Is Equity Release a Good Idea?

Malcolm

So Dan, is equity release a good idea?

Or is it ever a good idea?

Dan

Dan: The answer to that has to be, it depends.

One of the things with equity release that is very different from applying or a normal mortgage is that it is possible, although not a great idea, if you want a normal mortgage to go to a bank and receive advice on their plans.

You know, they can sell their products to you direct without an advice process.

But anyone who's done that will probably know that seeing an advisor is to their advantage.

With equity release, you cannot go directly to the lender.

You have to go through a process of advice and recommendation.

And the reason for this is that if equity release isn't a good idea for you, it can be a very expensive bad idea.

If it's the right thing for you, then it can really help you to achieve the objectives that you want to achieve over later life.

And if it's tailored to fit your circumstances, it can be something that gives people a lot of freedom and a lot of satisfaction.

I mean, the equity release process looks in detail at a client's current circumstances, their finances, how they've got to where they are today, and how they see the next fifteen, twenty, twenty five years of their life going.

I mean, no one's got a crystal ball, but everyone has an idea of how they'd like to see their life.

And what we try to do is tailor the plan that we arranged now so that it's got enough flexibility, enough wiggle room to cope with what might happen later on.

But before we look at recommending a lifetime mortgage, we'll look at a lot of alternatives. So we'll look at conventional lending.

We'll look at unsecured lending, if it's a relatively smaller amount, and someone's got enough income to borrow on a personal loan or something, we'll look at that as an option first because, although the interest rate might be higher on day one, it's less likely to accrue over the whole of their lives.

We'll look at whether downsizing might be an option.

And if it's not an option now, might it be an option in five years?

Is that something you've thought about? Have you talked to your kids about moving in with them?

So all of these things, we look at and consider with a client in-depth to really find out if a lifetime mortgage is a good idea for them.

And sometimes the advice is, no, it's not. But this is the key to finding a trusted and properly qualified advisor because they will tell you yes, in my opinion, this is the right thing for you to do.

No, in my opinion. You know, another alternative would be better for you or better for you at the moment.

Quite often, particularly with younger borrowers, we might do things as a phased plan over a number of years.

It might be a question of a conventional remortgage now and planning to do a lifetime mortgage in a few years' time.

Malcolm

Are we finding then that more mature applicants are carrying unsecured debts into retirement now more so than ever?

Dan

Very much so.

We, you know, we're talking to a lot of people who, their only asset is their property.

And you find that with an income that's reduced after stopping work, that servicing debts or a credit card or personal loan or car plans that sort of thing that were no pressure when when they were working.

There's suddenly a problematic payment in retirement.

Now in terms of things like that, we'll always consider whether a debt management plan or something like that might be more appropriate, something that deals with the debt.

But then in another way, you know, a lifetime mortgage can allow people to get freedom from those payments and still allow them to pay it off in a way that their income allows.

And you quite often get people who retire on a maybe an occupational pension, but they've still got two or three years to go before their state pension kicks in.

And all of those sorts of things we take into account in planning.

Do you really need to do an equity release plan or something else?

An arrangement with creditors, something like that, could be a more appropriate solution to go in the short term.

Malcolm

Malcolm: And do you ever speak to clients who seem to have made no forward plan in terms of alterations in their lifestyle.

Despite the fact that their income might be dropping by fifty percent the day they retire.

Dan

Yes. Yes. I think it's something that some people just don't want to consider.

And, you know, it can come to the point that a lifetime mortgage can be a bit of a lifeline for some people.

But you also get people who have made really adequate preparation, and then illness or disability strikes them in retirement, and they find that they've got to pay for care costs because of the limited availability of funding with local authorities.

They find that suddenly that, you know, that although they're okay for their day to day living, that replacing a car is tricky when, you know, when the car gives out.

So it's not just in the case of people who haven't made preparation.

We also see people who have They've very careful.

They've paid into private pension, things like that.

They've got a reasonable income in retirement.

But just not the sort of income that can provide the lump sum that they might need for a specific life event that was not foreseen.

Malcolm

Touching there on the cost of care.

I think it's been a bit of an interesting one for the last ten or twenty years for some people who have made the efforts to plan ahead for pensions and plan for the retirement, only to see their health deteriorate and for those things to quickly be eroded by the cost of care.

So do you ever get clients inquiring kind of pre care to sort of in some way, kind of, protect the hard earned savings that they have accumulated ahead of that event?

Dan

We do. It's becoming less and less because the sort of policies that can mitigate those costs are also becoming rarer.

The number of advisors who can advise on them is is becoming fewer.

But we would always refer someone onto an independent financial advisor who can advise specifically around care costs.

Someone from the society of later life advisors, that specialise in that and have higher qualifications in that area, and we would work closely alongside them to provide the underlying funding using a lifetime mortgage or something similar to facilitate those plans.

Malcolm

And I suppose some people kind of maybe leave it a bit too late don’t they, in terms of that future planning and if the cost of that care is on the immediate horizon, then clearly, the providers are gonna take issue with that aren’t they?

Dan

Well, they can do. Yes. Yes.

They can do. I mean, one of the benefits that's become almost universal with lifetime mortgages now is the flexibility that's built into plans, in the event of the client or one partner if it's a couple, going into care, or in some cases even needing long term care in the home. In terms of going into care, yeah, that they have a period of three years where they are not obliged to pay early repayment charges if they sell a house.

So although it gives us the opportunity to potentially raise funds to pay for care or to top up care, also, if the clients decide that no you know, one partner's gone into care, the other one doesn't want to stay in the house, then they've generally got the freedom to sell the house with no penalties within that three year time frame.

Malcolm

And are we still finding instances where local authorities can challenge through the arrangements that clients have tried to put in place?

Dan

Yes. Certainly. If the intention, if the local authority can establish that the intention was to commit,

I suppose, what you call, deprivation of assets, then yes, yes, the disposal of property or assets can be reversed in extreme circumstances.

But you know, you generally find that people are are wanting, their intention is to do the right thing.

And if that is the clear intention and it has the unintended side effect of not leaving enough money for care fees, it's a little bit more difficult for the local authority to challenge that.

Malcolm

Good, useful info. Thank you, Dan.

Dan

Thank you.