What is Later Life Lending?

Guide

What is Later Life Lending?

A

guide

to all you need to know about

equity release...

What is equity release?

What is equity release?

Equity release refers to a range of products which lets you, the homeowner, access the equity (cash) tied up in your home, tax-free. If you are aged 55yrs or over, the money you release can be taken as a lump sum or in several smaller amounts or a combination of both.

The money you release could be used to make home improvements, be gifted to family, help fund your retirement, pay for that holiday you’ve always dreamed of or just make life a little bit more comfortable.

It is also possible to release the cash now and leave it until you need it at some point in the future – the choice is yours.

What is equity release?

How does a lifetime mortgage work?

There are different ways to release cash from your home, but the most common way of releasing equity is through a lifetime mortgage. In this instance, an equity release provider agrees to loan you money and uses your main residence as security for eventual repayment of the money you have borrowed. The interest charged by the equity release

provider can be either fixed or variable. If you choose a variable rate of interest, there will be a ‘cap’ (upper limit) to the rate which can be charged. The amount of money you can borrow depends on the value of your house and your age. In some cases, you might be able to ring-fence some of the property’s value as an inheritance for your family.

What is equity release?

It is your choice whether you repay the interest on a regular basis or just let the interest roll-up year-on-year. Whatever your choice, the initial loan amount and any outstanding interest will be repaid by selling the property when the last borrower dies or when the home becomes vacant, for example should you move into a care home.

Because the equity release provider does not take into account your income or expenditure, and in most cases will not look into your credit history, the lifetime mortgage process is a lot simpler than that used for a standard residential mortgage.

How can I take the money

being released from my house?

As previously mentioned, you can take the money as a cash lump sum or drawdown the funds on a regular or more infrequent basis or do a combination of both –all withdrawals will be taxfree and do not have to be included in any tax returns made to HMRC.

The benefits of using a drawdown facility rather than taking all the money in one go include:

• Interest only being charged on the money you take, not on the total sum of money you’ve arranged.

• Regular withdrawals allow you to top-up your income helping you to budget more effectively.

• The ability to take a cash lump sum as well as make regular withdrawals.

• The amount of money available to you has already been agreed so future withdrawals should be available within days at no extra cost.

What is equity release?

Case study: Alana applies for a lifetime mortgage.

Alana, a widow, has just retired and is looking to take her children on a Caribbean Cruise at the earliest opportunity. She also needs a regular income until both her private and state pension become payable in 2-years’ time. Alana would like to limit, as far as is possible, the impact of releasing equity (cash) from her property because she would like to leave money from the sale of the house to her three children. She has no intention of moving at this time and cannot foresee the possibility of moving into a care home.

Alana has sought advice and has completed a lifetime mortgage application where she has asked for a lump sum of £10,000 to be paid and regular payments of £1,500pm to be made for a period of 2-years.

Based on property value, age, and health, the equity release

provider has calculated the maximum loan amount to be £150,000. On this basis, the lender agrees to release £10,000 immediately and also offers Alana a drawdown facility whereby £1,500pm can be taken.

Alana likes the flexibility of the lifetime mortgage in the that she can stop the regular payments at any time and take extra cash, if needed. She also likes the idea that the interest rate is fixed for the life of the mortgage meaning she can budget more easily.

Are equity release plans safe to take out?

All equity release plans are regulated which means equity release providers have to deliver products which meet the requirements of borrowers and recommendations made by advisers must be suitable being based on your personal and financial situation. Because the equity release provider and adviser are regulated, this allows you to make a complaint should you be unhappy with the advice you have been given or about the product you have been sold.

The vast majority of equity release providers are members of the Equity Release Council which means your equity release plan will:

• Guarantee your right to remain in your own home

• Give a ‘no negative equity guarantee’.

For a lifetime mortgage this means the outstanding loan (plus interest) to be repaid will never exceed the value of your property.

These guarantees give you peace of mind because it means you can remain in your property for as long as you wish and when you pass away any outstanding mortgage, irrespective of the amount, will be cleared by selling the house.

What is equity release?

Will I have to fill in a health questionnaire?

Filling in a health questionnaire may enable you to increase the amount of money you can borrow and reduce the interest rate which is charged. This is because the equity release provider uses your life expectancy to gauge how much they will lend, if it is likely that your life expectancy could be shortened, because of health-related issues, then more money might be released.

A health and lifestyle questionnaire will typically include questions about:

• Whether you smoke

• Alcohol intake

• Your body mass index (BMI)

• Blood pressure

• Diabetes

• Medical conditions such as angina, cancer, heart attack or stroke

• Ongoing health conditions such as Multiple Sclerosis or Parkinson’s disease

• Medicines/Drugs which are being prescribed

The list is not exhaustive and is dependent on which equity release provider you use. A doctor’s report may also be requested which could extend the application process which could delay any money being released.

The risks associated with releasing equity from the main home

Equity release might seem like a good option because it provides extra money and allows you stay in your home. However, there are some reasons why equity release might not be suitable.

• Equity release contracts can be costly both with the interest rate being charged and associated costs having to be paid.

• The equity release contract can be difficult to unravel if you change your mind. Additional costs will be charged including early repayment/ redemption charges, should you wish to do this.

• The interest charged on a lifetime mortgage is usually at higher rate than a standard mortgage. If you choose not to repay the interest it will roll-up on a compounded basis meaning the mortgage debt can increase quite quickly.

What is equity release?

• Releasing equity from your home could affect the amount of money you have available in retirement because no further cash can be raised against your property.

• The money you receive from equity release might affect your entitlement to state benefits.

• Although you can move home and potentially take your lifetime mortgage with you, should you decide to downsize later, you might find there is not enough equity in your home to do this. This means some of the mortgage might have to be repaid.

• If you take out an interest roll-up mortgage it will mean there is less to pass onto family members as an inheritance. The reduction in any inheritance can cause complications and conflicts within the family and so it may be beneficial to discuss your plans with the family before proceeding.

What is equity release?

In conclusion...

Whether equity release is right for you depends on your current circumstances and future needs and includes considering:

• Your age

• Your income both now and in the future

• How much money you want to release

• Your future plans

When deciding to release money from your property, it is tempting to focus on the immediate boost a cash injection will give, but you should also consider how taking cash now will affect your future choices and financial position in later life.

At Principle Financial Services, we believe in people before pounds meaning we will treat you as one of the family. Our equity release recommendation will consider your personal and financial position and that of other family members, where needed, with the one chosen being the most appropriate given your requirements.

Are you considering later life lending?

Please do not hesitate to get in contact with us if you would like to know more about later life lending - we look forward to hearing from you. Also feel free to share this brochure with friends, family and colleagues who may find this guide helpful.

SHANE FOX

shanefox@principlefinancialservices.co.uk

samhagon@principlefinancialservices.co.uk

01530 860190

The Springboard Business Centre, Mantle Lane, Coalville, Leicestershire, LE67 3DW

www.principlefinancialservices.co.uk

info@principlefinancialservices.co.uk

PLEASE NOTE THE FOLLOWING

This guide is for general information and is not intended to address your personal and financial requirements and should not be deemed or treated as constituting financial advice. Nor does this guide constitute tax or legal advice and should not be relied upon as such. Tax treatment of investments and legal advice depends on the individual circumstances of each client and may be subject to change in the future. For further guidance on the matters discussed in this guide please speak to Shane Fox, who is a regulated financial adviser.

Equity release may involve a lifetime mortgage which is secured against your property or a home reversion plan which requires the sale of property for a discounted price. To understand the features and risks, ask for a personalised illustration. You only continue to own your own home with a lifetime mortgage. Principle Financial Services Ltd is an Appointed Representative of New Leaf Distribution Ltd. who are authorised and regulated by the Financial Conduct Authority. Number 460421.