Michael Knight’s Blog

You are researching all about Equity Release and Home Income Plans and probably want to know what safeguards are there to protect your interests. You have probably come across Safe Home Income Plans,also known as SHIP, but who are they and what do they do?

Well, SHIP is a company that was set up in 1991 by the main providers of home income plans and equity release plans. The idea is that SHIP provides protection to planholders and it does this by offering certain standards which must be adopted by product providers if they are to be included in SHIP.

The companies must offer a fair and easy to understand presentation of their products which must also fully explain their plans. The member firms must conduct business in adherence to the SHIP Code of Conduct.

Briefly this means:

• Literature must clearly set out costs, benefits and obligations as well as limitations and any variables.
• Presentations must be clear, simple and complete.
• Legal work for the customer must be carried out by a solicitor of the client’s own choosing. The Lawyer must issue a signed certificate saying that the plan has been explained to the client.
• A Certificate will be issued clearly giving the main cost to the home owner’s assets.
• A plan can only use the SHIP logo if the provider gives a guarantee that the loan will never exceed the value of the house. This is known as a “no negative equity guarantee.”

The members of SHIP are:

• Mortgage Express
• Bradford & Bingley
• Bridgewater Equity Release
• Bristol & West
• Coventry Building Society
• Dunfermline Building Society
• Hodge Lifetime
• Home & Capital
• In Retirement Services
• Just Retirement
• LV=
• more 2 life
• National Counties Building Society
• New Life
• Northern Rock
• Norwich Union Equity Release
• Partnership Home
• Prudential
• Retirement Plus
• Saffron Building Society
• Standard Life Bank
• Stonehaven
• Stroud & Swindon Building Society

More about SHIP in my next post. Please call me on 0845 029 1962 if you have any queries or visit www.releasequity.com

People often say that here are basically two types of financial advisor; whole of market or a tied advisor. However, this really is an oversimplification and things have actually changed recently. There are more than just two types of advisors, now, as there are also “multi-tied” advisors who have several product providers that they can recommend. 
 
A whole of market adviser can choose from the whole of the market place when giving you advice. They are usually able to work in a wider variety of areas than a tied advisor and can select products from any supplier they deem suitable. Tied advisors usually work for a company, such as a bank or the product provider itself, and will recommend only products that their company sells. This may not be the most competitive one in the market place and they may even not be able to advise you about your area of need at all. For instance, a bank set up to give mainly investment advice is unlikely to be able to help you buy an annuity when your pension matures.

It becomes much more complex than this, though, because Financial Advisors are finding it harder to be a “generalist” who can help anyone with just about anything. More often, they tend to concentrate on specific areas rather than trying to be a jack of all trades. There are no less than 48 Financial Advisor Qualifications comprising of various letters, numbers and titles from a variety of Institutions and Societies.

Equity Release Advisors are different again, in some respects, because they require specialist qualifications. They can be a Tied or a  Whole of Market Adviser and I would suggest that you will get the greatest choice of products from the  latter.

SHIP has a handy qualification guide that tells you what exams people need to be able to advise on different products. See www.ship-ltd.org.uk   for a quick guide.

I will publish more information on choosing your adviser in my next post.

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

I always use checklists when making a decision or organising anything. I made a great big spread sheet when arranging our holiday last year and it all went off really well. Here’s my checklist for you regarding Equity Release:

Get independent legal advice. Choose a solicitor experienced in this type of work and make sure that you find him or her easy to understand and trustworthy. Find out how much they will charge and either get a fixed quote or at least an estimate for the work involved.

Communicate with your family. Include your family, especially your children or any beneficiaries, in your decision process. Do this at an early stage so things do not come as a shock to them and they can consider all the  ramifications too. It would be wise to inform anyone in your Will that their inheritance may be reduced and your executors should be informed as well, if possible. 
Get advice from a trustworthy source. Check them out and try to get a recommendation if at all possible. Ask the questions about how many product providers they deal with and how much experience they have in this specialist field.

Consider carefully how to borrow. The easiest way of keeping costs down is to only use Equity Release as much as you need. Work out how much you need very carefully and go for a plan that allows you to draw more funds if needed. This can save a great deal even if you do eventually take the funds.

Don’t choose just on interest rate. There are various ways in which charges are calculated and the rate of interest is only one of them. Also consider questions such as:

• Is the plan covered by SHIP?
• Can you borrow more if needed?
• How about regulation by the FSA?
• What guarantees do you have about retaining the right to live in the property for life? 
• Could you move to a new house if you wished? 

Don’t forget about benefits. Your means tested benefits might be affected if your income and / or cash savings go up. Get to grips with how your benefits will be affected and make a careful equation between that and your overall financial needs.

Consider the alternatives to Equity Release. You could realise assets from elsewhere, move to a smaller, more suitable home, get home improvement grants and make sure that you are getting all of the benefits that you are entitled to. 

There are more things to consider but this is a good starting point. Remember what I said about making a list - start one now and keep adding to it every time a thought crosses your mind and you should start to build a concise list of points to weigh up.

Happily I can help you with all the aspects mentioned above and as a specialist Equity Release adviser, would be delighted to help you. Please call me on 0845 029 1962 if you have any queries or visit my website at www.releasequity.com

According to the Halifax today, average house prices rose by 1.9% in January 2009 long with a slight rise in borrowing. This reverses the fall in December of 1.6%.

It can be dangerous to look at one month in isolation as there can be irrational fluctuations and indeed, prices in the 3 months prior to January compared to previous three months were 5.1% lower.

But, in todays doom and gloom, a bright spark of potential recovery can’t be sniffed at. That and seeing everyone enjoying the snow (if they’re not travelling of course!) means February is already more fun than January!!

If you would like to comment on this article, please call on 0845 029 1962 or mail at michael@michaelknightmortgages.com

This is becoming a more and more common question from many of my clients who’s mortgage deal is coming to an end in 2009 and the value of their home is dropping fast. They are concerned that they may fall into negative equity through no fault of their own. These clients may have bought 3 or 4 years ago and built a decent level of equity over time, maybe 20% to 30% or even more.

This level of equity may have dropped to only 10% but could decrease even further by the end of 2009 putting these clients into negative equity. If you do fall into negative equity, this need not be a problem unless you want or need to move.

The main concern of these clients is whether or not they will have a problem in getting another mortgage when their special deal ends. The truth is that they will not be able to move to another lender or in all liklihood get another special deal from their current lender.

Is that a bad thing?

Reassuringly, this is not a bad thing in the current market. At the end of your special deal, the default action of the lender is to place you on their Standard Variable Rate (SVR) regardless of the loan to value. In years past, this was not a good move as the SVR was uncompetitive. Nowadays though, SVR is generally competitive and has the benefit of no fees or tie-ins so you have all the benefits of low rates and absolute flexibility.

This may change in the future but for now my advice is as follows:

• reduce unsecured debts as much as possible before the end of your special deal to improve your affordability. Lenders are taking affordability more and more seriously when looking at new and existing customers.
• if you have a tracker mortgage and your payments have fallen, try to overpay to reduce the overall level of debt more quickly. This can offset some of the house price drop and improve the range of deals that may be available to you.
• even if you have a good level of equity in your home, the best deals are being offered to those customers who owe less than 60%. House prices are still dropping so it is worthwhile finding out what the current value is and if you are on the borderline, try and reduce the mortgage balance as quickly as possible.
• talk to a good whole of market mortgage broker for some down to earth advice.

To summarise, no action can be the best option with regards to new mortgage deals but you can take some control over your financial future by being prudent and reducing debt levels by as much as possible. It may be boring but if you can do this, you will be in a far stronger position when the economy turns up again - whenever that may be!

If you have any questions or queries about this article, or indeed about other articles you may find in my blog, get in touch and I’ll do my best to help you. Call me on 0845 029 1962 or email michael@michaelknightmortgages.com