1. What Are The Different Types Of Equity Release?
The most common type is a “Lifetime Mortgage” which is a loan secured against the property, but unlike standard mortgages, the loan typically does not have to be repaid until the borrower dies or moves into permanent long term residential care. The original loan plus interest which has been added during the term of the loan is then repaid from the sale of the property. There are several variations of this style of Equity Release that can allow further borrowing or monthly repayments during the life of the loan.
A different type of Equity Release is the “Home Reversion Scheme”. This type of scheme involves actually selling all or part of the property to the scheme provider. The person taking out the scheme is then given the right to continue living in the property for the rest of their life. This blog will only look at the Lifetime Mortgage style of plan as it is by far the most popular.
Video courtesy of Dennis Perry at The Right Equity Release.
2. What Age Can You Do Equity Release?
Typically, these plans are available to people age 55 and above. If you are entering the arrangement as a couple then the youngest must be 55 or above. The amount you can borrow is shown as a percentage of the value of the house. Each plan provider is slightly different, but the basic concept is that the percentage you can borrow increases as you get older. Such plans are designed to be repaid on death, or taking permanent residence in a care home. With this in mind, someone entering an Equity Release arrangement at age 55 should understand that if they live to 100, then the plan will last or 45 years. Something to think about considering the mortgage that was probably used to but the property in the first place was over a 25 year term!
3. Are all Properties Eligible For Equity Release?
Okay, I’ll expand on that a bit more. Not all properties are eligible as security for these plans. Here are the most common rules that apply as of now:
- The property must be owned by you and be in the UK. This property must be your main residence and occupied by you. If you are a couple, but the property is in just one name, then it will need to be transferred into both names before proceeding
- If the property is leasehold, then the remaining term of the lease must be over a certain number of years. Different providers have different rules.
- Just like any mortgage, the proposed lender will have their own criteria regarding the construction, age and minimum value for the property. If you have a 400 year old, cob built house worth £80,000, you are going to find that the market is somewhat smaller than if you have a 50 year old standard built property worth £300,000.
- You will need to use the money you borrow or “release” to pay off any existing mortgage or loan secured on the property immediately. You are then free to use whatever money is left over for your other financial needs.
- Your property must be in a reasonable condition.
4. Are Equity Release Plans regulated?
Advisers for this product have to be qualified, and in addition to taking exams they have to show that their knowledge is up to date and of a certain standard. Like all mortgage related products, equity release products, providers and advisers are regulated by The Financial Conduct Authority (FCA).
In the FCA’s own words, taken from its own website, a purpose of the FCA is to ensure that “Financial markets need to be honest, fair and effective so that consumers get a fair deal”. In the event of any complaint you may have, it is the FCA you can turn to for help if you are unable to reach a satisfactory conclusion with the company you are in dispute with.
Although not a regulator, The Equity Release Council represents over 300 firms and individuals working within the equity release sector. These include providers, advisers, solicitors and intermediaries amongst others. Members of the ERC agree to a Statement of Principles which highlight a number of safeguards for consumers.
You are well advised to seek out the best qualified and experienced people to help you make your decision!
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Facebook Prevents Insurer from using Posts to influence Premiums
Today was supposed to be the launch of a pilot scheme by the insurer, Admiral, whereby they would ask to view the potential insured’s Facebook posts and then make a judgement as to the lifestyle and behaviour of the person and then offer a premium that was influenced by their judgement of that person.
Admiral had stated that it would analyse the accounts of first-time car owners, including what they were posting and things that they had “liked”. From this they would then build up a profile and determine whether they were likely to be safe drivers and offer discounts as a result.
Facebook has, at the last moment, pulled the plug on this. Probably because it realised that it could be embroiled in the considerable number of disputes and complaints that was sure to follow from such a subjective idea.
There are so many reasons why this crazy plan should not have got even this far. However, it does highlight the lengths insurers are prepared to go to in order to gain an edge in a market. Even if that market is as notoriously difficult to turn a profit from as young drivers.
My suspicion, having been around insurance companies for a while, is that some senior executives who wanted to appear hip, have ill advisedly listened to some trendy junior executives who have told them that the future is all about social media. In order to appear to be “on trend”, like your bachelor uncle who wants to take you to a Drake gig, said senior executives suspended their experience and, more importantly, common sense and ran with the idea.
While the pitfalls of this nonsense are pretty much self evident. It does invite closer thought. Long before social media was even a term, I was broking motor insurance. At that time, potential clients would either phone or drop in and complete a form from which a premium was calculated. But even then then problems would arise. It wasn’t common, but then again not that unusual for someone in the office to declare that they had some knowledge of the potential client that had not been declared. I have been told on more than one occasion that someone was not declaring their address properly, or not mentioning their part time evening job, in order to get a cheaper premium. How did they know? They lived next door to the person and knew they had moved months ago or saw them going to work every night!
Realistically speaking what actually is the difference between an insurer finding out “relevant” information from a third party as happened years ago and finding out such information from social media?
The point is that social media provides the type of information that all businesses will give their right arm for and whereas most people will resist attempts to give information if they think it will be used for marketing, most will be happy to volunteer such information, and a lot more, in a social media post.
Probably all young people are warned that potential employers are likely to look at their social media profiles prior to being interviewed, and the more savvy ones will moderate what they post and who they let see it. The next level will be the use of social media profiling for commercial purposes, there is a good argument for saying that it is already here.
Perhaps Admiral’s biggest mistake was not trying to exploit social media, but just being too up front and honest about it. Even more of a mistake is the kind of information people are just thoughtlessly putting online for the world to see.