Lifetime Mortgage Insight | Issue 1 | Jan. 2015

Issue n. 1| January 2015

LIFETIME MORTGAGE INSIGHT B r o u g h t t o y o u b y T h e P r e m i e r E q u i t y R e l e a s e C l u b

Do your clients have a mortgage shortfall?

Why the equity release market is growing and can it continue?

By Keith Haggart, Just Retirement Page. 2

By Alice Watson, Stonehaven

Welcome

Page. 4

2015... Can it be better than 2014? You bet it can!

By Jane Hanlon

We are delighted to welcome you to the first edition of Lifetime Mortgage Insight. Designed for industry based personnel to keep them up to date with changes in this growing market.

We felt it was time that our industry made its own mark and place where providers and staff working in the industry could have a sounding platform. We welcome articles, contributions and feedback to educate and improve knowledge of personnel in the lifetime mortgage market.

Jane Hanlon & Lyn Perrett The Premier Equity Release Club

15 year gilt rates 15 year gilt rate at 05/01/15 = 1.98% 15 year gilt rate at 12/01/15 = 1.96%

A round up of 2014 demonstrates the changes and appetite for lifetime mortgages in 2015

Early 2014: New club - The Premier Equity Release Club – with a NEW help desk New Lender - Pure retirement launched - with a fees free style product.

Spring 2014 Budget bomb shell: Unprecedented changes to pension and annuity choices from April 2015 announced in the spring budget led to a catastrophic drop in lifetime lenders share prices within hours of the announcement and the realisation of no plan B for funding lines for the future.

will affect lifetime mortgages, the most significant was the interest only style that now has to prove full monthly affordability to the lender by way of income, and bank statements. (This was a first for lifetime mortgages as in the past it has always been based on age and valuation and never on monthly payments as they are an option with ability to switch to roll up.)

Equity release

Then add MMR (Mortgage Market Review) into the equation that

The unexpected Budget and MMR caused major issues for the providers as it was not expected or forecast.

The good news Aviva launched the overpayment option and the early redemption exception clauses to their product Continued on page 2...

2 Lifetime Mortgage Insight - Issue 1 - January 2015

2015... Can it be better than 2014? You bet it can! Continued from page 1...

By Jane Hanlon range, creating greater flexibility for clients to slow the roll up of lifetime and the need to repay if circumstances changed.

Summer 2014 Lender appetite changed with rates increasing to slow new business whilst they assessed the absence of a clear guaranteed annuity funding line. In hindsight, the fact that new funding lines have to be found could change the face of lifetime mortgages with new innovative lending styles. MMR restraints seem to have affected the interest only style lifetime mortgages with affordability having to be assessed by the lender, it seems ridiculous, but the industry has to live with the ruling.

Rumours were rife with a number of new lenders considering entering lifetime market to name possibly L&G, Santander?

Autumn 2014 Traditional funding lines from annuities was still an issue. We also saw standard residential mortgages stall, with number of approvals falling possibly because of MMR and also the

flattening of the housing market.

Lifetime mortgages still in high demand with reported £1billion exceeded year to date.

a Widget online medical calculator for amount, rate and cash backs.

Lifetime lenders reported to be in negotiations with new funding lines for 2015.

So after a bumpy 2014, high consumer demand and some creative thinking we should see a strong lifetime mortgage market in 2015 offering a range of lifetime mortgages to meet client needs.

December breakthrough

So 2014 introduced

1st December - Stonehaven beats MMR affordability the old fashioned way with payments accepted the old fashioned way by standing order, cheque or BACS.

• Wraps for application submissions (The Premier Equity Release Club) • Widgets for KFIs (More2Life)

17th December - Aviva drop the rates on the flex pricing tool from rates as low as 5.56%, as the annuity gilt rates drop to an all time low.

19th December - More2life enhanced rates drop, with cash backs and softening of the lending ages based on medical. Plus, the launch of

What next?

Watch this space and we will keep you informed.

Lifetime Mortgage Insight is an email publication so that it can be distributed easily to a wide audience.

Welcome to Lifetime Mortgage Insight...

Contact The Premier Equity Release Club Tel: 0800 612 5423 Email: helpdesk@thepremierequityreleaseclub.co.uk Visit: www.thepremierequityreleaseclub.co.uk

Brought to you by The Premier Equity Release Club

Do you have clients with a mortgage shortfall?

By Keith Haggart, Director of Retirement Needs at Just Retirement

Incorporating equity release in your retirement planning process could lead to choices and possibilities that may come as a pleasant surprise to both you and your clients.

Whatever your clients’ needs – be it to clear a debt such as an existing mortgage or to support their children or grandchildren – equity release can help them make the most of their retirement.

• Are living on a fixed income and retired more than five years ago and want to be able to cover unexpected expenditures – such as replacing white goods or expensive car repairs – and protect their lifestyle.

Mr and Mrs Mortgage Shortfall

Think carefully before securing other debts against your home.

Mr and Mrs Mortgage Shortfall (58 and 59 years old respectively) have lived in their house for the last 20 years, and still have their youngest daughter (aged 28) living with them, so downsizing isn’t an option.

They have an interest-only mortgage, but although they’ve saved up part of the value of the original loan and have had an endowment, they still have a shortfall of nearly £15,000 to repay when the loan matures in a year’s time.

Whether your clients are looking to make life more comfortable for themselves in retirement – or for those dear to them – equity release can help to provide a solution.

Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration.

A Lifetime Mortgage could help them repay the loan, and also be used to go on that “winter sun” holiday they’ve been hoping for. They have decided to pay the monthly interest on the equity released, so that the amount taken won’t detract from the inherited value of the property.

Equity release may not be right for everyone. It may affect your clients’ entitlement to state benefits and will reduce the value of their estate.

If you want to help similar clients, listen out for those who: • Have maturing interest-only or endowment mortgages where there is a shortfall and are receiving letters from their lenders asking for a resolution, such as a switch to a capital repayment and interest basis or full repayment.

Equity release allows many options such as the ability to drawdown further funds in the future, or to pay some or all of the interest, (either for a few years or the rest of your clients’ lives).

• Have a high level of credit card debt or payday loans but with no visible repayment strategy in place for such an expensive form of debt.

Just Retirement is a member of the Equity Release Council.

Contact Just Retirement Tel: 0845 302 2287 Email: support@justretirement.com Visit: www.justadviser.com

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4 Lifetime Mortgage Insight - Issue 1 - January 2015

Why the equity release market is growing and can it continue?

By Alice Watson, Stonehaven

In the third quarter of 2014, equity release lending totalled £375m; the largest amount seen in any single quarter since records began. The reasons behind the sector’s growth are in part due to the huge changes which have affected the financial landscape over the last year.

The biggest change to the retirement sector was delivered by the Chancellor in the 2014 Budget. It was announced that from April 2015 pensioners will be able to withdraw their entire pension pot in cash. While the full impact of this change is currently unknown, it is clear that many savers will choose to take some of their savings as cash. For those who are left without a sufficient income in retirement, lifetime mortgages are likely to play a bigger role.

The introduction of the Mortgage Market Review (MMR) has also impacted the sector, as mainstream mortgage providers continue to narrow their lending criteria and tighten their approach to affordability. The Financial Conduct Authority’s Thematic Review discovered there were there were 2.6 million interest-only mortgages due for repayment by 2041. As many as 48% of these homeowners face a shortfall at repayment day of an average around £71,000.

Equity release provides a sensible solution to homeowners who are faced with an interest only mortgage shortfall, and at Stonehaven we’ve already seen a growing trend in customers using the money they release to clear their mortgage.

In addition to this, it has been widely reported that those approaching retirement have insufficient pension savings in place. Recent Office for National Statistics figures found that 35% of men aged 50-64 and 39% of women in the same age group have no private pension in place, and will be relying on the state pension.

In a climate where people are living longer and pension savings are being stretched further than ever, a lifetime mortgage may help those with squeezed incomes who need a boost to their day to day living costs.

In addition the FCA Review found that for mortgages maturing up to 2016, 85% of the loans were for an LTV of 39% or less. 150,000 interest-only mortgages will be maturing each year up to 2020 and the latest update from the CML indicated that of the 1.6m loans maturing in the next 10 years only 400,000 had Contact Stonehaven managed to come to an arrangement Tel: 0800 068 0212 with their lender.

Email: support@stonehaven-uk.com

With this in mind, the demand for lifetime mortgages is set to continue to increase. It is now more important than ever for financial advisers to include property assets in retirement planning. We see this as a holistic and necessary approach to financial matters, which specifically address the generation of retirees who are asset rich but cash poor. Helping older homeowners achieve financial security and stability in retirement is a concrete mission for the industry.

Visit: www.stonehaven-uk.com

Brought to you by The Premier Equity Release Club

Know your BDM: James Young, Hodge Lifetime What is your role as a Business Development Manager? Along with identifying new business opportunities, I’m responsible for managing Hodge Lifetime’s day to day relationships with our main distribution partners across the whole of the UK in order to maximise and maintain application volumes and for our retirement mortgage, equity release and annuity plans. A main feature of my role is to also help intermediaries who are new to the market to develop their own lifetime mortgage propositions through training, meetings, presentations and seminars.

What is the favourite part of your role? I get to travel across the whole of the UK which is great, and it’s also satisfying when I’ve helped an adviser place a tricky case and have got it through to completion.

How many phones call do you personally take a day? A normal day can be between 10 to 20, but this can easily double in periods where there have been changes in the market, or Hodge have introduced new plans and features.

What is the biggest challenge you face with advisers? At the moment it’s making sure that advisers are up to speed and comfortable with our Retirement Mortgage. Unlike traditional equity release, which caters predominantly for the ‘asset rich/cash poor’ type client, our Retirement Mortgage is a lifetime mortgage which has been designed to offer a choice for customers with reasonable retirement income and who wish to make monthly interest payments, so therefore an affordability assessment and decision in principle process is required.

Sometimes a client’s retirement

income can be quite complex, so a large part of my time is currently taken up with training advisers on suitable income types, and the evidence requirements that they would need to obtain.

If you could change any part of the equity release council guarantees what would it be? I don’t necessarily think that the guarantees need to be changed, as they have played a pivotal role in the growth of the ER market since the inception of SHIP (now the ER Council) to current levels. In essence the guarantees are insurances built into the plans that have given many customers the peace of mind to utilise their biggest asset, the home, ensuring they have a comfortable retirement. However I do think that as the market expands and starts to attract a different type of customer (who are not just the traditional asset rich/cash poor who the guarantees were really designed for) we ensure that products come to the market which are suitable and relevant for those who may not require a ‘fully insured’ product. Increasing options for advisers and improving client choice can only be a good thing, and today more so than ever as the residential mortgage market for retirement age clients has constricted and customers begin to look at the ER market for suitable alternatives.

property, and with many clients not having saved sufficiently for their retirement. I think we’ll need more providers and more product innovation for the market to reach it’s full potential, but there are encouraging signs and it looks like this is starting to happen.

Do you see the market growing?

Yes – if there is the same level of year on year growth the market could well exceed £1.7bn. This could be a really exciting time for the ER market but we can’t sit on our laurels and we must ensure all the ingredients are there for the market to continue to grow.

What area do you think the market will grow? In the short term I think the demand for lump sum products is going to increase due to the current level of interest only mortgages maturing without an adequate repayment vehicle. This has come at a time when residential mortgage lenders are less likely to wish to lend beyond normal retirement ages, and this will push more clients into considering lifetime mortgages as an alternative.

How do you think the funding lines will change? Providers will now have to be less reliant on annuities as a source of funding following last years Budget announcements, so more third party ‘short term’ funders will likely enter the market. This could mean some more plans becoming available with fixed ERCs which would be good to see.

What is your view of the future of Equity Release? The drivers for the ER market to continue to grow are well known; we live in an ageing society with an Contact Hodge Lifetime increasing life expectancy, where Tel: 07977 562 422 a large proportion Email: james.young@hodgelifetime.com of a clients wealth Visit: www.hodgelifetime.com is tied up in

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6 Lifetime Mortgage Insight - Issue 1 - January 2015

Don’t forget the benefits of a telephone call to your friendly experienced Equity Release Solicitor

By Peter Barton, Partner at Ashfords LLP

You typically spend anything from 5-10 hours plus with an equity release client over a number of meetings, telephone calls, travelling to see them (and occasionally hand-holding), so there can be nothing worse for you as an adviser, after all of that hard work and time, to see the case fail at the legal stage over an issue that could have been avoided.

As you all know, experienced and efficient equity release solicitors are a rare breed, and I hear stories weekly of cases collapsing or taking months to complete when left in the hands of the clients “trusted family Solicitor”.

After 17 years of working in the equity release sector the days of the simple straightforward case seem a distant memory and cases involving lease extensions, divorce, deed splitting, breaking trusts and Power of Attorney are a common occurrence.

It is these more complicated cases that add to the timescales and costs of a case and if discussed with a client during your initial meetings with them can help manage expectations and assist in calculating the amount a client needs to borrow or indeed if it is possible to complete at all (for example if there is a Trust on the deeds which cannot be broken). We always recommend that if you are in any doubts as to whether a client is able to proceed

to telephone us for an initial chat and we can assist. Please do call us if you are uncertain in the following circumstances:

3.

What charges/CCJs/loans are on the deeds? If a client is unsure if a debt is on the deeds again we can find out for you.

4. Matrimonial cases 5. Sales and purchase cases - ideally we would be instructed also on the sale and purchase but we can just do the equity release. These cases are very stressful and it is vital to manage client expectations from the outset.

6. Title splitting cases

1. If the client lives in a leasehold property and they cannot say for certain how many years are left on the lease. We can obtain a copy of the deeds from the Land Registry at no charge to you or your clients. If a lease extension is needed we can assist and advise on the likely costs (although the client would need to contact the We are always happy to speak at any Landlord to see if a premium had to be stage of the equity release application paid). (and in my view the sooner the better).

2. Who is actually on the deeds - It may be that the client infers that a A quick call to us will more often than child may be on the deeds or a de- not save a case and ensure it goes ceased spouse or a trust. Again we through as smoothly as possible. can obtain a copy of the deeds. We will be able to advise in Contact Ashfords LLP relation to a Trust if it can be broken Tel: 01392 334 060 and the likely costs Email: website@ashfords.co.uk and processes.

Visit: www.ashfords.co.uk

Brought to you by The Premier Equity Release Club

Misconceptions of equity release

By Bridgewater Equity Release Limited

The equity release industry has done much to banish many of the misconceptions that exist about the products but there is still more to be done to convince some commentators and consumers.

First, let’s debunk a few myths.

Number one: taking out an equity release plan does not jeopardise the homeowner’s ongoing occupation of the residence. All providers adhere to a code of conduct which allows customers to stay put for life.

Number two: fluctuations in house prices will not leave individuals owing more than the value of their home. All provider members of the Equity Release Council offer a ‘no negative equity guarantee’ which ensures this can never be the case and that no debt will ever be left to the estate.

Number three: advisers are commission-hungry salesman looking to sell as many products as possible.

Actually, advisers take a whole host of factors into consideration and after building up a profile of the client and their needs, a range of alternatives to

equity release will be discussed such as selling up and downsizing, utilising existing savings, asking family members for financial assistance, taking in a lodger, selling a car or valuables, using state benefits or remortgaging to a cheaper deal. However, if equity release is deemed appropriate it will be recommended.

in the State pension or fund long-term care costs. Equity release is certainly not a panacea that will be suitable in every circumstance, but the products do have a positive effect in many situations.

With older homeowners still likely to find the economic climate difficult in the coming years, with many people facing retirement having very small pension pots – regardless of the new flexibility to access them – and with the anticipation that the Government will continue to pare back on its benefit budget, it would be remiss of you not to consider what equity release could do for your clients.

Number four: equity release is only used to pay off debt. Actually equity release is being utilised to provide a growing number of solutions, for example, some older homeowners use it to make financial gifts to family members while they are still alive rather than bequeathing property once they have passed away. It can be used to pay Contact off debt or service mortgages butBridgewater it can also be used to Tel: 0800 032 2118 maintain a standard Email: enquiries@bridgewaterequityrelease.co.uk of living, or help Visit: www.bridgewaterequityrelease.co.uk make the shortfall

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8 Lifetime Mortgage Insight - Issue 1 - January 2015

The dawn of a new retirement lending era

By More2Life

Last year was a good year for the equity release market. A phenomenal year even.

With the total value of lending in the first nine months of 2014 exceeding £1 billion (more than the entire lending figures for 2009 -2012, and 95% of the 2013 total), the equity release market is well on the road to recovery.

So what is driving this recovery?

Apart from a code of conduct that has improved the reputation of this market, and product innovation that has broken down some of the barriers to entry, the main reason is that there is an increase in retired homeowners needing access to capital locked up in their housing wealth.

About 1 in 5 people aged 55-64 believe they will not be ‘debt free’ by the time they retire with 1 in 8 aged over 65 expecting to have to borrow in retirement1 .

Faced with living longer than ever before, and having to make meager State provision and limited private pension savings stretch ever further, the average retiree is not merely expecting to borrow but actively seek lending solutions. This is evidenced by the 43% of over-55s who report having applied for some form of credit in the last two years alone2 .

A further boost to this market came from the pension reforms outlined by the Chancellor earlier this year. The fundamental shift towards consumer choice and flexibility in terms of generating an income in retirement will mean 1 &2

Source: more 2 life ‘Debt in Retirement’

the starting point for a consumer reaching retirement will no longer be a question of ‘what sort of annuity should I buy?’, but rather ‘what are my retirement options?’. Certainly for those accessing financial advice, this will drive a more holistic approach to retirement planning.

This in turn should see the two spheres of retirement income and retirement lending get closer and, more often, intersect as clients look to maximise all of their ‘retirement assets’. What once may have been regarded as a ‘distress purchase’ will increasingly become a mainstream, “normal” part of retirement planning.

Today the talk is of a market that has achieved a milestone of more than £1bn of sales. In the future, there will come a point where market commentators recall when this market was worth “only” £1bn each year.

Contact More2Life Tel: 08454 150 150 Email: info@more2life.co.uk Visit: www.more2life.co.uk

The saviour called Equity Release

By Jude Harwood, Corporate Development Executive Newlife

As a delegate of the Mortgage and Protection Event held in November last year l was astonished, if not delighted to see so many brokers had attended to listen to mortgage experts discuss the future of their marketplace.

I chose to attend the event as a large part of the agenda covered advising the over 50’s and as l work for Newlife, a specialist equity release lender it provided the perfect opportunity for me to hear what the experts had to say and also see how the general mortgage-broking advisers reacted.

With the average first-time buyer now being in their late 30’s and retirement ages increasing, the gap between equity release and standard residential mortgages is closing quickly and with these markets moving closer together this was a topic close to my heart.

It was both interesting and frustrating to hear of the difficulties facing many older borrowers caused by restrictive lending and to hear the disturbing stories so many brokers shared of seemingly unjustifiable declines, or of lenders aggressively chasing repayment of small mortgage loans all because their customers are aged 60 plus.

It was refreshing to hear the panel speakers inform the audience, many of whom are not currently active in equity release, that the sector has to some extent replaced the features so missed following the withdrawal of the Halifax Retirement Home Plan. They were advised that interest-only and capital repayment options, as well as draw down facilities which can be accessed as and when required (thereby not accruing interest until the money is needed), are flexible features now readily available via equity release products. With lifetime mortgages offering fixed rates in the region of 6%, inheritance protection, security of tenure for life, and a very important ‘no-negative equity guarantee’, the appeal of equity release as a real financial option appeared to be very well received. With potentially over 150,000 interest-only mortgages maturing this year without any repayment strategy in place, attendees soon appreciated that the equity release market may well offer solutions for the financial issues their older customers face.

2014 saw the equity release market reach in excess of £1bn worth of lending which was a benchmark that the entire industry is keen to build upon. However according to a poll in October 2014 by Mortgage Solutions there is a real shortage of equity release qualified advisers, as only one in three mortgage advisers currently hold the qualifications.

The word on the street is that three major high street lenders will enter the equity release sector within the next 18 months which will definitely increase confidence and opportunities. This, together with the changes to the way pensions can be accessed, will have a significant and positive impact on the equity release industry.

In many people’s opinion, including mine, equity release will soon become a significant financial tool to enable your customers to access the most suitable product depending on their individual circumstances so, do not delay - contact your clients and introducers for referrals, increase your marketing and win the business before you are beaten to it!

Contact Newlife Tel: 07702 839173 Email: judeharwood@newliife-uk.com Visit: www.newlife-uk.com.co.uk

The Premier Equity Release Club Sharing with you the right way to do Equity Release

www.thepremierequityreleaseclub.co.uk helpdesk@thepremierequityreleaseclub.co.uk 0800 612 5423