Can I Move House?

Lifetime mortgages are portable from property to property. Some Reversion plans are not.

There may be many reasons for moving home once you have an Equity Release plan. After all, the minimum age to start one is usually 55 and it would be odd to make a decision that commits you to stay in one place for possibly the next 40 years! However, moving house when an Equity Release plan is involved brings with it some additional things to think about.

The main issue to start with is the type of property you are thinking of moving to. When you first took your plan, all you were probably interested in was the eligibility of the property you were living in. All the property criteria for that plan was in the information given to you but, to be honest, it was of no interest to you at that time. If you are going to move, it is now of major interest to you. All mortgages have there own eligibility rules and Equity Release plans are no exception. From the type of construction and age to the location and value, each plan may have its own preferences. That is not to say that if the property does not meet these rules there is anything wrong with the property. It does mean though that transferring the Equity release plan becomes a headache. A headache with only three options: 1.You don’t move 2. You move and repay the Equity Release Plan or 3. You move, but have to find a different Equity Release provider. One that likes your new property.

One of the more common situations is a move into a warden assisted property or something similar. these properties are usually leased as opposed to freehold and as such rules regarding the length of the lease will be important to any lender. Many will refuse them outright.

Video courtesy of Dennis Perry at The Right Equity Release.

It is not only the Equity Release provider that has influence. It will be a condition of your loan that the property is properly insured. If the insurer doesn’t want to insure, because of the location, flood risk or any of many reasons, then you will be faced with further problems. It may be that the insurer will insure, but their conditions or cost is not to your liking.

Here’s a checklist of what you should consider before committing yourself to moving house:

  1. Look at the terms and conditions of your existing plan regarding a move.
  2. Talk to your adviser about the move at the earliest opportunity.
  3. Check that your new property is eligible to carry the Equity Release plan.
  4. Check that the property can be insured at terms acceptable to you.
  5. Do a thorough appraisal of all the costs involved. Get all costs and fees in writing wherever possible
  6. Consider looking at different Equity release providers. There may be better deals on the market than the one you have!

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Can I Repay an Equity Release Loan Early

The short answer is yes. The trouble with short answers is that they are short, especially on detail!

Equity Release plans are designed to last for your lifetime and as such they are not meant to be repaid early. However, it is generally acknowledged that sometimes this is what the borrower wishes to do and therefore a facility to do so is usually put in the terms and conditions.

Video courtesy of Dennis Perry at The Right Equity Release.
Penalties

Early repayment penalties are the key to whether or not repaying the loan early is a good idea. Such penalties are set out clearly in the contract and if you are in any way unsure of them, you can, and should, talk to the Equity Release provider or your solicitor. Ideally, you should go back to the equity Release adviser who arranged the plan for you and go through the consequences of early repayment in fine detail.

It is a very bad idea to just go ahead and repay the loan early without taking advice. It could cost you more than you realise in fees!

Generally, there are two reasons for repaying early. The first is an unexpected windfall or inheritance and the second is downsizing to a smaller house. In both cases you need to take advice before you do anything, but especially when downsizing you need to speak to your Equity Release provider right from the point when you start considering the idea.

When you first took out your plan, the amount of money you borrowed was dependent on your age and the value of the property among other things. You will be certainly older when you downsize and, in most but not all cases, the value of your new property will be lower. Unless you have a Home Reversion plan, your equity release plan will allow you to move, however it will be a new loan, with new limits and possibly, if the terms and conditions have changed on the product, new interest rates and other conditions. It may be that you are better off looking at a new provider entirely. Remember, any fees associated with the alteration of, or any repayment of, the Equity release plan will be in addition to all the normal costs associated with moving house. You need to do your figures very carefully before you make such a big commitment.

NEXT: Can I Move House If I Have An Equity release Plan?
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What Type of Equity Release Plans are Available To Me?

There are two main types of Equity Plan; Lifetime Mortgages and Home Reversion Plans. Lifetime Mortgages have a couple of variations but Home Reversion Plans are all pretty much the same.

Here is a brief guide to each:

Lifetime mortgages
Roll-up lifetime mortgages

After you take out a loan against your property, interest will start to be added to the amount you have borrowed. With a “Roll Up” plan, you will not make any repayments of either the capital or interest during your lifetime (or until you move permanently into long term care). Instead the interest is ‘rolled-up’ and added to the total loan. When the house is sold, then the full amount, consisting of the original amount borrowed plus all the interest is repaid to the lender.

Drawdown lifetime mortgages

These types of plan differ in as much as you do not have to take one large lump sum at the beginning of the plan. Instead, you are given a maximum amount that you can borrow and can take much smaller amounts in stages until you get to that maximum. The minimum you can take (or as it is sometimes called “withdraw”) at each stage may be subject to certain conditions, as can the time between each “withdrawal”. As you get older you may find that the maximum amount you can take will get bigger. The advantage of this style of plan is that because you are only taking amounts as you feel you need them, the interest charged will be lower over time

Interest payment loans

In these plans, the lender will allow you to make repayments to the loan. The amount you repay is usually your choice, and if you stop making payments, or the amount you are paying is less than the interest being charged, then the normal “roll up” method will be used. All Equity Release plans need to be looked at carefully, but with these type of plans you need to particularly look at what you can and can’t do and under what circumstances.

Video courtesy of Dennis Perry at The Right Equity Release.
Home reversion schemes

These schemes are completely different to those previously mentioned. In using a Home Reversion scheme, you are actually selling all or part of your home. You will receive a lump sum and in return you will be given a lease allowing you to live rent free (or at a nominal rent) in the house for the rest of your life. You really must get expert legal advice regarding every aspect of this arrangement, including the lease as this will set out your responsibilities and obligations as the tenant. This can include many conditions such as insurance limits, maintenace responsibilities and who can live with you. Upon your death (or move into long term care) the property will be sold. If you have sold the whole house, then the reversion company will get the whole of the proceeds. If you have sold a part of the house then the proceeds of the sale will be shared in line with the original split. It may look something like this:

Original value of house……………………………………………………………….£200,000

Original percentage sold to reversion company……………………………….50% 

Original cash amount taken…………………………………………………………£100,000

Sale amount upon death……………………………………………………………..£300,000

Amount repaid to reversion company (50%)………………………………….£150,000

Amount left in deceased estate…………………………………………………….£150,000

This is a very simple illustration of the way a Home reversion can work. It doesn’t take into account of costs and fees involved.

Next: How Do I Pay Back The Money From An Equity Release Plan?

 

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Why Take an Equity Release Plan?

Choosing to take an equity release scheme is very much a personal and lifestyle choice. There are many reasons for going ahead, and many for not going ahead, but only you know whether it is going to work for you. You should only go ahead once you have taken professional advice, preferably discussed it with those it effects, and are totally comfortable with the idea.

Although what you want to use the money for is as individual as you are, there are some common traits with all applications. These commonalities include having a property of some value, limited or no savings and a desire to achieve some purpose that is important to you. It is the last of these that tends to drive the desire to press ahead and put you in the position where you achieve what will make you happy.

Some reasons for going ahead…

We often think about what we would like to do if we suddenly had a lump sum of money, it’s amazing just how the reality of acquiring such a sum through Equity Release alters the mindset from the fantasy of exotic holidays and new cars (which are perfectly good reasons for taking a plan if that is what you want!) to the more mundane of putting in new windows, fixing the roof or adding solar panels. In fact, improving the house is one of the biggest reasons for taking a plan, and the definition of “improving” can be quite varied.

Video courtesy of Dennis Perry at The Right Equity Release.
Home improvements

As we get older, our physical needs may change. “Improving” the house can include things such as adding an extension so that you do not need to use the stairs, converting the bathroom to a wetroom in order to make bathing easier, or it may be that the whole house can be modified in order to make it friendly to any disability. If this is the reason, then the first step is to find out the cost of what you want and make that figure the cornerstone of your enquiries into whether an Equity Release plan is viable.

Clearing debts or an interest only mortgage

Once you have retired, it is almost certain that your income has fallen and the amount you have to spend on fixed expenditure rises as a percentage of the income you now have. This fixed expenditure might include mortgage or other debt related costs such as personal loans or credit cards. Raising a lump sum to clear these will free up your monthly income and generally raise your standard of living. It is important though that you look at the figures involved carefully. Taking an Equity Release plan for this purpose involves making a full and honest appraisal of your financial position and a realistic assessment as to whether taking the plan is going to solve your problem. A situation that often arises is where an interest only mortgage is coming to the end of its term and there is no repayment vehicle in place. The lender will expect the loan to be repaid at the stated date otherwise there is the risk of the property having to be sold in order to clear the mortgage. An Equity Release plan is something that should definitely be considered in this situation and more than ever, professional and experienced advice needs to be sought.

Helping the children

It might be that you, as the homeowner, are quite happy with your lot and you do not need a lump sum for your own benefit. Instead, you might like the idea of giving a lump sum to someone in your family so that their lot is improved. Giving a deposit for a house, clearing debts, and helping with university costs have all been common reasons for taking equity release plans and, in the main, a good outcome has resulted. However, if you are using the money to help a family member then you have to realise that this help may result in other members of your family not inheriting as much as they would have otherwise received.

Do something you have always wanted to do!

One of the first Equity Release plans I ever arranged was for a chap in his early seventies, widowed for some years and with no immediate family. He lived well within his means, had no debts and on the face of it was quite comfortable. However, he had held an ambition all his life to go to Las Vegas and, shall we say, experience something he had only seen in films. I remember that we put down the reason for the plan as a straightforward “holiday”. I met him again about a year later by chance in the street. To say he was happy with his decision was an understatement! I’m not suggesting that we all blow our hard earned on trips to Las Vegas, but I do know that many of us have a “once in a lifetime” something that we would like to do or somewhere we would like to go. Taking an Equity Release plan may be the key to achieving that ambition.

Next: Is My Home Safe?

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What Regulations are in Place to Protect the Consumer.

Consumer protection is paramount for financial products, Equity Release plans are no exception and given the fact that it is a product that affects the quality of life in retirement these regulations are both stringent and enthusiastically enforced.

The Financial Conduct Authority (FCA) is the body that is responsible for these regulations which cover all aspects of Equity Release, this includes;

  • The actual products and product providers themselves
  • How equity Release is advertised
  • The conduct of the Equity Release providers
  • Ensuring those that advise on Equity Release are qualified to a specified standard
  • Making sure all the paperwork used meets appropriate standards

The FCA register is a fully searchable public website that allows you to easily check that the company or individual advising you is qualified to do so.

Video courtesy of Dennis Perry at The Right Equity Release.

Although not a regulator the Equity Release Council is the professional body for all those involved in the Equity release sector. as well as being open to advisers, solicitors and others involved in the product arranging process, it is committed to maintaining high standards of integrity and is an excellent resource for anyone wanting to know more about Equity Release. As with the FCA register, it is easy to search for members directly on the site.

Next: What Type Of Equity Plans Are available To Me?

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Is My Home Safe?

Is My Home at Risk?

This, above any other question, is pretty much the the first to be asked and the one that reflects the biggest concern. Historically, Equity Release plans gained a poor reputation, and rightly so, as they offered poor value and lacked appropriate safeguards. Modern Equity Release plans are regulated by the Financial Conduct Authority (FCA) for the products themselves, the product providers, and those people that give advice and arrange the products.

A cornerstone of the rules is that as an Equity Release plan holder you retain the right to live in the house until either your death or you move permanently into Long Term Care.

Video courtesy of Dennis Perry at The Right Equity Release.

It is likely that your first steps into finding out about Equity Release will be an initial discussion with a professional adviser. Virtually the first piece of paper they will give you will include information about how you are safeguarded in your own home. Subsequent paperwork from a proposed provider will also state the same thing and your solicitor will also advise you of the same safeguards.

Although there are good reasons for not taking an Equity Release plan, lack of consumer protection is not one of them!

Next: What Regulations Are In Place To Protect Me?

 

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How Do I Pay Back the Money from an Equity Release Scheme?

 

An Equity Release plan is a type of mortgage, and by that I mean it is a straightforward loan made to a homeowner, using the home as security for that loan. What makes an Equity Release plan a little different is that the borrowers are generally over retirement age and no monthly repayments are necessary. Typically, though not at all in every case, the interest due is added to the amount that is borrowed rather than being paid on a monthly basis. This is sometimes called “Rolling up” the interest because over time the amount that eventually needs to be repaid will include the original amount borrowed plus all the interest payments which will include interest charged on previous interest charges. Due to the nature of the schemes, you will receive a schedule which will show how the debt will grow over time, so you (or your family) should never be faced with any unpleasant surprises.

These plans are designed to be repaid in two circumstances; death or a permanent move into Long Term Care.

Equity Release plans can be taken by an individual or jointly. With regard to an individual plan, if the planholder dies, it falls to that person’s beneficiaries to sell the property and, like any mortgage, the outstanding debt is settled before the balance of the sale is paid to the homeowners estate. In the case of joint borrowers, the situation is exactly the same but the property is not sold until the second of the joint owners passes away. This is because of the guarantees that are in place ensuring that a borrower can remain in the property until their death or move into Long Term Care.

Moving into Long term care presents a slightly different situation. In the case of an individual borrower, then it is quite straightforward. A permanent move into Long Term Care is made, the house is sold and the loan repaid. In the case of joint borrowers, if one partner moves into Long Term Care and the remaining partner remains in the property, then nothing happens. If the partner in Long Term Care passes away first, then, again, nothing happens. If the remaining partner passes away, or moves into Long term care themselves, then the property will be sold and the loan repaid.

Video courtesy of Dennis Perry at The Right Equity Release.

Although these situations are pretty straightforward, they do touch upon wider, and possibly more complex, situations. The whole area of looking after the affairs of someone that is in Care, or potentially going into Long Term Care, is one that needs careful discussion with family and, almost certainly, a solicitor. Good advice from a solicitor at outset can and will save considerable work later. An experienced Equity Release adviser can be valuable in advising the kind of questions you will need to ask and explaining some of the situations that can arise.

Next: Can I Repay An Equity Release Plan Early?

 

 

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Gap Year Insurance

Why Insuring for a Gap Year is a little different…

Visiting far away places on a shoestring is a popular way to fill a year before going to uni, but it also can include shorter trips of just a few weeks and is not just for the young. Many older people take gap years before starting their careers as well as mid career. The trip itself can be structured with every destination planned or an ad hoc journey with no real idea of the next place to go until the last minute. Working or volunteering may be a part of the plans.

All these factors have an impact in the type of travel insurance that is taken. If volunteering is not mentioned when taking out cover and teaching in Botswana for a few weeks is the reason for the trip, the the insurance company can void the whole policy.

What you MUST tell the insurer!

  • WHERE YOU ARE GOING

This is not as obvious as it first looks. While a lot of gap year trips are planned and have an itinerary, many do not. It may be that backpacking around Cambodia lost its magic earlier than expected and an impulse excursion to Thailand suddenly happens. Fortunately, for insurance purposes, the world is divided into regions. Typically this works out as UK, Europe and worldwide (including and excluding North America). When telling the insurer where you are going, you must be as precise as possible, but if you are not sure of the exact countries you must make sure you get the region correct.

  • HOW LONG ARE YOU GOING FOR

You will probably have a fixed time planned, but it is always worthwhile adding a few days for insurance purposes. This then takes into account any last minute changes of plans or unexpected delays. Trying to extend cover once it has run out is extremely difficult. Almost all insurers will only commence cover before your trip. Once you are out of the UK, setting up travel insurance is nigh on impossible.

  • WHAT ARE YOU GOING TO DO ON THE TRIP

Working, volunteering, extreme (and not so extreme) sports are all examples of things that you must tell your insurer. Not telling them can, and probably will, invalidate the whole policy. On a darker note, be aware that like any insurance policy, cover will be withdrawn for any insured event if you can be shown to be under the influence of alcohol, non prescribed drugs or have broken any of the local laws.

  • ANY MEDICAL PROBLEMS

    In addition to fully disclosing any existing medical issues, you must have any recommended jabs for the country or region you are visiting. If you don’t, you run the risk of the insurer not paying out if you contract a disease you could have been inoculated against. Always talk to you GP about injections well before your trip.

In a previous post, I did a “Top Ten Tips” These are worth a visit, but here are a few more practical tips for gap years:

  1. Talk to a broker or insurer that specialises in this type of cover.
  2. Read all the small print. Pay particular attention to the exclusions, excesses, medical cover limits and property cover limits.
  3. Check if cameras and phones etc.. are already covered worldwide by your existing home insurance.
  4. Write down (and leave behind!) the serial numbers of all gadgets. Back up any information on them before you leave.
  5. Give the insurer authority to speak with someone other than you. If you are unable to talk to them for any reason, it makes life so much easier.
  6. Photograph the insurance documents so they can be easily accessed on your phone. It’s a good idea to take a small, cheap phone as a spare. in case yours is lost, damaged or stolen.
  7. Leave a copy of the insurance documents at home with someone.
  8. Write down your most important contact numbers.

 

Shop Around to Save Money on Your Bills

ITV News has published an article showing the rise in household bills increasing by over £200 in the last year. Average costs are shown as:

Average cost of bills for 2016 / 2015:

  • Energy: £1,383.59 / £1,289.36
  • Home: £140.58 / £135.46
  • Car: £691.85 / £595.06
  • Total: £2,216.02 / £2,019.88

These figures almost certainly include people who should be shopping around but are not. Last year, a member of my family paid £320 for her car insurance after searching around the comparison sites, the renewal came in this week at £350. Another search of the comparison sites found a quote for £148. That company was way off the mark last year, but they have obviously changed their pricing policy since (and yes…the cover is the same).

Read the full ITV article here, it’s not comfortable reading but very important reading, especially if it kicks you into shopping around. make 2017 the year when you take back a little control of your spending!