We are receiving enquiries from clients both past and present, worrying about how the volatility in the UK financial bonds market might impact on their Lifetime Mortgage Equity Release arrangements.
We want to reassure you, by briefly informing you of the current position, with a Q&A below. If you have any concerns not answered here, please directly call or email your adviser, or get in touch now;
Tel: 01246 202 571
Email: [email protected]
Q: “With major high street banks and building societies pulling mortgage products from the market, will Equity Release Lifetime Mortgage lenders do the same?”
A: Several Lifetime Mortgage lenders have temporarily withdrawn some of their product ranges – but so far this is confined to products that offer the very largest sums at the higher interest rates, which can be more expensive and carry greater risk to the lender. Most people do not need to borrow the maximum amount, so with hundreds of products still available, it’s still very much worth discussing your options with us.
The reason some products have been withdrawn, is down to the unusual behaviour of bond markets (basically Government borrowing); notably the UK 15-Year Gilt Index which is the main benchmark for Lifetime Mortgage lenders when setting fixed interest rates.
Bond markets are usually fairly stable and often seen as being a relatively safe bet, if a little boring. As the rates or ‘yields’ bonds offer has swung up and down much more wildly than we are used to, lenders have had to react prudently by reigning in their appetite. This we view a being sensible move, not a negative one.
Q: “I already have Equity Release – can the lender make me repay early?”
A: No. If you have an existing Lifetime Mortgage, the lender cannot make you repay early. Your plan is only repayable, following your death, or permanent move into Long Term Care. If you borrowed as a couple, then this rule applies when the last of you dies, or moves into Long Term Care.
Q: “Could my Lifetime Mortgage lender go bust, and I risk losing my home?”
A: Firstly, we don’t expect any Lifetime Mortgage lender to go bust. Following the 2007-2008 global financial crisis, UK lenders have become very tightly regulated and they operate highly profitable business models.
Secondly, we only recommended lenders that are members of the Equity Release Council, who require that borrowers have the legal right to remain in their home for life. So long as you stick to the terms and conditions (mainly that you insure your property, look after it, and live in it as your main dwelling) you cannot lose your home.
Q: “I already have Equity Release. What if I need more money?”
A: Drawdown Plans: If you have the most popular ‘drawdown’ type of Lifetime Mortgage, you can still request releases of money from the Cash Reserve Facility, without the need and expense of financial or legal advice.
Although lenders cannot guarantee that money will always remain available, we have so far not seen any of them decline requests for money to be withdrawn from a Cash Reserve Facility. If it does happen to your product, we will of course be in touch.
We always invite our existing clients to discuss their intentions first of all. After all, there may be better ways of getting the money you need. We do NOT charge for discussing these matters with you, so please do call your adviser.
A: Single Lump Sum plans: If your existing Equity Release plan was for a single lump sum (so it didn’t include a ‘drawdown’ facility), your lender may consider an application for additional borrowing known as a ‘further advance’.
You could have fees to pay for a new valuation, legal advice (at the lender’s discretion), and financial advice – a requirement of lenders for further advance applications.
Should you wish to make an application to your current lender for a further advance, please do contact your adviser.
Q: “Am I better off taking a cash drawdown now, just in case my lender does stop lending?”
A: As a general rule, we would only suggest taking money when it is going to be put to good use right away, or at least in the short-term. There is little point in being charged interest on borrowed money at a high rate, only to deposit it in a bank account paying you a lower savings interest rate.
This very much depends on your individual circumstances, so we would ask that you speak directly with your adviser here.
Q: “I have an Equity Release application going through at present. Does this affect me?”
A: The situation is fast-changing, depending on the lender and product. Some have said they will NOT extend an Offer beyond its expiry date; others have said they won’t take applications on certain products that have already been recommended.
Your adviser will contact you personally, to discuss if and how your own arrangements may be directly affected.
Q: “I was thinking about taking Equity Release at a later time. Should I bring forward my plans to do it now?”
A: We don’t believe that you should ever rush into taking Equity Release, as it must be carefully considered and properly advised upon. It is not right for everyone, so please don’t be panicked into doing something that you may later come to regret!
We ask that if you are considering bringing forward your Equity Release application, to please speak with us first. If we think you are better off waiting, we will tell you so.
Money markets don’t like uncertainty, so once things settle down to a more normal level, which they will, we can expect lenders to reintroduce products that they’ve temporarily suspended. Lenders make good money from providing Lifetime Mortgages and demand is high, so they will be here for a long while to come.
Be positive – this is an unusual event that will pass, as nothing lasts forever.
Please do contact us if you wish to discuss your Equity Release arrangements.
Best wishes
Simon Chalk
CeRER, CertPFS, Certs CII (MP & ER), AdvCeMAP, CeLTCi
MD & Laterliving Planner