Michael Knight’s Blog

1. What is it?

A scheme designed to allow older homeowners a way to ‘release’ money from their homes to spend as they wish without having to sell or move.

2. Are there different schemes?

There are two main types; lifetime mortgages and home reversion plans. Both are regulated by government watchdog, the Financial Services Authority. 

3. Home Reversion

This plan involves selling all or part of your home, at a substantial discount on its market value, to a third party for a lump sum or regular income. In return, you have the right to remain living there as long as you wish. When the property is sold, usually after your death, the reversion company receives its share of the property, including any increase in value from the sale proceeds.

4. Lifetime Mortgage

Currently the most popular way in the UK of unlocking cash from your home - letting you borrow a set sum against its value. You can then continue to live there and pay no interest during your lifetime. Instead, the interest is ‘rolled up’ and added to the loan, which is paid off from the proceeds when the house is sold, normally when you die or move into residential care.

5. Flexibility

Cash released by a lifetime mortgage is usually in the form of one lump sum. Newer, flexible and increasingly popular products such as Prudential’s Lifetime Mortgage allow you to take out money as and when you need it, which could reduce the total interest owed when the house is sold. This facility is subject to maximum limits and under exceptional circumstances, could be restricted.

6. Any Requirements?

Yes. To be eligible for a lifetime mortgage, you normally need to be over 55 and have paid off most or all of your mortgage. You may need to pay valuation and legal fees, so ask about all charges before committing. Other eligibility criteria apply.

7. Right for you?

Equity release schemes may not be suitable for everyone. They may for example, affect your eligibility for certain state benefits, your tax position and some options when selling your home or moving. (See point 10)

8. Any other options?

Before taking out a plan, consider other options for meeting your financial needs, such as releasing value in your home by moving to a smaller or lower-value property or using other assets you may have to help fund your retirement.

9. Think SHIP

The equity release industry is now fully regulated but it’s worth considering whether a company subscribes to Safe Home Income Plan’s (SHIP) code of practice. Members agree to abide by a voluntary code of practice designed to safeguard homeowners.

10. Talk to someone

Seek financial advice if you’re interested in equity release, but still have questions you’d like answered. Discuss your plans with your family too, as any scheme will reduce the amount of money you can leave as an inheritance. At Michael Knight Mortgages, I am fully qualified to discuss this very sensitive area with you. Why not call on 0845 029 9162 or email michael@michaelknightmortgages.com

Equity Release can have an important role to play in pension planning. As all good financial advisers know, putting money into a pension fund is often one of the most tax efficient savings potentially available. With higher rate tax relief at 40%, the more that one can put into a pension fund the better.

The problem for many people though , is that while they have potential capacity to put money into a pension fund, having significantly less than the maximum amount currently of £1.6m allowed, they cannot afford to make cash contributions.

For these homeowners who are aged over 55 and are still earning. equity release can be a very tax efficient solution.

The following example shows how this can work in practise:

A homeowner aged 60, earns £100,000pa, has limited savings ability and owns a house worth £1,000,000. The home owner would like to retire in 5 years time but has insufficient pension.

The homeowner takes a lifetime mortgage plan to fund contributions to a pension plan. If they do not already have a pension plan, this may entail setting up a SIPP.

The client makes contributions totalling £200,000 over 5 years to the pension plan. The pension fund claims basic tax relief each year , and after 5 years growth at the risk free rate of 5.0% and allowing for typical fund expenses, the fund is worth £266,000.

The homowner funds the contributions by borrowing in total £150,000 on the lifetime mortgage and by claiming the higher rate tax relief on the pension contributions. After 5 years, the mortgage balance including interest rolling up at 6.49% is £174,000

Netting out the two figures, the homeowner on retirement has a pension fund which is worth £92,000 more than the value of the loan.

In order to evaluate whether or not this route may be appropriate, it is essential you work with suitably qualified pensions and equity release advisers. Happily, at Michael Knight Mortgages I have linked with MKB IFAs in Earls Barton to offer a complete service in this respect. Naturally this is a very complex area so if you are interested in finding out more, call me on 0845 029 1962 or michael@michaelknightmortgages.com

Equity Release may in the past have been as a last resort, but it is now regarded as a real opportunity for parents to help children while they are still advised.

As has been widely reported in the press many children are either struggling to get on the property ladder or, if they are fortunate enough to have been able to purchase a property, are saddled with large debts. In the past they might have relied on their inheritance to help them onto the property ladder or to clear debt. However, as people are living for longer and as a result the age at which many people might expect to inherit money from their parents has increased significantly.

Parents who own their own home can use equity release to free-up capital locked in their home, to give their children, thereby helping them to get on the property ladder or clear debt. Rather than wait until parents pass away to inherit, children can get the benefit of their inheritance early and parents can have the pleasure of seeing them enjoy it.

Equity Release schemes in the past have had a rather dubious reputation. However, today the reality is very different.

The regulation of these products by the Financial Services Authority gives clients significant protection. In addition, there is SHIP (Safe Home Income Plans) www.ship-ltd.org , an industry association which insists their members MUST include the following assurances:

• a no-negative equity guarantee
• guaranteed tenancy for life

All advisers specialising in equity release must hold additional qualifications before being able to give advice in this complex area. If you have any questions or qureries about equity release, call me now on 0845 029 1962 or mail michael@michaelknightmortgages.com

In the past, equity release may have been seen as a last resort but it is now regarded as a real opportunity for people to take tax planning steps that would not otherwise be available.

While the recent changes to inheritance tax may have reduced the number of estates liable to IHT, there are still a significant number of households that are potentially liable to pay the tax. For these clients, Equity Release offers a potentially attractive option.

Equity Release will not be appropriate for every client but it can, in the corrct circumstances, be a valuable part of and IHT-saving strategy. The first stage will always be to consider the more obvious forms of planning. Fpr example, it is essential that clients have wills in place that make maximum use of tax-planning opportunites, particularly where business property is concerned.In addition, all IHT exemptions should be fully utilised and, where a client has suplus free assets, outright gifts (PETs or Potentially Exempt Transfers in IHT talk!) should be made if possible.

This is an involved area and I have linked with a well-reputed local IFA which specialises in IHT planning. Utilising our experience and skills will ensure you have the best of advice and the most tax efficient solution for your needs.

All Equity Release products offered by Michael Knight Mortgages offer great peace of mind for my clients as they have a no negative equity guarantee and you are certain of being able to remain in your home until death or moving into long-term care. Check the following site www.ship-ltd.org which is the body that looks after the interests of equity release providers.

Call me now on 0845 029 1962 or mail at michael@michaelknightmortgages.com for more information or arrange for an informal discussion.

Some frequently asked questions for your information:

Can we move house? 

Most equity release schemes allow you to do so if the new home still meets their criteria.
What if our new house is lower priced than our existing house? 

You may be required to repay some, or where the property is of a much lower value, all, of the loan and the accumulated interest, if you have a lifetime mortgage and move to a lower value property. 

The plan provider will usually retain the same percentage of your new home if you have a home reversion plan, with the leftover cash from the sale of the old property being split between you and the provider. 
Can I improve / enlarge my house? 

You will need their approval before you go ahead, but most equity release schemes will agree to hoe improvements. 
Do I have to buy another house one if I sell mine?

Equity Release Schemes are designed to end when the property is sold, so no. You simply repay the loan from the proceeds for a lifetime mortgage (or pay the percentage over to the reversion company for a home reversion plan). The rest of the sale proceeds are yours and there is no further commitment.

What happens if there is a change of ownership?

Following a marriage, divorce or remarriage, part of the equity you have released may need to be repaid, if there is a change of ownership. A new, additional owner may not have the right to stay in the property after the death of the person who took out the equity release scheme. The rules vary between different schemes, so please make sure you understand the details

Equity Release has had a bad press in the past but  it can be a good solution for the right person. With the safeguards in place, such as the ‘no negative equity guarantee’ and ‘guaranteed tenure for life’ plus options such as drawing down capital on a needs basis and / or paying the interest on the mortgage, being able to leave an inheritance while having a more comfortable lifestyle is possible.

Why not call me on 0845 029 1962 or mail michael@releasequity.com for more information?

You have probably started to get a good handle on things, so today I am going to give you some rather more detailed information and question to ask your adviser.

1. Are there any circumstances in which you might lose your house? You need to keep undisputed legal possession of your home for your entire lifetime - on a “single life” basis if you’re on your own or on a “joint life” basis if you have a partner.
2. In the case of couples, does the legal agreement continue for the lifetime of the surviving partner? Does anything have to happen on the first death, such as repayment of the loan in part or in full?
3. Does the equity release provide an income that increases to match inflation? Some will offer this, but it may cost more.
4. Is the plan flexible enough that you can move if you become ill or unable to cope with living in the property? Can you get an additional sum to help with moving costs or with legal fees?  
5. What are your obligations with respect to the property, such as maintenance or insurance, and what are the consequences if you fail to meet them?
6. If your home is owned by a family trust, will this affect the equity release?  
7. If you are receiving income-tested benefits from the government, such as the Community Services Card or rest home subsidies for a partner in care, how will the equity release affect my benefits?

If you have any queries, please call me on 0845 029 1962 or email michael@releasequity.com

You might have found an advisor through a recommendation. But just how good is this advisor that is sitting in front of you? I have worked in the Financial Services industry for over 20 years and there are somethings I would suggest you cover at your first meeting. I would recommend bringing these things up once the adviser has been through his or her initial introduction as they will normally give you an opportunity to ask anything that you wish.

• How do I know that the advice you will give is impartial? Are you a Tied, Multi-Tied or Whole of market adviser
• What are your qualifications, how long have you worked in the industry?
• Which company do you work for and what are their contact details?
• How are you and your company’s fees paid?
• Will you give comparisons of different companies, costs and reasons for the products being offered and the ones that you are not recommending?
• How do you go about researching the advice that you will give and the companies that you will recommend?
• Do you hold Competent Advisor Status?

OK, this is just the start as you will want to spend some time figuring out if you like this person and if they come across as trustworthy. The final question, number 7, is important and not one many consumers know about. Basically, it means that the advisor has been through all of the training required by their employer to be granted the ability to advise people in their own right.

Please call me on 0845 029 1962 if you have any queries or visit my website at www.releasequity.com

1. Involve your Family

Talk through all the issues before you taking out Equity Release. Using the equity in your home affects the amount you will be able to leave as an inheritance and it is best to let everyone know well in advance.

2. Take your Time

Don’t feel that you have to rush into it. Many people who end up opting for equity release take a long time to mull over the decision. A good adviser should put you at your ease, exercise patience and not put any pressure on you.

3. Expect a Valuation

Usually, your lender will arrange for an independent valuer to assess what your home is worth - the valuation figure will not necessarily correspond with an estate agent’s estimate, which may be higher. Once your home is valued, your lender can establish the maximum loan available to you.

4. Gather the Right Documents

You will need to provide birth and marriage certificates and evidence of who you are when you apply. You’ll also need the details of your home buildings insurance. 

Please call me on 0845 029 1962 if you have any queries or visit my website at www.releasequity.com

The Financial Services Authority is the consumer’s champion in Financial Services. Do you really know how they operate, though?

They really do have a great deal of power over Financial Services companies. They can close them down, suspend, fine them, and make them jump through all sorts of hoops. The processes and endless paperwork that companies produce are largely there because the FSA is trying to protect you.

They are certainly not trying to look after the interests of the companies providing advice. You, the consumer, come first. Whilst this may make life uncomfortable those who give advice, you can rest assured that your well being is at the forefront of the FSA’s intentions.

As an adviser who is registered and regulated by the FSA, you can be assured you wil receive the highest level of protection possible. Please call me on 0845 029 1962 if you have any queries or visit www.releasequity.com for more information.

All members of SHIP are regulated by the Financial Services Authority who have only the Consumers’ interest in mind. The FSA complaints procedure exists if you are unhappy about anything and it includes strict deadlines for action, such as a response within 5 working days upon receipt of a complaint. 

You must go through the plan provider’s own complaints procedure first but as these companies are regulated by the FSA I can assure you that complaints will be taken very seriously and I would be amazed if there was anything other than a very prompt response and a swift follow up to any letter of complaint from you. 

In the event that you are unhappy with the outcome from the internal complaints procedure then you have the right to go to the Financial Services Ombudsman for a ruling. Needless to say that top of your checklist should be that anyone you deal with should be a member of SHIP.

Please call me on 0845 029 1962 if you have any queries or visit www.releasequity.com for more information about my services.