plans made available to those 55 and over. A growth in product innovation has given customers the option to choose downsizing protection, make monthly interest repayments or include inheritance protection in the products they choose to best suit their needs. Falling interest rates and increased competition have really made this a consumer’s marketplace, enabling customers to make the most of their homes with plans tailored to their individual requirements. There has also been a marked improvement in the resources available to help educate advisers, bringing more of them into this expanding market to help meet the growth in consumer demand. The launch of the Adviser Guide to Equity Release from the Equity Release Council was a key milestone this year. Created and sponsored by Pure Retirement, it is aimed at advisers new to the market or considering entry, offering a step by step guide to the industry and the end to end advice process, including an introduction to the market, guidance on marketing approach, as well as a toolkit of
LENDING
NEW PLANS
7414
LENDING RECORD HIGH
JULY-SEPTEMBER
£571m £2BN ANNUAL 3RD QUARTER PREDICTED
INCREASE
OF Q3 PLANS DRAWDOWN
ON Q2
By Paul Carter, CEO, Pure Retirement
11%
YEAR ON YEAR
invaluable resources, available exclusively to advisers who take on council membership. The education of advisers and the ongoing provision of support was a key topic at this year’s Great Retirement Money debate, stressing the importance of assessing the challenges, removing the barriers to entry, and most importantly providing continued assistance to advisers who choose to enter the market. Lenders have radically improved in the ways they now help their advisers, with streamlined online portals to simplify day to day processes, case tracking applications, and dedicated marketing toolkits which offer resources to reach more clients and help their businesses grow. Increased events across the country led by lenders and clubs like the Premier Equity Release Club have also been instrumental in opening up the world of Later Life Lending to mortgage brokers and financial advisers new to the opportunities that Equity Release is able to offer. The market is going from strength to strength, now firmly established as a fundamental consideration in planning for later life. Where many high street lenders are unable to help older borrowers reaching retirement, lifetime mortgages can offer a much-needed solution, meaning a financially improved future for their customers and a very bright future for Equity Release.
LIFETIME MORTGAGE INSIGHT Issue no.1 January 2017
2017: Looking ahead
By Nigel Waterson, Chairman, The Equity Release Council 2016 has been a positive year for the equity release sector and a fitting way to commemorate the 25th anniversary of the first industry Standards. The year has seen growing recognition of the value of equity release to solve the challenge of funding retirement. There is also evidence of 25% more registrations for the Certificate in Equity Release this year* and annual lending is on track to exceed £2 billion: a first for us, and a sign that equity release is on the path to becoming a mainstream option for more advisers and their clients. Looking ahead it is clear that equity release will becoming increasingly important as more people find their savings are unable to meet the costs of retirement. The UK population is ageing, retirement is lasting longer and savings have to stretch further. Years of historically low rates have not provided the returns savers hoped for. With estimates that pensioners’ combined property wealth has hit £1 trillion, there is a huge source of untapped wealth that can provide a much-needed boost to retirement incomes**. In response to increasing consumer needs, it is crucial that we as an industry provide access to products and advice in sufficient quantity and quality, which is why encouraging more advisers into the market is so important. It is believed there are circa 9,000 advisers already holding an equity release qualification and a significantly high proportion of those don’t currently practice. There is, therefore, the potential already out there to serve a larger market. With this in mind, The Council has worked in partnership with industry stakeholders to launch a number of adviser initiatives designed to support best practice and encourage competition. This has built on the rigorous industry Standards first introduced in 1991, which have been fundamental to establishing the safe and reliable market which exists for consumers today. A training partnership to provide advisers with knowledge and information to support their offer to clients, develop their skills through an
5
enhanced programme of accredited training and help them understand where equity release sits in the context of a changing retirement landscape. Post-pension freedoms, it is essential to recognise that later life financial planning requires a broader approach that considers a range of solutions. The Council has also launched an ‘Adviser Guide to Equity Release’ sponsored by Pure Retirement, designed to support new advisers, recent entrants to the market and current specialists looking to develop their business model. This provides information about the available propositions, qualification routes to advise on equity release products, a guide to marketing a later life lending service offering as well as a breakdown of the advice process and template documents. We plan to build on these initiatives over the coming year. This year has also been notable for increased recognition from the regulator about the benefits of equity release. We welcome the FCA’s view that housing wealth has a place in retirement planning. Working with the government and regulator is a critical part of helping the market to grow and raising awareness among advisers and consumers about the important role that equity release can play. A positive outcome this year was the FCA’s change to affordability rules that apply to interest-served lifetime mortgages. Since consumers who pay interest initially on their loan have the option to revert to roll-up and therefore have no risk of defaulting, is a crucial difference to consider when assessing need. The FCA modification recognised this and has the potential to help more customers access such products. This should give a further boost to innovation which has already seen the product range grow significantly in recent years, helping advisers access more solutions for their clients’ needs. Looking ahead we will continue working closely with the regulator, government and industry to build on this progress. Equity release has an important role to play in tackling the retirement needs of
the UK’s ageing population and as such, it should be on every adviser’s planning checklist. Access to high quality advice is an essential part of the jigsaw, and we look forward to welcoming more practitioners into the market to support this goal. *Registrations for The London Institute of Banking & Finance’s Certificate in Equity Release (CeRER®) qualification have increased by more than a quarter over the past year. **Key Retirement: pensioner property wealth hits £1 trillion
For further information, please contact: Chris Jones 07768 200 815 or email
chris.jones@therightequityrelease.co.uk
About the Equity Release Council – www.equityreleasecouncil.com The Equity Release Council is the industry body for the equity release sector, which represents over 500 members including providers, qualified financial advisers, solicitors, surveyors and other industry professionals. It works to ensure a safe equity release market for consumers, by operating rigorous Standards for the provision of advice and products which guarantee security of tenure and financial protections. 2016 marks the 25th anniversary since the first industry Standards were created for equity release in 1991. Since then, nearly 370,000 people have taken out an equity release plan from a Council member, drawing on nearly £18bn of housing wealth. The Council also works with consumers, industry and policy makers to improve awareness and understanding of equity release and the potential for housing wealth to help solve many of the financial challenges facing people over the age of 55 across the UK.
LIFETIME MORTGAGE INSIGHT Issue no.1 January 2017
The importance of interest-only lifetime mortgages By Alice Watson, Head of Marketing Equity Release, Retirement Advantage “Freedom”, “comfort” and “flexibility”. These were some of the most common words that came to mind for potential equity release customers when they were asked what equity release meant to them as part of Retirement Advantage’s customer research. Common perceptions of the industry are clearly changing as the market continues to grow and the idea of using property wealth in retirement planning becomes more mainstream. However, we also found that many people at or in retirement still associate equity release products with phrases like “costs”, “uncertainty” and, most significantly, “interest”. Clearly, the misconceptions that have long plagued the industry are still rife in the consumer market, and a lot of these concerns about risk and uncertainty stem from apprehensions about the possibility of interest roll-up eating in to available equity. This is where interest-paying mortgages come in. Customers and advisers alike are often unaware of the products available on the market that can reduce, or even eliminate, the impact of interest roll-up. Interest servicing products allow customers to pay off all or some of the interest each month. Products like these are likely to appeal to customers who are concerned about the effects of compound interest, who want to leave an inheritance, or who want to make regular payments. The monthly payment system is especially likely to appeal to customers who want to diffuse the interest-only timebomb, because they are already used to making regular interest payments. And because their existing mortgage is repaid on the same day the lifetime
6
mortgage completes, the transition is a seamless one. At Retirement Advantage, our Interest Select Options allow customers to pay 50-100% of the interest each month, decided at the outset of the loan. As the graph below shows, even making the minimum 50% interest payments can significantly limit the effects of interest roll-up. For a 73 year-old taking out a loan of £50,000 on our Interest Select Gold Option, the overall cost of the lifetime mortgage (assuming a mortgage term of 15 years) is £100,683, whilst the same loan on an interest roll-up basis would have an overall cost of £180,519. Paying the full interest
each month has an even bigger effect, and in this instance would reduce the overall cost of the lifetime mortgage to £90,196. Interest servicing lifetime mortgages offer a bridge between mainstream mortgages and traditional equity release, and allow customers to actively shape the amount of interest accrued by choosing how much to pay, and for how long. By allowing customers to continue having control over their borrowing in retirement, these options provide consumers with the flexibility and freedom the market is increasingly being associated with.
Impact of making interest payments on Interest Select Gold £120,000
£100,000
£80,000
£60,000
£40,000
£20,000
£0
1
2
3
4
Monthly payments
0%
50%
100%
5
6
7
8
9
10
11
12
13
14
15
LIFETIME MORTGAGE INSIGHT Issue no.1 January 2017
Why should I make a Lasting Power of Attorney (LPA)? By Ashfords Solicitors
£ £
7
DEPUTYSHIP
An LPA allows you to decide who should take over the running of your financial affairs, or who should make the decisions about your welfare when you no longer can. Where a LPA is not in place and you cannot make these decisions, others will have to apply to the court for a Deputyship Order to be able to deal with your affairs.
LPA
Who can I appoint?
The Court of Protection will appoint a deputy on your behalf, who may not be the person you would have chosen.
Anyone you trust to make important decisions on your behalf.
How do I make an application?
Six application forms are required, which will require details of assets and liabilities, a medical certificate and a declaration by the Deputy.
By completing the LPA and the registration forms.
What powers will my Attorney(s)/ Deputy have?
The Court of Protection can make decisions regarding financial affairs or welfare, and decides how much power your Deputy has.
They can have as little or as much power as you wish.
How much will it cost?
The application fee is £400. The appointment fee is £125. There may also be higher legal costs.
£110 registration fee per LPA, plus lower legal costs.
Are there any ongoing fess?
Ongoing fees will include insurance and annual supervision, as well as other fees.
Not unless your attorney(s) are empowered to charge e.g. for work undertaken.
How long will it take?
The whole process could take 6 MONTHS or more.
An LPA can reduce the process time to 6-12 WEEKS.