Modern equity release products can really come into their own in cycles such as now as funding dynamics change so rapidly. But have advisers kept themselves sufficiently up to date with the latest innovations in order to be able to show clients all the available options?
Over-55s worried about coming off their fixed-rate mortgage and the potential of losing their home should very certainly seek advice about the suitability of an equity release policy instead of remortgaging.
This year, some 2.76 million homeowners are coming off fixed-rate mortgages, with an average rate of 4.8 per cent, and are facing a move to significantly higher rates. Some of these customers will be over- 55 and with a loan to value ratio low enough to consider a lifetime mortgage.
The lifetime mortgage interest rates, fixed for life, on certain equity release products start from 5.9 per cent, including interest-only options from 6.23 per cent, where the client elects to pay the interest each month to avoid the roll-up of interest.
Some homeowners have found themselves in a dreadful trap of borrowing on credit cards with high interest rates because they live in fear of losing their home if they miss a payment.
Bank of England figures showed that there was a significant increase in credit card debt last month, with industry commentators concluding that many were borrowing on cards to meet mortgage payments out of fear of losing their homes.
Modern lump-sum lifetime mortgage products can be used to pay off, for example, outstanding mortgage balances and debts such as credit card debt, which are carrying increasingly high interest charges. Essentially these lump-sum products can give homeowners access to funds to clear the debt, get out of the negative cycle and move into retirement with certainty and less stress.
In addition, lifetime mortgages approved by Safe Home Income Plans come with a number of important safeguards for homeowners which are not available on traditional mortgages. For example, a no negative equity guarantee so there is never a risk of the homeowner owing more than the value of their property.
Interest-only lifetime mortgages can also feature a specific safety net whereby, if the homeowner misses an interest payment or opts not to make payments, the product converts to a conventional lifetime mortgage whereby the interest is added to the loan and rolls up and the capital plus the rolled up interest is repaid when the homeowner either dies or moves into long term care. Thus, the provider will never repossess the property because the client has fallen behind with repayments.
With a traditional mortgage, interest has to be paid on the loan every month or the homeowner faces the risk of losing their home.
Many advisers have not kept abreast of product innovations and older homeowners are facing a ticking timebomb that could seriously affect their retirement planning in the most critical stage.
It is time for mortgage brokers, financial advisers and the media to weigh up the merits of equity release products against traditional mortgages in today’s environment.
We are not saying it is right for everyone but there are homeowners out there for whom it is absolutely the best option.