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Case Study: Getting the right product for equity release

The problem: A client who has been recently widowed is looking at equity release as a way of supplementing their pensions income. What specific issues can arise for single individuals looking to raise money through equity release?

The solution: A lot of the advertising and marketing around equity release has traditionally focused on a couple looking to use their home in retirement for a variety of reasons.

When it comes to advertising, you do not have to look too hard to find the archetypal images of couples barely in their 60s, looking blissfully happy as they walk arm in arm along a beach somewhere – probably wearing loose-fitting linen clothing.

However, anyone active in equity release and in-retirement advice will know only too well that the vast majority of clients do not fit this advertising stereotype and that while we wish those couples who intend to use equity release to holiday somewhere exotic well, for most this is a long way away from where they intend to use the cash.

A point often forgotten when discussing equity release is the notion of who the actual customer is. In all likelihood it will not be a couple seeking to release equity but an individual. Increasingly, we see individuals who are either divorced or their partner has passed away and this is often a catalyst for them to look into the equity release option.

They may need to buy their former partner out of the property or they may need to release cash in order to fund a new life on their own.

When advisers look at single lives, it is particularly important for them to be able to advise on both the lifetime mortgage and home reversion options because there can be a considerable difference in terms of maximum cash releases available with both.

For example, depending on whether a reversion or a lifetime mortgage is chosen, a single male born on 1 September in any given year who has a property valued at £200,000 can release vastly different amounts.

If the man is 65 years old, he could release a maximum of £60,000 from the lifetime mortgage provider at the highest LTV.

But by using a home reversion plan, he could actually release more than £67,500 – a 12.5 per cent difference.

The gulf becomes even more marked the older the man is. At age 80, the man could release a maximum of £94,000 through a lifetime mortgage but £107,000 with a reversion; and at age 90 the corresponding figures are £104,000 (lifetime mortgage) and £129,000 (reversion) – a considerable 24 per cent difference.

Of course it is not always about releasing the maximum amount for each equity release customer and there is much to take into account when making a recommendation.

However, it is important for clients to know that there are not only lifetime mortgage available when looking at equity release and for individuals weighing up their options, a reversion should always be considered as it could be the right product at the right time.

Chris Prior is manager of sales and distribution at Bridgewater Equity Release

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Comments

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  1. Roger Pangbourne 11th October 2013 at 1:16 pm

    You are absolutely right Chris, it is essential that reversions are considered, particularly in the instances you mention where the requirement is to release the largest sums.

    Equally important is to check the health of customers to determine whether an enhanced Lifetime Mortgage may be more suitable. In your examples these products could not increase the amount for the 90 year-old from £104,000, but for the 80 year-old, they may be able to release up to £104,000 for the most severe enhancements (reversion still beats this). However, for your 65 year-old example, these enhanced Lifetime Mortgages could release up to £82,000 – or even £91,000 – again for the most severe enhancements, in this case quity considerably more than a reversion. Obviously there are other factors to consider: The customers likely longevity: desire to possibly leave something for the estate beneficiaries; ability to deal with future events etc..

    So absolutely it is essential that Advisers are qualified across the full range of Equity Release and ensure that their Fact Finds and training encompass these health-enhanced options for customers as well as just ‘standard’ Lifetime Mortgages and Home Reversions.

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