Equity Release
Market Report
Setting the standard in equity release
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Introduction
“This first edition of the Equity Release Market Report arrives at a time when – for the first time since the financial crisis – the industry has just seen more than £1bn worth of property wealth released by people aged 55 and over in a single year. Total lending of £1.07bn during 2013 means the market has now grown by 36% in the last two years, and more than 10,000 new customers released equity in the second half of 2013 alone.
“More people are now turning to what is often their most valuable asset in later life – their home – to support their finances. The aim of this report is to provide a regular source of reliable data and analysis which documents and explains how this is happening; looks at who uses equity release; examines the decisions they make; and explores the detail of the products they choose.
“It marks another important stage in the development of the Equity Release Council, which has grown from strength to strength since we launched as the new trade body for the sector in May 2012, evolving from Safe Home Income Plans (SHIP). Thanks to our members’ input, the last eighteen months have seen consumer protections strengthened and membership numbers swell. It means more industry professionals than ever are committed to the high standards of products, service and advice at the heart of the equity release sector in 2014.
“There is a vast untapped potential for property wealth to improve living standards in later life as the UK population ages. The Ready for Ageing? report by the House of Lords Select Committee on Public Service and Demographic Change in March 2013 estimated that people over state pension age in 2009 owned roughly £250bn in home equity that was available to be released. Research by Key Retirement Solutions, a member of The Council, in February 2014 suggests homeowners over the age of 65 who own their homes outright have property wealth totaling £801bn, with recovering house prices boosting that figure by £33bn in the last year alone.
“Recent growth in equity release is only likely to continue as people live longer and look increasingly to their property wealth to provide them with a retirement that is comfortable and financially secure. Equity release has a vital role to play as a mainstream financial product for people to consider as they approach and enter later life. We are committed to ensuring that anyone who chooses this route to financial freedom can do so safely and with complete confidence.”
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• Equity release interest rates
»
Personal borrowing rates tracker
• Who uses equity release?
»
Equity release and age
»
Equity release and gender
»
Finding out about equity release
»
The appeal of equity release
• Which equity release products are
most popular?
»
The role of independent advice
»
Choosing a product
»
Consumers’ property wealth
»
Amount of equity released
»
Inheritance protection
• How consumers have used equity
release to improve their quality of life
• The role of equity release in 2014
and beyond
• Methodology and contact details
• Appendix
»
About the Equity Release Council
»
Code of Conduct
»
The equity release product range
Contents
Key findings
• The average equity release interest rate has improved by over 50 basis points (bp) since 2011 and is three times lower than rates for credit cards and overdrafts
• Customers aged 65-75 are driving the growing uptake of equity release as people work for longer
• Women are increasingly influential in joint decisions while more single men are taking out loans
• The majority of consumers first learn about equity release online
• Two in three products sold are drawdown – offering a new source of regular income
• 97% of customers now go through independent financial advisers
• On average equity release customers own property worth 5% more than the UK average property price
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Equity release interest rates
• The average equity release interest rate has fallen by more than 50 basis points
(bp) since 2011 while credit cards and overdrafts have grown more expensive
• Equity release rates three times lower than more common forms of
consumer borrowing
• Only the interest rates for personal loans and mortgages have improved more –
but terms and conditions exclude many people beyond 55
Interest rates for equity release products are calculated in a different way to those for residential mortgages. Firstly, they are designed as lifetime policies where lenders raise funds by different means which are significantly impacted by the performance of gilt yields.
Secondly, equity release lenders have to take greater account of factors such as life expectancy and medical and health status, owing to the fact that their youngest borrowers are aged 55, the typical customer is almost 70 and the oldest have passed their 100th birthdays.
Finally, products recognised by The Council provide a no negative equity guarantee, along with other consumer protections. This ensures borrowers are protected no matter how long they live and in the event of falling property prices. It means they will never owe more than the value of their home, with the risk of negative equity borne by the lender.
While this means equity release rates are typically higher than normal residential mortgages, average rates have fallen more than 50bp in the last three years and are now closer to 6% than 7%, having reached a record average low of 6.26% in July 2013.
Source: Moneyfacts/Bank of England household interest rates. Rate changes measured in basis points (bp). Note: average equity release rates exclude products which are not recognised by The Council and do not offer
protections such as the right to tenure and no negative equity guarantee. Equity release products were available in January 2014 from the following members of The Council: Aviva, Bridgewater Equity Release, Hodge Lifetime, Just Retirement Ltd, LV=, more 2 life, Newlife, Partnership and Stonehaven.
Average rate in
Jan 2014 Change vs. Jan 2013 Change vs. Jan 2012 Change vs. Jan 2011
Overdrafts 19.54% -1 +4 +45
Credit cards 18.15% +54 +83 +135
Personal loans - £5k 9.84% -249 -338 -194
Equity release 6.36% -1 -46 -51
Personal loans - £10k 5.61% -132 -300 -296
Standard Variable Rate (SVR) mortgages 4.39% +1 +21 +35
Fixed rate mortgages - 75% to 90% LTV 3.24% -54 -95 -156
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Equity release rates are nearly three times lower than credit card rates – which have risen consistently since January 2011 – and more than three times lower than overdrafts, which are 45bp higher on average than three years ago.
Comparing average rates across different forms of consumer borrowing, only personal loans and fixed or lifetime tracker mortgages have improved more than equity release in the last three years. However, terms and conditions exclude many older consumers from accessing these products. Research in January 2014 by Key Retirement Solutions showed the average person aged under 65 with good credit can choose from up to 85 personal loans. But this falls to 44 options by the age of 65 and to 37 by the age of 70. Over-65s without good credit ratings were limited to a choice of just four loans.
Age limits also restrict people over 55 from many mortgage products. While credit card companies take a different approach, their minimum income requirements can also rule out this form of borrowing for many people in later life.
Source: Moneyfacts/Bank of England household interest rates
Personal borrowing rates tracker
25
20
15
10
5
0
Average interest rate (%)
Jan ‘11
Mar ‘11
May ‘11
Jul ‘11
Sep ‘11
Nov ‘11
Jan ‘12
Mar ‘12
May ‘12
Jul ‘12
Sep ‘12
Nov ‘12
Jan ‘13
Mar ‘13
May ‘13
Jul ‘13
Sep ‘13
Personal loans (£5k) Personal loans (£10k)
Fixed rate mortgages (75% to 90% LTV)
Equity release
Lifetime tracker mortgages Overdrafts
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Who uses equity release?
• Growing popularity among 65-74s as they approach and enter retirement
• Women increasingly influential in joint decisions while more single men taking out loans
• Majority of consumers find out about equity release online
Equity release and age
The typical equity release customer is just approaching or has reached their 69th year. The Office for National Statistics reports that employment among over-65s has consistently exceeded one million since April 2013, and with people working for longer, equity release increasingly appeals to those who have passed the old default retirement age of 65.
Almost three in five customers (59%) are now aged 65-74, compared with 56% in 2011. While some choose to take out equity release as soon as they reach the qualifying age of 55, customers are becoming more likely to wait, as the percentage aged 55-64 has fallen from 24% to 22% over the last two years.
68.9
68.9
69.0
55
55
55
104
102
101
2011
Customer ages
2012
2013
oldest
oldest
oldest
% aged 55-64
% aged 55-64
% aged 55-64
% aged 65-74
% aged 65-74
% aged 65-74
% aged 75-85
% aged 75-85
% aged 75-85
% aged 85+
% aged 85+
% aged 85+
average
average
average
youngest
youngest
youngest
24%
23%
22%
56%
57%
59%
18%
17%
17%
3%
3%
2%
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Equity release and gender
As customer numbers have grown since 2011, there has been a change in their typical profile. People using equity release in 2013 are less likely to be single (7% vs. 8% - 2011) or widowed (19% vs. 22% - 2011) and are more likely to be married or cohabiting with a partner (61% vs. 58% - 2011).
There is a clear gender divide, with men making up two thirds (66%) of primary borrowers – the person in charge of the loan – in 2013. However, this has fallen from 70% over the last two years, suggesting that women are increasingly choosing to take out equity release loans.
This is even more visible when examining trends in joint loans involving two borrowers. These have made up 58% of plans sold in each of the last three years. While the vast majority name the male partner as the primary borrower, the gender balance has shifted by nine percentage points in the last two years. The proportion of joint loans naming women as the primary borrower has more than trebled since 2011.
In contrast, a growing proportion of loans to single customers are now taken out by men. Women were more than twice as likely to have done this in 2011 (68% vs. 32%), owing partly to longer life expectancy, but the gap has narrowed and the balance shifted by four percentage points as more single men turn to equity release.
Marital status
2011
2012
2013
Single
Married/cohabiting
Divorced/separated
Widowed
Source: Equity Release Council members, 2011-13
Source: Equity Release Council members, 2011-13
Source: Equity Release Council members, 2011-13
8%
58%
12%
12%
19%
20%
22%
13%
59%
61%
8%
7%
Gender of primary borrower 2011 2012 2013
All loans Male 70% 67% 66% Female 30% 33% 34% Joint loans Male 96% 90% 87% Female 4% 10% 13%
Loans to single customers 2011 2012 2013
Male 32% 35% 36%
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Finding out about equity release
The internet and social media rank as the number one source of information about equity release. More than half of customers (54%) first find out about it online: more than twice as many who are prompted by a financial adviser or introducer (26%).
A small fraction of customers first find out about equity release from friends or family; however The Council’s guidelines ensure family members become involved in the decision making process by recommending they are always consulted.
The appeal of equity release
Research carried out by The Council among 1,500 homeowners aged 55 and over explores the appeal of taking out the average equity release loan and what the money would mean to their quality of life. One in four (25%) reported it would significantly improve their quality of life, 21% felt it would provide peace of mind while for 11%, it would make the difference between staying in their existing home or being forced to downsize.
Their preferred uses of equity release highlight the appeal of gaining an extra source of retirement income to meet everyday costs, as well as being able to invest in home improvements, pay for a holiday or a car, and achieve financial freedom by paying off existing debts.
Source: Equity Release Council members, 2011-13
54%
26%
9% 8%
1%
1%
How customers hear about equity release
From the internet/social media From print/broadcast media From a family member From a friend
From a financial adviser/introducer From previous enquiries
(for example, about other financial products)
Appeal of releasing housing wealth in later life
Extra retirement income to meet everyday costs 43%
Funding home improvements to add value 40%
Paying for a holiday 39%
Providing money to family members 27%
Buying a car 22%
Funding home improvements for care needs 21%
Paying off existing debts 17%
Paying off a mortgage 15%
Source: Research conducted by The Council and Canadean Custom Solutions in December 2013 among a
representative sample of 1,500 UK homeowners aged 55+. The sample included those who own their homes outright and those who own their homes with a mortgage. Percentages add up to more than 100% as respondents were able to provide more than one answer.
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Which equity release products are most popular?
• Two in three products sold are drawdown* – offering a new source of regular income
• 97% of consumers now go through independent financial advisers
• The typical customer has a property worth 5% more than the UK average
The role of independent advice
A professional advice process is at the heart of the equity release industry, supported by external regulatory standards and The Council’s own Code of Conduct. Sales must always be advised and consumers increasingly use independent financial advisers (IFAs) to consider products from across the market. While 55% did this in 2003, now the vast majority – 97% – seek fully independent advice.
Choosing a product
The equity release product range is made up of lifetime mortgages – offering either one-off lump sum payments or regular income drawdown – and home reversion plans. The features and benefits of each are described in more detail in the appendix on page 19.
The vast majority of equity release customers opt for lifetime mortgages, but their choices have evolved in the last five years. Drawdown mortgages have grown in popularity and account for at least two in every three products sold each year since 2011. This is likely to be driven by the appeal of regular cash instalments to provide a new source of retirement income.
*Turn to page 19 for a summary of equity release product features.
Source: Equity Release Council members, 2011-13
Sales
Which products do consumers choose? 2009 2010 2011 2012 2013
Lump sum lifetime mortgages 46% 36% 30% 29% 34%
Drawdown lifetime mortgages 55% 62% 69% 71% 66%
Home reversion plans 2% 1% 1% <1% <1%
Source: Equity Release Council members, 2011-13
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012 2013
55%IFA
Direct
58% 57% 53% 63% 63% 70% 78% 88% 88% 97% 45% 42% 43% 47% 37% 37% 30% 22% 12% 12% 3%10
Consumers’ property wealth
The typical equity release customer in 2013 owned property worth £254,943: 5% more than the UK average (£242,000 – ONS). A 16% rise in the average value of customers’ homes since 2011 compares with a 13% rise in UK house prices over the same period. It suggests equity release is increasingly appealing to people with more valuable homes or in areas that have benefitted most from rising house prices.
Drawdown mortgages attract those over-55s with the most property wealth. At £263,516, the typical home owned by these borrowers in 2013 was worth 9% more than the UK average. In contrast, those with less property wealth opt for home reversion plans. The typical home reversion borrower owned a property worth 17% less than the UK average in 2013.
Amount of equity released
The size of the average equity release loan reached £56,917 in 2013: the highest in fifteen years. The average loan has grown by 16% since 2011 alone, exactly matching the growth in the typical customer’s property value. It again suggests that customers who are using equity release today are either further up the property ladder to begin with or have seen their housing equity grow. While over-55s with more valuable homes typically opt for drawdown mortgages, those who choose a lump sum product have consistently borrowed more. Consumers choosing lump sum mortgages borrowed £61,351 on average in 2013: 12% more than those opting for drawdown mortgages (£54,546). However this difference has reduced from 38% in 2011 and 25% in 2012. This has occurred because the value of the typical drawdown plan has grown by 25% in that time while the average lump sum plan has been relatively stable (increasing by just 2%). The trend is likely to be fuelled by rising living costs and extra expenses such as care support at home that come with longer life expectancy.
Average house price 2011 2012 2013
Lump sum mortgages £222,300 £219,593 £234,699
Drawdown mortgages £219,768 £231,989 £263,516
Home reversion plans £161,474 £178,826 £200,896
All £219,866 £229,097 £254,943
UK average (ONS) £215,000 £230,000 £242,000
How much they borrow 2011 2012 2013
Lump sum lifetime mortgages £60,135 £60,870 £61,351
Drawdown lifetime mortgages £43,475 £48,642 £54,546
Home reversion plans £85,039 £77,930 £80,782
All £48,994 £52,279 £56,917
Source: Equity Release Council members, 2011-13/Office for National Statistics (ONS)
House Price Index - 12 month averages
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Some equity release products offer loan to values (LTVs) exceeding 50%, yet the typical borrower has opted to release less than a quarter of their housing wealth over the last three years. The only exception is among the minority who take out home reversion plans, and sell a fixed proportion of their home for a sum that incurs no further interest and therefore tend to release more.
Inheritance protection
One innovation in the equity release market during the mid-2000s was the emergence of products allowing borrowers to ring-fence a proportion of their housing wealth so they are guaranteed to leave at least a minimum amount behind as an inheritance. While take-up is modest, those customers who have exercised this option have typically protected up to a third of their housing equity to leave to their loved ones.
22%
23%
22%
£219,866
£229,097
£254,943
£48,994
£52,279
£56,917
Average property wealth Average property wealth Average property wealth Average equity
release plan Average equity release plan Average equity release plan Percentage of equity released Percentage of equity released Percentage of equity released
2011
2012
2013
Equity release and property wealth
Percentage of equity released 2011 2012 2013
Lump sum mortgages 27% 28% 26%
Drawdown mortgages 20% 21% 21%
Home reversion plans 53% 44% 40%
All 22% 23% 22%
Inheritance protection 2011 2012 2013
Typical percentage of housing wealth protected 30% 34% 30%
Typical value of housing wealth protected £65,960 £77,891 £76,482
Source: Equity Release Council members, 2011-13
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How consumers have used equity release to
improve their quality of life
Equity release serves a range of purposes for people beyond the age of 55 by allowing them to transform a modest portion of their housing wealth into money to use however they choose, while retaining the right to remain in their homes. The following stories offer a glimpse of the difference it can make to their lives.
Raymond Hawkins, a former aircraft engineer, celebrated his 80th birthday on a Mediterranean cruise with his wife, Catherine. Although both built up good final salary pensions during their working lives, they became interested in equity release about five years ago after seeing an advert in Saga Magazine and deciding to find out more.
After attending two presentations, they chose to release a £50,000 lump sum through Just Retirement to give them a little extra spending power and to act as a financial cushion. “We looked carefully at equity release and saw a couple of presentations from different companies,” said Mr Hawkins, who initially raised £50,000 from the value of their two-bedroom bungalow. “Our pensions are quite good so the idea was to use equity release to pay for general
improvements in our lives – a car, new blinds in the conservatory, and it has helped towards the cruises. We still have some of the money left and we have been told we can borrow more if we would like, so there is that extra peace of mind of knowing it is there if we want it.”
Kay Durrant worked as a personal assistant for the director of an international business. Since retiring, her savings have suffered due to the rising cost of living and she has used equity release to improve her living conditions.
Kay, now 71, took out an equity release mortgage once she retired after she worked out that her pension would leave her with a shortfall of £54 a month once all household expenses had been paid. She tried approaching her local benefits office but was told that she had too much money coming in and that she would receive no support – despite providing them with a breakdown of her expenditure against her income to highlight the shortfall. Having examined and discussed all of the options available with her adviser, Kay elected for a lump sum mortgage of £90,000 to pay for some home improvements and to boost her finances to better cope with the costs of day-to-day living.
She explains: “I first considered equity release after extensive research examining the different levels of commitment it would involve. Overall, I’m very pleased with the offering that equity release was able to give, especially the advice and service that was provided to me and the flexibility it can offer. It has given me piece of mind for retirement that I could not have had otherwise.”
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Patricia Davies is a widow who bought her house in Kent after her husband passed away. Back in 2008 Patricia, then aged 83, had an interest-only mortgage which wasn’t due to finish until her 90th birthday and was causing her concern because the interest was growing.
She contacted one of The Council’s adviser members and they recommended the home reversion provider Bridgewater Equity Release. As with all equity release products, Patricia was encouraged to talk to her family and discuss the home reversion plan and what it would mean to her financially. Patricia has five children, four of whom own their own homes; she discussed her plans with them and they were happy for her to go ahead with the reversion.
Patricia’s flexible release home reversion plan enabled her to take out enough money to pay off her mortgage, credit cards and a bank loan. She was also able to book a holiday and has been able to comfortably live off her pension as she no longer has any debt to service. Patricia said: “The service I received was excellent from start to finish. Having discussed my plans with my family I had peace of mind and would certainly recommend equity release to others.”
In 2013 Patricia took advantage of Bridgewater’s guarantee that all existing customers are able to release further equity from their homes at any time up to 100% of the value should they wish to do so. She has now released the full amount of equity from her home and said: “I was happy to do this as I know I am now secure for the rest of my life.”
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The role of equity release in 2014 and beyond
An important part of The Council’s role is to promote better understanding of equity release and the role it can play – not just among people over 55 and those planning their retirement across the UK but also in policy circles.
The Ready for Ageing? report by the House of Lords Select Committee on Public Service and Demographic Change in March 2013 called for greater attention to the potential offered by equity release to address social needs. The Council and its members regularly consult with policymakers across four departments – Treasury, Work and Pensions, Health, and Communities and Local Government – to tackle challenges such as boosting retirement incomes and paying for care.
Perspectives on equity release
Equity release could enable more people to use their assets to help pay for the cost of their social care, to adapt their homes, and to support their incomes. People over state pension age in 2009 owned roughly £250 billion in home equity that was available to be released, and this figure could rise by 40% by 2030, in 2009 values and earnings levels, as the number of owner-occupiers in this age group rises.
“The government should work with the financial services industry to encourage the growth of a safe and easy-to-understand equity release market. The government could put more emphasis on communicating the importance of equity release for paying for later life; [and] they could promote reliable equity release products that offer ‘no negative equity guarantees’ and companies that have signed up to the Equity Release Council’s Code of Conduct.”
House of Lords Select Committee on Public Service and Demographic Change,
Ready for Ageing?, March 2013
In recent years we have seen equity release more widely used to supplement pension and other income to fund lifestyle essentials and home improvements. It is also gaining important momentum as a vehicle to pay for care costs, and offers a clear and present solution to the divisive split of property wealth by allowing some older homeowners to pass some of their equity onto the next generation. “The wider use of equity release to help resolve such challenges can certainly be developed, so it is pleasing to see that the Equity Release Council now represents the majority of the market and continues to work hard to protect consumers, increase their knowledge, widen their choices and help them make better decisions.
Baroness Sally Greengross OBE, President of the Pensions Policy Institute and co-chair of the All-Party Parliamentary Group on Ageing and Older People, February 2014
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Equity release is the sole substantial source of capital available to many older people to help them with their comfort and care. With house prices still rising, the role they play is likely to rise too” Lord David Lipsey, Member of the House of Lords Economic Affairs Committee and the Equity Release Council’s Advisory Board, former Member of the Royal Commission on the Funding of the Long Term Care of the Elderly and Chair of the Financial Services Consumer Panel (2008/9), February 2014
Older people hold a huge amount of wealth in their homes. Using some of the value of this asset to help cover the costs of retirement is likely to be increasingly necessary for many of us as we age. The equity release market has made great progress in recent years and as it continues to develop, it is vital that consumers can access new and innovative products to help them use their housing wealth.
“Good independent advice remains at the core of the industry and rightfully so: it is crucial if we are to ensure customers make the right decisions so that trust in equity release continues to grow.”
David Sinclair, Assistant Director, Policy and Communications, International Longevity Centre – UK, February 2014
Working with the Equity Release Council has been a pleasure. It is advocating a great policy that could help thousands. I would urge everyone to look into the possibility of equity release as it is a common sense idea that could be the answer to many prayers.
“Equity release is always evolving, but refreshingly it has stuck to its core principles, simply changing to allow easier access for their consumers. The most important work of The Council is that it is run to the highest of ethics. People need to know that if they take up these contracts that they are only using a highly qualified company.”
Heather Wheeler MP, Member of the House of Commons Select Committee on Communities and Local Government, Secretary for the Insurance and Financial Services All Party
Parliamentary Group, Chair of the Local Government All Party Parliamentary Group and Member of the Equity Release Council’s Advisory Board, February 2014
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Methodology
The Equity Release Market Report is designed and produced by The Wriglesworth Consultancy on behalf of the Equity Release Council. It uses aggregated data supplied by members of The Council to create the most comprehensive view of consumer trends and product uptake across the equity release industry.
This first edition includes data for over 37,000 customers who took out new equity release plans between 2011 and 2013. All figures quoted are aggregated for the whole market and do not represent the business of individual members.
In addition, consumer research among 1,500 homeowners aged 55+ was used to provide attitudinal input into the report. Some percentages may be more or less than 100%; this is due to respondents being able to provide more than one answer or figures being rounded to the nearest 1%.
The Council would like to thank the following for their contributions:
For a comprehensive list of members, please visit The Council’s online member directory.
• Age Partnership • Aviva
• Bower Retirement Services • Bridgewater Equity Release • Cavendish Equity Release • Hodge Lifetime
• Just Retirement Ltd • Key Retirement Solutions • LV=
• Partnership • Sixty Plus • Stonehaven
Contact
You can find out more about the Equity Release Council, its members and the products and services they provide by visitingwww.equityreleasecouncil.com
For media enquiries, please contact:
Andy Lane, Rachel Morrod or Victoria Heslop The Wriglesworth ConsultancyTel:020 7427 1400
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Appendix
About the Equity Release Council
The Equity Release Council (The Council) was formed in May 2012 to create a united voice for the industry and build on the legacy of Safe Home Income Plans (SHIP), which was founded in 1991 as the trade body for equity release product providers.
Over two decades later, the robust standards of consumer protection upon which SHIP was founded have underpinned the development of a flourishing sector which has served over 300,000 consumers, loaned almost £14bn and enjoys exceptional customer satisfaction rates.
Since the expansion and rebranding of SHIP as The Council, its membership now exceeds 300 and includes advisers, solicitors, surveyors, providers, intermediaries and other industry professionals – each committed to support the equity release Code of Conduct and related standards. Members of The Council account for over 90% of equity release plans taken out.
The Council and its members work tirelessly to ensure customers can safely use this secure form of borrowing to support their retirement income, and to boost public and political awareness of equity release as a solution to many of the financial challenges affecting people over the age of 55 across the UK.
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Code of Conduct
Equity release customers enjoy three levels of protection, encompassing a structured financial advice process, face-to-face legal advice and product safeguards set out in the SHIP standards since 1991.
The Council’s Standards Board oversees the modern Code of Conduct, standards and principles which members sign up to, instilling confidence in their products and advice. This ensures customers:
• retain the right to remain in their property for life, provided the property remains their main place of residence.
• receive a ‘no negative equity’ guarantee so they will never owe more than the value of their homes or leave any debt behind – regardless of changing property prices.
• receive fair, simple and complete presentations of the plans they are considering taking out – including any benefits and limitations of the product, and obligations they must adhere to. This includes an outline of all potential and associated costs.
• have the right to choose an independent solicitor of their choice to carry out associated legal work.
• have the right to move their plan to another suitable property without being subject to any financial penalty.
• receive a certificate recognised by The Council and signed by their solicitor, which clearly states the main cost to the householder’s assets and estate – for example, how the loan amount will change or whether part or all of the property is being sold.
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The equity release product range
There are two main types of equity release product currently on the market: lifetime mortgages – offering the option to receive a lump sum payment or draw down regular instalments – and home reversion plans.
Lifetime mortgages:
• These are similar to residential mortgages but do not require monthly repayments. Customers retain ownership of their property and interest is typically rolled up over the course of the loan – although some plans allow interest to be paid monthly, limiting the total amount owed when the plan comes to an end.
• Customers receive a lump sum payment or smaller, regular instalments. This second ‘drawdown’ option accrues less interest as it is only applied as funds are withdrawn.
• The loan and interest is repaid in full by the customer’s estate when they pass away or move into permanent residential care. If they are part of a couple, repayments are not due until the last remaining partner leaves their home, meaning both are free to live in their home for the rest of their lives or move into permanent residential care.
• Customers can increase the amount they borrow as the need arises, up to a maximum limit agreed with their provider.
• Customers can elect to ‘ring-fence’ some of their property wealth to protect as an inheritance for their family and loved ones.
• Enhanced lifetime mortgages allow customers to release more equity from their homes than standard lifetime mortgages as they offer enhanced rates depending on lifestyle and medical factors.
Home reversion plans:
• These allow customers to sell all or part of their home in return for a tax free lump sum or regular payments as well as a lifetime lease: guaranteeing them the right to stay in their home rent-free for the rest of their life.
• There is no day-to-day involvement from the lender and nothing to stop the customer from treating their house exactly as they did before, providing they maintain the property in good order.
• Customers retain ownership of a fixed percentage of their property, regardless of changing house prices, unless they decide to release further cash.
• At the end of the plan, the property is sold and the sale proceeds are shared according to the percentage ownership, between the product provider and the customer’s estate (if they have passed away), or their bank account (if they have entered permanent residential care).
3rd Floor, Bush House, North West Wing, Aldwych, London WC2B 4PJ
tel: 0844 669 7085
