How Does Equity Release Work If I Die?

Malcolm

I suppose the expectation in a lot of cases is that the equity release mortgage lifetime mortgage will be repaid upon death of the borrower.

So, how does it actually work when that event comes to pass?

Dan

When we're talking about equity release and lifetime mortgages. You know, it's one of those things that you do have to talk about. It's a lot of end of life situations and planning for that. Now, in the traditional sense, that the equity release mortgage becomes repayable after the death of the last borrower.

Now usually speaking, the house is sold and the lender is repaid the original loan plus any interest that is accrued over time. The rest of the money goes into the borrower's estate. So that's passed on through their will as it would do.

Now, most often it falls to the family to sell the borrower's house, and it's important that those wishes are catered for in the borrower’s will or in the case of if they go into long term care in terms of the power of attorney, lasting power of attorney.

Generally, the lenders will give the beneficiaries or the executives of the deceased’s estate, twelve months to sell the property and to repay the loan. Now, in practice, if it is a slow market, there may be an extension on that.

The twelve months is the standard period of time that the executives have got to manage that site. It doesn't have to be sold, of course, if the family want to raise a mortgage and keep the house and pay off the equity release themselves, they can do that as well.

So, one of the key safeguards relating to this that comes with Equity Release Council membership, is the no negative equity guarantee. Now as a lot of people are concerned about what would happen if the loan and the interest accrued becomes more than the value of the house.

So, if the property prices have crashed and whatever, the no negative equity guarantee essentially means that as long as the property was still the client's main residence, and that it's sold as a fair market value after their death, so it's not discounted or anything like that, it's sold for what it's worth at the time, then the lender will not come to the deceased’s estate or beneficiaries and look for any further money.

If there's a loss, then that's the lender's loss, and that applies after estate agents and solicitor fees have been paid.

Malcolm

Has that always been the case with the negative equity?

Dan

No, no, no. The Equity Release Council is as it was safe in home income plans before it became the Equity Release Council. It's a progressive organization, it's set up to protect the rights of plan holders, but it also drives a lot of innovation in the industry.

A no negative equity guarantee has been one of those very significant things that it's brought in, like rates that are fixed for the life of the loan, caps on any variable rates the ability to protect equity and then downsize and have some protection in that as well.

Malcolm

That sounds like it's been a real positive for the industry, and hopefully that's going to give some people some peace of mind.

Thanks, Dan. Alright.

Dan

Thank you.