Despite the fact that new mortgage applications are way down on where they were prior to the credit crunch and at a time where the Government is actively trying to encourage more lenders to keep the mortgage market moving, in their strange wisdom, the Financial Services Authority (FSA) have decided that it is a good time to contrive a list of new reforms aimed at the mortgage market. This is also likely to have some sort of impact on the equity release UK industry.
To be fair and for the most part, the FSA are trying to ensure that residential mortgages are only ever offered to applicants that can realistically afford such a financial commitment in the first instance. After all, is this not a huge part of the reason for the worldwide banking crisis back in 2008? We obviously need to learn through our mistakes in the past and ensure that they are not repeated in the future - so no matter what the state of the economy may have been today, it is highly likely that these new reforms would have been implemented whatever.
Where equity release schemes may be affected most in the future will be the new reform that stipulates that all new mortgage applicants are to be offered full mortgage advice whenever they are looking to take out such a product. The reforms do not go as far as suggesting that this advice ought to be followed: merely that full advice should be furnished to each and every applicant at the time an equity release product is sought.
The reason that mortgage advice will be compulsory for applicants looking into equity release plans is the fact that such clients are labeled as being ‘vulnerable’ by the FSA. This is most likely going to be due to the ages involved in taking out such a policy: bearing in mind that the minimum age is around 55 years of age for the majority of lifetime mortgage equity release plans.
Investigating the potential impact of these reforms further, it is estimated that as many as one million people could be denied a mortgage based on the proposals that have been put forward by The FSA. This comes at a time where people are already struggling to get on the first rung of the housing ladder and therefore this really is not a helpful statistic at the moment. Most lenders have already tightened their belts where mortgages are concerned and have withdrawn many products (e.g. the 100% mortgage) from sale.
Over the last year, the Government has tried to provide some kind of financial assistance for people struggling to get into the housing market. However, many people believe that it is not fair to rely on tax-payers’ money to assist such people; this is a typical example of the Government’s refusal to take the bull by the horns, where the banking industry is concerned, and instead they choose to skirt around all issues.
If you have been considering the myriad benefits of equity release schemes, it is important not to let the reforms from The FSA put you off in any way shape or form. As per usual, if you will be obliged to receive full mortgage advice, as with most things in life, this will merely be ‘lip-service’ and don’t forget that it is entirely up to you whether or not you decide to go ahead with the information given to you. At the end of the day, use this information to your own advantage as it can never hurt to be even more knowledgeable on the equity release deals in the UK market.
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There are very few people who do not take out at least one loan within their lifetime. There are many people who are financially well-off and do not find the need to go for a loan, but it is not always easy to manage money. The management of finances is an art which most people do not possess instinctively. Thus there are banks and other financial institutions that offer mortgage loans to people.
An interest-only mortgage loan has its own set of advantages and disadvantages. Let us now have a look at the advantages of opting for an interest only lifetime mortgage.
The main benefit of this type of agreement is that the payments you make are lower compared to usual loans & protects your inheritance unlike equity release schemes.
An interest-only mortgage is an effective way of trying to reduce the mortgage cost. The reason behind this is that with an interest-only mortgage, the initial payments do not go towards covering the principal amount.
The interest calculated for the term of the loan is first recovered in a series of fixed instalments, after which the payments made proceed towards covering the principal amount.
Once the interest is covered, the amount of the fixed instalments is increased and it is then used to cover the principal amount. This kind of arrangement works well for the people who can be sure of the fact that their income will increase in the future through promotions or any type of inheritance.
It is however essential that one reads the terms and conditions of the lifetime mortgage including the fine print very carefully before signing it and making a commitment.
Are you looking to secure your life post retirement? Do you want to lead a life free from tension and financial worries? If the answer is yes, opting for an equity release scheme is the right decision.
As different people have different financial requirements, recent equity release schemes have been designed and developed to cater to your needs. These schemes include home reversion schemes and lifetime mortgages. Roll-up lifetime mortgages are preferred by many people these days.
Features of lifetime mortgages
Lifetime mortgages are especially for those homeowners who are entering retirement. With such a plan, retired homeowners can release equity from their property in the form of a secured loan. The repayment of a loan under this plan takes place after the homeowner has moved into long-term care or after the applicant has passed away.
After opting for a lifetime mortgage, homeowners can continue to live in their residence. This is also applicable when the equity release balance exceeds the value of the property.
The no negative equity guarantee also ensures that no debt over the property value passes to the beneficiary. Therefore, inheritants are given assurance that the no debt is incurred by them from the decision made by their parents.
As the equity released is completely tax free, applicants can use the money for any purpose they want. Due to all these benefits, more and more retired homeowners opt for equity release to secure their future.
If you are thinking about setting some time aside to compare equity release schemes, you have probably been considering its virtues for some time. However, you may now feel completely daunted by what you perceive to be a total financial minefield. If you take just one thing away from reading this article, let it be the fact that the equity release UK market really needn’t be that complicated and there are always financial advisors on hand to guide you through any aspects you do not understand when looking to compare deals.
To start the ball rolling, in order for you to compare rates in the equity release market, there is a list of five essential features you should bear in mind when looking for any lifetime mortgage product:
1. SHIP (Safe Home Income Plans)
We will start with the organisation known as SHIP, as this is the regulatory body that aims to ensure safe and secure practice within the equity release UK market. If you have a particular lender in mind for a lifetime mortgage product, it is imperative that you check to make sure that they are affiliated with this organisation. If no such allegiance can be found, do not touch the company as you will have no protection from its features.
2. Tools to Help You Compare Equity Release Plans
Just as you would with other financial products such as travel deals and insurance, there are now tools on the internet that will allow you to compare equity release schemes. All of these companies state that they offer a free equity release comparison calculator - but as if they could charge for such a facility in the first place. Nevertheless, many of these equity release calculators are very helpful to give you an idea of how much equity you are likely to be able to release from your property.
There are even some other equity release comparison tools that would allow people who already have a lifetime mortgage to compare deals in the market to find out if they might be better off switching to a new product. Given today’s economy, this is actually becoming more and more popular and could very well help you to find a better deal.
3. No Negative Equity Guarantee
This really is an important criterion to bear in mind when you look to compare equity release deals. Basically, this means that the company with whom you decide to take out your equity release plan will guarantee that there will never be any nasty surprises when the plan is finally paid back. So, when the people on the equity release plan do pass away or move into permanent care, this is when the company will retrieve their money, but crucially, they will not place a demand on the estate or relatives for payments that go beyond the final sale price of the house. Therefore, the beneficiaries can never end up owing more than the value of the property.
4. Still Possible to Guarantee an Inheritance to Relatives
This is one of the most important considerations when it comes to people looking to compare equity release schemes. Indeed, many people will be put off straight away through the fact that they believe that their relatives would have to forego their inheritance if an equity release plan is taken out. Whilst there will always be an impact on the amount of money that can be left to your relatives, it is entirely possible to find an equity release plan that is able to literally guarantee a certain amount of money that is to be left to your loved ones, when you have gone.
5. Free Professional Financial Advice
One of the main features you will find on all of the websites that allow you to compare equity release plans is very quick and easy access to professional financial advisors. They will help you get a better understand the terminology of the equity release UK market and all that is involved. Do not allow yourself to struggle with this industry, if there are any aspects that are not as clear as they could be, utilise their professional services and get clarification on everything before you even contemplate taking out any equity release plan.
Despite the fact this article only covers 5 points that are aimed at helping you when you compare equity release plans, hopefully over time, you should come to realise that these points are essential to set you on your way. They are definitely the most important to ensure the equity release lifetime mortgage product you end up with is protected under SHIP and includes the guarantees that are offered through the very best and most reputable companies.
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