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Product matters – equity release

The Newcastle has joined a handful of other lenders in entering the equity-release market.

The majority of the players in this market are smaller societies perhaps looking for a niche but there are some big brands entering so even this niche may be denied in the long run.

Newcastle has come into this market with a competitively priced product with one or two nice features. The rate is fixed at 6.5 per cent for the life of the mortgage. Even so, with current 15 and 20-year swap rates running at less than 5 per cent, there is a healthy margin to be had.

There is a 2 per cent redemption penalty within the first five years, which is ironic given the afore-mentioned note on interest rates. Unlike some of the other schemes, the Newcastle does not make it clear if the penalty is payable on death or the need to move into sheltered accommodation within the five-year penalty period.

There is a negative equity guarantee and, taking notice of controversy surrounding legal advice, Newcastle gives the choice of solicitor to the borrower, although it is not clear whether or not they pay the legal fees.

Minimum loan to value is 20 per cent at age 60 and maximum is 40 per cent from age 80. The mortgage is transferable to a new property if the client decides to move home.

Bizarrely, the marketing literature promotes the society&#39s Asu policy.

It will charge an up-front fee and an annual fee if the buildings are insured elsewhere. There is a valuation fee and a hefty completion fee as well.

Kevin Paterson is managing director of Park Row

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