Historically, equity release operated as the old home reversionary loan scheme. This was where a person would transfer legal ownership of their home to the equity release company and in return the equity release company would provide a capital payment and possibly ongoing income payments for their lifetime. The equity release provider would have an equitable share of the property and take title to the property at the Land Registry and in order to secure a person’s right to occupy the property the equity release provider would grant a lesser title to the property such as a leasehold title or sub lease.
Why did family members dislike this product?
Because the equity release provider took a percentage share of the property and this meant that when house prices increased dramatically so did the value of the equity release provider’s share. This, in a lot of cases, meant that the increase in value to the equity release provider’s interest was disproportionate to what was loaned and promised at the out stead of taking out the product.
Of course, no one member of the public or equity release provider could have predicted the inflationary effect of house prices but none-the-less many people thought this was unfair and hence took advantage of a person taking out this product. Also, because the equity release provider held the superior title this meant that they had exclusivity of marketing and instructing solicitors to deal with the sale in the event of death or a person having to go into
How has this product changed?
Although the old home reversionary scheme is still available on the market and in our opinion to be avoided at all costs, equity release has changed its ways and moved towards a more flexible product that now offers people over a certain age the opportunity to take out what is referred to now as a lifetime mortgage. This is where a certain amount of monies are being leant in exchange for a legal charge to secure the loan amount and not for a percentage share of a person’s home. The interest can be rolled up and added to the loan amount meaning that you do not need to use/lose your income to fund interest payments. But if you wish you can alternatively service some or all of the interest to avoid it rolling up. The product is highly flexible and some of the key advantages of it are listed below.
What are some of the advantages of the product?
The lifetime mortgage product has been used in our experience:
For Inheritance Tax planning;
To keep someone in their home and help the other to have funds to live somewhere else in the event of a divorce;
To help out a struggling family member and in this case to allow a daughter to return to the UK from abroad;
To help provide for a deposit for children/grandchildren to get them on the property ladder;
To provide other gifts to children/grandchildren e.g. to fund university fees;
To pay off outstanding loans/credit card debt and to free up net monthly disposable income which will then not be needed to service existing debt;
To help a person relocate back to where they were born (London) which was a more expensive area to which they were currently living;
To pay off an existing interest only mortgage which was coming up for renewal and where the current lender would not remortgage and lend due to the age of the client;
Lifestyle changes to fund holidays or buy a caravan.
What are some of the risks associated with the product?
Your home could be repossessed if you do not keep up with the terms of the lifetime mortgage e.g. insuring your home and maintaining it. If you require state means tested benefits then by virtue of having a capital advance in your bank account this could mean that you will not be entitled to such benefits. Whether this is right or wrong for you and your family will, of course, depend on the family circumstances.
Telephone Jensen Bourke of Bennett Oakley Solicitors today (direct dial 01444 801134) who will be able to put you in touch of a highly recommended and trusted equity release provider.