A Suffolk-based mortgage broker is launching an education programme to urge people to ensure they know all the facts about equity release.
Almost £4 billion was obtained by homeowners through equity release in the year to August 2019 – a 12 per cent increase on the previous year*. Yet for many people it remains a concept shrouded in mystery and negativity – a situation Boon Brokers is keen to remedy.
Equity release allows individuals aged 55 and over to release money from the property they live in. Those looking to release equity from their home can borrow between 30 and 58 per cent of the property value, which is often used for home improvements, living expenses, to pay off debts or even as a ‘living inheritance’ for family. Last year the average UK customer released around £80,000**.
Equity release has often been the subject of negative media coverage, following the historic mis-selling of products. Whilst wanting to highlight that equity release can be a prudent choice for some homeowners, Boon Brokers, which is an independent and directly authorised mortgage, insurance and equity release brokerage, is urging consumers to seek proper advice before making their decision.
Gerard Boon, partner of Boon Brokers, said: “The concept of equity release is fundamentally a positive thing and it can bring a genuine financial freedom to those over the age 55 – helping to ease financial worries or allowing people to do things they may not otherwise have been able to. However, there has been a lot of mis-selling over the years and that in turn has cast a negative cloud over the industry. Modern day equity release products are much more transparent and have more flexibility than those which were around a decade ago. There are rules and regulations in place ensuring products have a ‘No negative equity guarantee’ which ensures that the equity release sum can never exceed the value of the secured property. But, it is vital that homeowners are properly educated on the schemes and feel confident about the questions they should be asking, so they can be clear on whether it is the best thing for them and if so, which product they should opt for.”
Boon Brokers has issued the following advice to those considering equity release:
1. Make sure your advisor and the product are approved by the ERC – The Equity Release Council (ERC) covers 90 per cent of the sector and its members agree to abide by the Council’s rules and statement of principles. It is vital that any advice you receive or product you choose is from a member of the Council.
2. Be clear on what you want to achieve – Products differ greatly and which will suit you best will depend on your ultimate aims. A lifetime mortgage ensures you maintain 100 per cent property ownership whilst a home reversion plan will sell a proportion of your home. What do you want to use the money for? Are you likely to need more money in time? What are your longer term plans in terms of living arrangements? What kind of inheritance are you hoping to leave?
3. Gain independent advice – It is very important to receive independent advice because, although all product conditions are now highly regulated, there are many aspects that will vary, such as whether there is a drawdown facility, how much can be repaid early and so on. An independent and properly qualified advisor will be able to offer you a full selection of products – make sure you’re getting ‘whole of market’ access and they’re not just tied to one or two providers.
4. Beware the horror stories – Products now are much more flexible as well as being more regulated, but that wasn’t always the case. Modern products have fixed rates which are introduced and guaranteed for the life of the loan at outset; you can have guaranteed downsizing protection without charges; and homeowners can choose the percentage of their home to be protected for their beneficiaries in the event of death at the outset of the loan.
5. This is a long-term commitment so do not expect it to happen overnight – The process to equity release is, quite rightly, a thorough one, and may take around six to eight weeks. This allows you time to ensure you are absolutely clear on what the terms of the deal are, so use it wisely.
6. You will need a solicitor – You must have at least one face-to-face meeting with an independent solicitor before taking out an equity release plan. This is to ensure you are comfortable with and fully understand the decision you are making.
7. Be aware of the potential impact on some benefits – Taking out equity release may lead to the loss of some means tested benefits, usually Pension Credits for those whose pension is below the national average. This happens when someone has an amount in excess of £16,000 in their bank or savings account permanently. So, it is vital for those on pension credits to speak to an independent financial adviser with respect to these issues.
8. Expect some fees – There will be fees to pay in relation to setting up an equity release plan, including solicitors’ fees, survey fees and application fees, so build those into your financial planning and ensure you know costs upfront. However, you shouldn’t have to pay for initial advice or consultations from a broker, just on application.
9. It is age dependent – Bear in mind your age will determine how much you can borrow. Maximum loan to value (LTV) rates are strictly determined by age – so at 60 you would be able to have a maximum LTV of 35 per cent, whereas at age 80 you could have 55 per cent LTV.
10. Always talk to your family – If you have children an equity release plan will impact on their inheritance, although it will never leave them in negative equity. We always recommend you talk through your plans to make sure everyone is comfortable and there are no surprises further along the line.For more information about Boon Brokers go to: www.boonbrokers.co.uk