Are There Any Alternatives to Equity Release?

Malcolm

Hi. It's Malcolm, and I'm joined by my colleague, Dan, the Head of Later Life Lending here at UK moneyman, and today, we're gonna be talking about some of the alternatives to equity release, by way of a recent case study.

So Dan, we had a client approach us and needed some adaptations to their house. So do you wanna tell us what they've done before they reached out to us?

Dan

Yeah. Generally speaking, if someone approached us looking for adaptations, our first port of call would be to refer them to social services, to see whether they can get an assessment, see whether they can get some local authority grant funding or assistance in that way.

These clients had already gone that road. Now the lady needs help because she's had a hip replacement that's gone badly. She's probably as good as she's gonna get now. And she had the assessment, and because she can still manage the stairs even though it causes her some pain and their income levels, they've been assessed as being fully self funding.

So there was no support available for them apart from a recommendation of what they needed to put in place by social services.

They came to us needing somewhere around about forty thousand pounds for stairlift, adaptations for a wet room, some general work around the house, and also the ladies passion has always been the garden and they wanted to create a ramp out into the garden and some landscaping to make the garden more accessible for her.

But that is what they were gonna sacrifice for the rest of the work because they you know, didn't want to raise any more than necessary because they wanted to make sure they still left an inheritance for their family.

Malcolm

So they did the right thing then in terms of approaching local authorities in the first instance. I suppose it's not unusual, perhaps, for these applications to be declined?

Dan

No. There's very fine tolerances. There's always the matter of opinion, what the assessment officer feels that someone is capable of and what they're likely to be capable of in the future. Their income was just over the threshold that would have triggered more support. So when they came to us, we talked through the implications of equity release and how that might work.

But also, I agreed to research some other alternatives for them. I got in touch with the charity that I'd worked with before independence at home. They look to fill some of the gaps that people fall through in terms of local authority funding. That's in turn led to an internal referral onto the Red Cross who are also prepared to to offer some help.

And the upshot is that the property is getting surveyed this week for those adaptations to be put in place. The majority will be grant funded. So the clients will have the stairlift. They'll have the the wet room. And they're now in a position whereby they can still take a small equity release, to do the ramp into the garden, to do hard landscaping so that she can still get out there, do a bit of gardening as she is to keep fit, to enjoy her hobby.

But we're talking more about raising fifteen thousand to twenty thousand pound on equity release, which they can afford to repay over time rather than the forty plus that wouldn't have been possible for them.

Malcolm

I mean, that that's really interesting, isn't it?

And in terms of when after that customer being declined for the local authority grant, what was it? What's a typical next step? Did they automatically just reach out for an equity release because they think that's the only option that's open to them at that point in time?

Dan

Yes. Some local authorities will talk to them about deferred payment, where the local authority will fund from the work but put a charge against the property. That's really something that that doesn't tend to get talked about as much as it should. People tend not to become aware of it.

Some people don't like the idea of it. Some people would like to maintain the control of of taking a loan, which still has a charge against the property, but it's something they're in control of. They have the opportunity to make payments to stop the effects of compound interest and so forth. But yes, generally speaking, if the local authority say that they won't fund, then the client is left to raise the money on their own.

And for someone who doesn't have savings and has maybe just enough to be over the technical threshold, you still don't have the disposable income to come up with three thousand, four thousand pounds for a stairlift or however much a wet room costs seven or eight thousand pounds in some cases. So people are either forced down the route of taking personal loan, which is very expensive over a term or not having the work done.

Some people choose to sell up and move into sheltered accommodation. For some people, that is a viable alternative. You know, maybe it's something that they've been thinking about for some time, and that can be facilitated as part of the process. But, you know, a lot of people want to stay in their own home. And where funding is available, that should be explored before equity release is put in place.

Malcolm

So these particular applicants were sort of the young end of the equity release weren't. They were sort of sixty. Early sixties. So what kind of impacts would this have on them financially taking out such a significantly less amount of of equity release, in terms of that compound interest?

Dan

Well, I mean, for younger borrowers, particularly if you're borrowing the towards the higher end of what you can achieve, which these - this couple would have been. The rates are still really quite high. So the effect of compound interest would have meant the loan doubling in maybe twelve years, something like that. Now they could have afforded to make summary payments, and they wanted to make summary payments.

But by meeting some of the needs through grant funding and charity funding. The amount that they now have to pay on equity release is at a much lower interest rate. We're talking about rates in the mid four percent which currently are very competitive. The amount is a lot lower and they can afford to pay the ten percent per annum of what they've borrowed, which means that not only are they servicing the interest, but they're bringing down the capital amount as well.

So after, say, twelve or thirteen years, they stand a good chance of being in a position to pay off the rest of it and not have a not have an equity release loan at all.

Malcolm

And then potentially then protecting a future inheritance or something on that nature.

Dan

Absolutely. Their priority is for the house to pass as free of debt as possible to their beneficiaries.

Malcolm

Okay. Interesting. So then hopefully, we'll have more cases like this talk about over the coming weeks and months. But here's a really good example of the client doing their own research online, assuming that the only option is a large equity release with Dan's help, professional advice, they ended up taking a far lower amount and the impact is they’ll pay back far less in terms of the compound interest, over a long time because these clients may well live into their eighties and nineties, and that impact is significant.

So a great job here and a really good example, exploring all the other options before finalizing on a smaller amount of an equity release mortgage in this in this example.