Now it’s a different beast

by Howard Reuben CeMap CeRER

9:35 AM, 4th December 2018
About A week ago

Now it’s a different beast

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Now it’s a different beast

“When something gets a bad name it’s difficult for matters to be reversed – whether it’s a school, a street or a pub!

That’s how a lot of people see Equity Release.

You may remember that the product existed in the 1990s, and was commonly known as ‘SAM’s – Shared Appreciation Mortgages – and they were heavily sold by two main banks (Barclays, and Bank of Scotland).

That product allowed owners to release equity in their home, in exchange for a share of the increase in value (the appreciation) of the property and with property prices only going up in value since, it has meant that the SAM lenders have made a lot of money while the borrowers (or those inheriting a property) have become a little stunned at what they now owe!

Today however, Equity Release (or Lifetime Mortgages) is a different beast with many very different features compared to the old style products.  Nowadays it’s a much more simple, yet robust, mortgage where the combined borrowed capital and interest amount outstanding can never be more than what the property is worth.

By using regulated bodies such as Equity Release Council to closely monitor how lenders behave, the public perception of this product is changing.  Naturally people are still seeing it in a negative light, but only until they start to understand more about the new and improved version with guarantees and in-built borrower protection.

For example, until recently there were only ‘rolled-up’ interest products with the odd lender providing the option of limited ad-hoc payments to stem the overall debt from climbing. Now there are lenders who will allow you the option to ‘service’ the interest on a monthly basis without the need to pass ‘affordability’ checks like a regular residential mortgage. This monthly payment is set by the borrower and can even be as low as £25.  Far greater control now in the hands of the borrower.

So, what purpose is there today, for an Equity Release Mortgage?

  • pay off an interest only mortgage that’s come to the end of its term
  • raise money for property repairs or adaptations for service areas such as bathrooms
  • clear outstanding debts or loans, holidays, new car
  • create a deposit for a BTL to generate an income
  • …..the list is endless (as long as its legal!)

Another new feature also now allows you to purchase a new house. In the event maybe that a couple splits up, sells the main home and then they need to purchase two properties but don’t just have enough money to do this.  This is now allowed.

As is ‘porting’ an existing Equity release mortgage to a new property, this may also be an option.

Or maybe another future need, now made possible via the updated version of this product, is to re-mortgage an existing Equity Release mortgage.

As I said earlier, these mortgages have been around a while and some of the previous products may be on a high interest rate. Present day rates start as low as 3.63% and are fixed for the whole term!

It’s not uncommon where an Equity Release mortgage taken out less than 4 years ago could be at a rate of 6.5%.

Yes, there may be early repayment charges on the existing mortgage but it would still be prudent to review the situation and maybe settle these with the new borrowing.

The overall saving could be significant.

A review of your circumstances may even see that with the evolvement of the newly launched RIO mortgages, an Equity Release mortgage is no longer appropriate and better alternatives are available.

A whole of market Mortgage Broker who is also Equity Release authorised really can provide the best solution rather than just using an Equity Release company.

If you would like any assistance please do not hesitate to contact us on the form below and we will be happy to help.

Contact Howard Reuben

Mortgages, Commercial and Bridging Finance, Life Insurance, Wills, Trusts and LPA's
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Landlords would be badly let down if deposit cap cut to 5 weeks

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