Should You Review Your Equity Release?
In simple terms these
schemes are a way of unlocking tax free capital from your home whilst you
retain the right to live in your property. We have always looked upon these
as a last resort option after all avenues for obtaining extra capital have
been exhausted and moving home is not an option.
These schemes once arranged are rarely reviewed which means that the outstanding debt could be building up faster than necessary. Does this matter? We think so and here are some of the reasons:
· You might not be able to rely on your property for the money you need later in your retirement, such as payment for your choice of long-term care home.
· Most schemes can be transferred to a new property but you might not have enough equity in your home to do this. This means you might need to repay some of your mortgage.
· If you’ve taken out an interest roll-up plan, there will be less for you to pass onto your family as an inheritance.
With the Bank of England base rate at an all-time low mortgages rates for lifetime mortgages (the most common form of equity release) remain relatively high. However, we have seen reductions up to 3%, where we have been able to remortgage the loan to another lender, which on a £100,000 loan would save approximately £48,000 over just 10 years!
There are two main types of equity release: lifetime mortgages, which allow you to borrow money against your house; and home reversion, whereby you sell a share in your house.
With a Lifetime mortgage, you borrow a proportion of your home's value. Interest is charged on the amount, but nothing usually has to be paid back until you die or sell your home. The interest is compounded or 'rolled up' over the period of the loan, meaning your debt could double in 11 years assuming a 6.5% interest rate.
With a home reversion scheme, you usually sell a share of your property to the provider for less than the market value. You have the right to stay in your home for the rest of your life if you wish. When you die or move into long-term care and the property is sold, the provider pockets their share of the sale proceeds. For example, if you sold 50% of your property to the provider, it would get 50% of the sale price.
Obviously you need the equity in your home to switch schemes but with property valuations at a high, this could be a good time to conduct a review. Switching could involve some costs such as exit penalties, new plans, valuation and legal fees but the savings could be substantial.
If you would like to find out more ring Georgina or Luke on 630873
Time to downsize
The family home isn’t made of bricks and mortar or furniture and gadgets;
it’s constructed of memories. This is
why so many people find it hard to admit that it’s time to up sticks and
move to somewhere more manageable. It
is understandably difficult to leave behind a home and garden where children
played and family memories were made, even when the benefits are a property
with worry-free maintenance and on-hand support.
Despite this, the desire to remain independent along with the acknowledgement of the need for support, often forces the hand. In such situations, a retirement property can offer a practical solution where a level of independence can be maintained. Help is likely to be on hand, perhaps in the form of an ‘on call’ support system, day to day living arrangements may be able to be tailored as the needs of the occupier change, and maintenance services are usually provided by a landlord or service company.
All good so far! But it is a proven fact that moving house is stressful – at any time of life – let alone when it has to be undertaken by someone of advancing years. Added to that is the burden of choice. Which retirement property will be suitable? Which will provide ongoing care through the years? Which will retain value and what about overheads?
Retirement complexes, where independent living is facilitated via support services and where the community is restricted to a certain age group and above, can offer a way of continuing independence for as long as possible, but potential buyers must ensure they are aware of all the facts before they commit. These may include service charges, ground rent, costs for support services and perhaps other charges for meals or laundry.
A solicitor with experience of retirement properties will be able to remove some of the worry associated with the process of moving home and answer a lot of the questions. They will be alert to any ‘hidden’ costs so that their client is fully aware of their commitment before signing on the dotted line. Furthermore, they will be able to explain terms of contracts and leases in clear, straightforward English and will keep their client updated at every stage.
A solicitor cannot remove the stress and worry but they can make the process run as smoothly as possible.
If you or a loved one are thinking about buying a retirement property, contact Marina Athanasiou on 01206 217354 or firstname.lastname@example.org.
Birkett Long LLP is authorised and regulated by the Financial Conduct Authority (No: 654458)