- Release a tax-free sum of money from your home
- Zero regular monthly payments
- Use the money to purchase another property or pay off existing credit cards
- Protect your families inheritance
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What Is The Current Situation With RBS Equity Release Products?
Equity Release is a specialist type of mortgage, designed for the life of customers with two options of repayment. One of which is interest roll-up whereby no interest is paid by the borrower, but instead the interest accrues monthly and is repaid following the sale of the home, which will be when both homeowners die or move into a long-term care home.
To enter this type of mortgage, the mortgage must be submitted through a financial advisor as it is a highly regulated financial product, overseen by the Financial Conduct Authority.
1st UK is independent and can assist homeowners over the age of 55 with advice on how to release equity from their homes in the most affordable and accessible method of borrowing.
The RBS equity release scheme was initially rolled out in 2006. At the time when RBS launched their lifetime mortgage range, it was only available directly to their own customers and not available through intermediaries, nor did RBS have SHIP membership, which is now the Equity Release Council.
There are a number of equity release companies offering competitive terms, varying borrowing criteria with guarantees such as the No Negative Equity Guarantee and the Right of Tenure, both of which are advantageous, but nevertheless, the real value (or lack of) lies in the small print of the mortgage offer.
Only a few high street banks have tried to enter the equity release market. None of them has been able to make their offers sustainable, nor do any have an active membership with the Equity Release Council.
What’s Meant by a Lifetime Mortgage?
Equity Release Schemes designed for the over 55s (over 60 with some equity release companies) are a regulated financial product that lets older homeowners borrow against their home equity. Lenders use the term lifetime mortgage for this type of equity release scheme as it’s easier to understand that when you’re entering into this type of mortgage as it is for life.
For those nearing retirement who still have a mortgage in place, any funds released from a lifetime mortgage must be used to repay an existing mortgage, leaving you with 100% equity in the property. There will be a charge placed on the Title Deeds, but you remain the homeowner.
The first charge is put there for the lender to be repaid the amount owed based on the initial mortgage plus interest.
The amount you can borrow will be based on the value of your home and your age at the time of application. The older you are, the more you can borrow. Generally, most equity release companies will offer around 10% equity at the lowest entry age of 55 years old, with older borrowers, sometimes up the age of 90 years old, able to borrow up to 50% of their home’s value.
One key difference with a lifetime mortgage is there are no medicals required; however, there are what’s called Enhanced Lifetime Mortgages, which can let you borrow more equity from your home at an earlier age if you have a medical condition that will shorten your life expectancy. For an Enhanced Lifetime Mortgage, there will be an assessment to help the lender decide on how much you can borrow and put a tailored policy together. Enhanced equity release schemes require specialist underwriting and not all equity release firms offer these.
For security, different lenders have minimal amounts they’ll accept for your home’s valuation. Most stipulate your property must be worth £100,000. At aged 55 years old with full home ownership, as in, no mortgage in place, it would be possible to borrow from £10,000.
Unlike standard secured homeowner loans, there are no restrictions on what you can spend the funds on. The only requirement attached to equity release offers is that your home is kept in a good state of repair to preserve its value.
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Lump Sum Payments or Income Draw Down
The majority of equity release firms will offer eligible homeowners two ways to release funds from their homes.
- As a lump sum
- Or with drawdown, which just means multiple withdrawals
As you can use the money for anything, including investment purposes, home improvements or renovations, you may not need the total amount you’re offered. If that is the case, you’ll be able to take some of the cash you’re approved for as an initial payment, leaving the rest on reserve should you want or need to borrow in the future.
One thing to keep in mind if you do decide to use a Lifetime Mortgage product is that it will affect future borrowing. That’s one of the reasons you may want to consider drawdown as it would let you release a lump sum upfront while leaving approved finance available to withdraw at a later date.
Both options will be discussed with you by a financial advisor to ensure you know your options and have your questions answered before you sign any agreement.
1st UK will explain all your borrowing options, possible implications, discuss financial planning and how equity release could affect any means-tested benefits.
Ways to reach 1st UK
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Can Anyone Apply for Equity Release?
Homeowners cannot apply directly for any lifetime mortgage as it must be arranged through a financial advisor. Currently, none of the main lenders such as RBS, Halifax or Barclays offers equity release schemes for over 55s. They will provide homeowner loans up to 90% LTV (sometimes higher) on a residential remortgage, but not a lifetime mortgage product.
The difference between a lifetime mortgage and a residential mortgage is that with a lifetime mortgage, interest roll-up is used and no monthly payments are made. The loan is repaid (capital plus interest) when both joint homeowners die, or both people move into a long-term care home. With a residential mortgage, repayments would need to be paid immediately.
About Guarantees with Equity Release Schemes
Reputable investment firms offering lifetime mortgage products are members of the Equity Release Council. Part of the membership requires consumers to have protection. The main protection is the No Negative Equity Guarantee. As the name suggests, it means you can never owe more than your home is worth. In practice, it means your heirs to any inheritance cannot be left with debt. But it also means a significant portion of your properties value will go towards repaying the loan plus compounded interest, which in the worst-case scenario, could leave your heirs with nothing.
It’s for that reason equity release must be done with careful consideration after an in-depth discussion with a qualified financial advisor. It’s best used as part of retirement planning and not a method of borrowing for emergency funding.
You Can Also Benefit from the Right of Tenure Guarantee
In addition to the No Negative Equity Guarantee, which eliminates the risk of your family inheriting debt, there’s also a Right of Tenure guaranteed with most reputable companies. With this guarantee, if one person from a joint home ownership goes into a long-term care home, the remaining resident has the guarantee that they can continue living in the property, without a sale being forced.
Done right, with expert advice, equity release can help older homeowners release equity from their homes, pay off existing mortgages, perhaps interest-only and be left with cash to help provide a comfortable retirement.
Contact 1st UK to see how we can help you release equity tied up in your home in the most affordable way possible without any obligation!
Please note that the RBS logo is a trademark of The Royal Bank of Scotland Group plc, to which we have no direct affiliation. The equity release firms we work with provide quotes from many providers.
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