Tag Archives: No Negative Equity Guarantee

How Far Has The Lifetime Mortgage Evolved?

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The concept of lifetime mortgage to release the equity held in one’s property initially started somewhere in the mid of 1960s. It is based on a simple process to use the value of your property without having to move out of it. These schemes were not as popular then, as they are today because they were neither systematic nor regulated, which gave birth to several poorly devised products called Shared Appreciated Mortgages that made it look like a poor product in those times. Even today, we cannot forget the stigma that still lingers on amongst today’s elderly population in 1990s.

The government understood the need of regulating equity release schemes to provide consumer protection after the sad events that happened in 1990s. There was a need to protect the consumer rights which motivated the introduction of Safe Home Income Plan, abbreviated as SHIP. It laid down certain voluntary measures to be followed by the institutions offering these lifetime mortgage schemes to get their schemes included under the scope and definition of SHIP. Ship has now been superseded by the Equity Release Council (ERC) which lays down the precedents by which all equity release firms & advisers must adhere to.

These new equity release schemes that meet the ERC criteria have to leave the consumer with the right to repay the loan at anytime which secured against the mortgage of the property, if they want, although against some early repayment charges may be levied. It is even mentioned at www.equityrelease2go.com that all the lifetime mortgage plans must have the inclusion of no negative equity guarantee, so that the consumers need not worry about the liabilities stretching beyond the value of the property. With the increasing flexibility and portability, the consumers even got the rights to move to a houses freely and either transfer the equity release scheme or repay it.

All these schemes are today regulated under the guidelines laid down by FSA as well as Equity Release Council. In 2004, the Financial Services Authority fully regulated these schemes as well as the institutions offering these schemes so as to guard the interest of consumers at large all across UK.

Home reversion plans were merged with lifetime mortgages under the guidance of FSA in 2007. Today, these schemes offer greater flexibility to the consumers, enhanced plans for people suffering from several health ailments as well as the options of only paying interests through the interest only lifetime mortgage plan.

Lifetime mortgage schemes have evolved today as one of best products available, in the right place, at the right time to enhance the lifestyle of people even beyond the age of 55.

What is an Enhanced Lifetime Mortgage?

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An equity release scheme is a way to release some of the cash value of a property, either in instalments or as a lump sum, without having to sell the property and a lifetime mortgage is just one type of equity release scheme. An enhanced lifetime mortgage scheme is a type of lifetime mortgage equity release scheme designed for applicants over the age of 55 years, who have suffered or are still suffering from certain illnesses or impairments.

The standard amount that can be released or borrowed on any equity release scheme depends on a number of different criteria; such as the valuation of the property and the age of the applicant. An enhanced lifetime mortgage goes one step further. In the case of enhanced lifetime mortgage schemes, the amount that can be released or borrowed still depends on age and property valuation, but additionally the severity of the applicant’s health condition is taken into account.

An enhanced lifetime mortgage is designed for those suffering from illnesses or conditions that are likely to reduce their life expectancy. A shorter life expectancy allows lenders to offer more of a tax free lump sum. So, like enhanced annuities, all enhanced lifetime mortgage equity release schemes, allow those with certain health conditions to optimise their assets and get the most out of them to support their retirement plans.

To apply for an enhanced lifetime mortgage scheme, the applicant must complete a lifestyle questionnaire which asks health related questions that allow the lender to assess the applicant’s case.

Some examples of these health related questions are: –

  • What is your height and weight?
  • Have you smoked more than 10 cigarettes per day for the last 10 years?
  • Have you been diagnosed with high blood pressure, requiring medication?
  • Do you suffer from diabetes, requiring insulin or tablets?
  • Have you suffered from a heart attack, stroke or angina?
  • Have you been diagnosed with cancer requiring treatment?
  • Have you been diagnosed with Parkinson’s disease or multiple sclerosis?
  • Are you taking prescription medication or retired on the grounds of ill-health?

By qualifying for just one of these illnesses alone is not always sufficient to qualify. However, should you meet more than one qualifying criteria the greater the chance, and the greater the enhanced tax free lump sum you could receive.

As you can see enhanced lifetime mortgage schemes cover quite a wide spectrum of health and lifestyle conditions, in terms of severity. The amount that can be borrowed depends much on each individual case, and the health questionnaire allows the lender’s underwriters to actuarially assess how much they can afford to lend. In general, the more severe the health condition, statistically the shorter the lending term will be. This allows the lifetime mortgage provider to comfortably offer more cash without the threat to their no negative equity guarantee.

Enhanced lifetime mortgages are different from conventional equity release plans in that they allow you to maximise borrowing, and borrow more than any conventional equity release plan. In fact, an enhanced lifetime mortgage could allow you to borrow even more than selling 100% of your property under a home reversion plan!

Companies such as Aviva, Partnership and more2life are all now offering enhanced lifetime mortgage schemes and their criteria on impairment is slightly different, so it is always necessary to check with an independent equity release adviser. With interest rates fixed for life and starting from 5.57% with Aviva upto 7.65% with Partnership, there is a wide range of criteria to take into account.

These types of equity release schemes can be suitable for those who are possibly looking for the maximum lump sum available and not too concerned about any inheritance they may leave behind. These people may have certain lifestyle needs due to longstanding health conditions, or who have concerns about their longevity. They may therefore wish to make improvements to the property to account for any disability and hence maximise borrowings on their property.

Call 0800 321 3159 for further information on enhanced lifetime mortgage schemes today.

When does the Equity Release Lender require their money back?

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It is all very well to own a real estate property, but when it comes to day to day life, what is required is cold, hard cash flow! One way of turning a home into cash is to sell the property and move into another place. Another option is to get an equity release mortgage on the property. Equity release schemes allow you to free up some of the value built up on the property without the need to sell or move out.

One of the main attractions of equity release is the fact that it allows you to continue living in the same house, while giving you the flexibility to use up a portion of the equity built up on the property as cash. This is essentially a loan, which is repaid to the equity release provider once the house is sold. So when is the house sold? Equity release schemes work in such a way that the property cannot be sold until the owner has either died or moved into permanent care. Once this happens, the house is sold and the money recovered.

A common concern is that an equity release mortgage can run up huge debts that can even turn into negative equity on the house. This means that once the house is sold, if the sale price of the house is lower than the amount owed, this needs to be paid as well. While this may have been a potential risk with some equity release schemes in the past, most modern equity release plans come with a no negative equity guarantee.

An equity release mortgage is designed to last over a long period of time, however, this is not to say that the loan cannot be repaid earlier if chosen. Many equity release schemes, however, have early repayment charges which apply if the loan is paid ahead of the contract term. These charges are meant to protect the lender from losses incurred due to early repayment.

Whether it is a lifetime mortgage or a home reversion plan, most equity release schemes have certain guarantees that ensure that the owner can continue to live in the property for as long as they live, and that the property cannot be sold until then. However, an equity release mortgage is a big thing and has serious implications. It’s important to seek expert unbiased advice to find out whether it is the right option for you.

Which solicitors can process my Equity Release Application?

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The decision to take out an equity release mortgage is not a small one. It has major implications on your life, and as such, the decision should be taken with careful consideration, and with the help of expert advice. Fortunately, as the equity release market has matured over time, it has also become safer for consumers with independent regulatory bodies committed to maintain high safe practice standards.

Safe Home Income Plans is an independent trade body that aims to ensure transparency and consumer safety in the context of equity release plans. SHIP approved equity release providers adhere to certain rules that are designed to maintain transparent communication to consumers, as well as safety measures such as the no negative equity guarantee.

There are certain procedures that need to be followed while applying for an equity release mortgage on your house. Procedures include valuation and completing the application process as per required terms, which can be done by professional solicitors. There are solicitors that specialise in equity release schemes, and can therefore ensure that everything goes smoothly.

The role of a solicitor in the process of getting an equity release is not just to guide you through the paperwork, but more importantly, to guide you through the potential risks and rewards of equity release in your specific context. A solicitor who is an expert in equity release will have up to date knowledge about different options suitable for your particular circumstances. It is therefore vital to find an expert solicitor who knows the equity release market.

Some specialist solicitors firms have formed an independent charter known as the equity release solicitors’ alliance or ERSA. The objective behind this alliance is to uphold the importance of expert and specialist advice within the field of equity release mortgages and also to increase awareness of the public regarding this. If you require guidance about equity release in general or about specific equity release schemes and their suitability, it is necessary to take advice from an expert in the field.

While there may be a lot of information available on various platforms, such as the internet, when it comes to financial products such as an equity release mortgage, it is important to seek information from genuinely impartial sources. An independent financial adviser or solicitor can give fair and unbiased advice about a product, unlike any party affiliated with a particular provider or company.

Are Equity Release Schemes Safe and Could I lose My Home?

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Equity release schemes have been around in some format since the 1960’s. However, they have undergone significant changes to ensure that today’s equity release mortgages are complaint & trustworthy in the eyes of the over 55 marketplace.

The first steps towards recognition of the need for consumer protection came in 1991 with the launch of SHIP (Safe Home Income Plan). SHIP brought about a voluntary code of practice that must be implemented within any equity release scheme in order to achieve SHIP status: –

  • The flexibility to still be able to move house. Therefore the equity release plan must be portable
  • You can repay the equity release mortgage at any time, subject to potential early repayment charges
  • All plans must have the inclusion of a ‘no-negative equity guarantee‘ option

The no-negative equity guarantee provides the protection in an ‘over’ roll-up situation, where the equity release balance supercedes the value of the property in the future.

If this does occur the lender will invoke the no-negative equity guarantee and only ask for the property value on eventual sale. This provides the reassurance that no debt can be transferred onto the beneficiaries.

Since then, the FSA (Financial Services Authority) has become involved in the equity release market & taken all schemes under its wing.

Therefore in 2004, lifetime mortgages became fully regulated by the FSA & provided greater consumer protection. This led to only qualified equity release advisers being able provide recommendations to the general public.

Three years later in 2007, home reversions plans were amalgamated with lifetime mortgages resulting in both types of plans becoming regulated by the FSA.

With recent developments in the industry & SHIP now reforming itself into the Equity Release Council to have a stronger presence & stance within the post retirement market, then greater changes are to follow. This in turn will lead to greater consumer awareness of equity release schemes & their benefits to the over 55’s.