Lifetime mortgages are often misunderstood. We speak to Aaron Conlon, MD of lifetime mortgages at Fluent, to find out how equity release can benefit retirees.
Equity release mortgages have received bad press in the past but, thanks to regulation brought in by the Equity Release Council, lifetime mortgages are now a safer, more flexible product for those looking to unlock value from their homes.
“It’s been a mixed press on equity release in recent years since it was mis-sold in the 1990s,” admits Aaron Conlon, MD of lifetime mortgages at Fluent. “But from 2012 the reputation of the industry has got a lot better. “The benefit is that equity release offers that flexibility for older borrowers that they didn’t have before,” he explains.
“There’s a range of products that they can use to make their home more comfortable or to enable ‘gifting with a warm hand’ [giving children their inheritance while they are still alive to see it]. This is a growing trend in equity release – they’re gifting their inheritance now because [they say] ‘I want to see your face when you get your dream house or car’.”
You can use the cash to improve your home
Applicants can also make use of the cash to improve the condition of their own home if it’s in poor repair. “We see some sad stories [from some applicants] where the house is dilapidated and they’re living in only a portion of it. So equity release [enables them to restore it],” Conlon explains.
However, if downsizing to a smaller property is still a possibility, applicants are encouraged to explore that route first. “If you can downsize that should always be the first option and we go through all the alternatives to equity release beforehand,” he says.
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Will I still have an inheritance to leave?
Applicants might be concerned that their loved ones’ inheritance could disappear. However, protection plans can now be put in place to cover a proportion of their property’s future value, Conlon explains. “You might say, ‘I want to maintain 10% of the value’ so that some of the property will always be available for a customer for inheritance,” he says. “And if a son or daughter wants to make repayments on the debt they can also do so.” The maximum amount of equity home owners can now release depends on the applicants’ age but recently increased to 60%.
Getting independent legal advice is mandatory
Another safeguard put in place by the Equity Release Council which regulates lifetime mortgages is the consultation period that must take place before any application goes through. “The difference between remortgaging and equity release is that I can’t ring up my bank and ask to release equity directly,” says Conlon. “Lenders are not allowed to accept requests from customers. You have to get equity release advice and independent legal advice. It’s mandatory.
“That was one of the safeguards the Equity Release Council brought in so a solicitor ensures that the customer understands what they are doing and also checks they are of sound mind. It’s also about encouraging them to speak to the family and get the help they need if they’re able to from them [instead].”
The protection of potentially vulnerable customers is also paramount. “Equity release customers can sometimes be vulnerable and [could be being pressurised by family members to release equity],” Conlon explains. “So the application interviews are done with just the applicant and sometimes at their solicitor’s offices. It’s all part of the advice process to protect vulnerable customers.”
Could applicants end up leaving behind large debts?
“There are two main types of equity release mortgage: a lifetime mortgage and home reversion (a home-secured loan where ownership reverts to the lender),” Conlon explains. “At Fluent we don’t sell the home reversion product. Since 1991 and the regulation brought in by the Equity Release Council, lenders have to adhere to certain standards and one is non-negative equity. You can never put your estate in a situation where [the debt is worth more than the property it’s secured on.].”
Dispelling equity release myths
So what are some of the biggest misconceptions about equity release mortgages? “‘You won’t own your own home’,” says Conlon. “When you take out a lifetime mortgage you don’t have to ask permission to put up a picture in your home. You still own your own home. And you can move house. Everybody has the entitlement to port their mortgage. If Mr and Mrs X apply and then sadly Mr X dies and Mrs X deems the house to be too big, she can still move and the early repayment charge is waived.”
Get the best advice you can, says Conlon
Lastly, Conlon emphasises just how vital it is to get specialist legal advice before taking out a loan. “Equity release is a specialist service and there are hundreds of people who offer advice on it but don’t do so regularly,” he warns. “Perhaps they see one case a year. Personally, if it was my Mum and Dad, I’d want them to be given advice by someone who knows what they are doing. Use a solicitor who specialises in this area and you’ll get it through quicker and it’s likely to be cheaper too.”
Written by Piper Terrett, Fluent Money Group