Equity Release An easy to understand guide just for you

Transcription

1 TRuE BEARing ChARTEREd e Right direction for Financial Advice Equity Release An easy to understand guide just for you True Bearing Chartered 2 Buckshaw Court, East Terrace Business Park Euxton Lane, Euxton, Chorley, Lancashire. PR7 6TB Tel: contact@truebearing.co.uk

2 Equity Release A Buyers Guide PART A: Questions and Answers What is equity release? Equity release is the term used to describe the different ways in which you can benefit from the value of your home without having to move out of it. You can either take out a loan secured on your home, or sell part, or all, of your home to give you a regular income or a lump sum, or both. Why is it becoming so popular? With increasing pressures on retirement savings and income, for most people the home they live in represents their major capital investment. As they grow older, many owner-occupiers find themselves in the frustrating position of having a very valuable asset on the one hand, and a restricted income on the other. using the capital value of the house, whilst continuing to live in it, can help to ease this situation. What will i have to pay each month? You will have a choice, depending on the exact plan you use, whether to make monthly payments against the amount you have released (just like a normal mortgage); or you can repay nothing until your house is sold when you die, or move out. how does it work? ere are two main types of schemes lifetime mortgages and home reversions. With a lifetime mortgage, you take out a loan secured on your home and repay the loan from the proceeds of the sale of your home when you die, or if you move out of it. Critically you continue to own your home. With home reversions you sell a part or all of your home to someone else, usually a mortgage lender, and in return you receive a regular income or a cash lump sum and continue to live in your home for as long as possible. e home is sold when you die, or if you move out of it. So who owns my house? With a lifetime mortgage, you do. With a home reversion, all or a part of your home belongs to someone else.

3 Equity Release A Buyers Guide PART A: Questions and Answers Can i have a capital lump sum or can i have income? ere are many different schemes, some of which can provide a cash lump sum, some a regular income, or some can even provide a mixture of both. What can i use the money for? Anything you want. You may wish to spend some improving/maintaining your home. You may wish to have a really good holiday. You may want to pay privately for an operation. You may wish to help your children or grandchildren. You may wish to look at ways to avoid paying inheritance tax. e list is endless, and the choice is yours. Who is qualified to advise me? As from April 1st 2013, Lifetime Mortgages are a regulated activity under the Financial Conduct Authority. is means that advisers and lenders must be authorised and regulated under the Financial Conduct Authority (FCA). home Reversion Plans are also regulated. You should ensure that the person who gives you the advice is licensed and has experience in this area of expertise. At True Bearing, our specialist advisers are both licensed and experienced. Who can have one? You have to be aged at least 55, (if there are two of you, that is the age of the youngest of you) and you have to own your own home. if you still have a mortgage outstanding you may be able to remortgage to one of these products if appropriate. But aren t the schemes all the same? no. ere are currently only 8 lenders offering a variety of schemes (Source Moneyfacts: February 2013). Your adviser should be independent and be able to look at the best scheme to satisfy your requirements. e lenders with the biggest advertising budgets may not necessarily be offering the most appropriate deal for you! At True Bearing we are independent financial advisers and are able to research the whole market to ensure that you receive advice specifically tailored to suit your circumstances.

4 Equity Release A Buyers Guide PART A: Questions and Answers Are there costs involved? Yes. ese will vary depending on the product taken, but will typically include some or all of the following: An arrangement fee; A valuation fee; Legal costs; Early repayment charge; Possible rental charges; An adviser fee. Some of these charges can be added to the loan, so you pay less up front if you wish. All charges must be discussed and confirmed in writing with you before you make any commitment. Will any of these schemes affect the payment of any State Benefits i might receive? Some state benefits are income related and whilst the value of your home is not included in any means-tested assessments, capital released from it would be. At True Bearing we always look at whether any state benefits could be affected as part of the advice process. Will i pay tax? Currently the money you release from your house is tax free. however if it is then invested, any income from the investment may then be taxable. Whether or not you pay tax will depend on your total income. Any tax payable will be income tax. if you take out a mortgage or sell all or part of your home, it will reduce the value of the estate you leave when you die. is may reduce the level of inheritance tax which may be payable (currently applicable to estates valued at in excess 325,000 in the 2013/2014 tax year). At True Bearing we consider the impact of inheritance tax on your estate as part of the advice given on lifetime mortgages.

5 Equity Release A Buyers Guide What happens if i owe more than my home is worth? Most lenders offer a no negative equity guarantee which means that there is a promise that you or any beneficiaries will never have to repay more than the value of your home, no matter what interest is owing. At True Bearing we always ensure that this guarantee is in the product recommended by us. Maintenance costs You will always be responsible for keeping your home in good repair, even if you have sold some, or all, of your home to a home reversion company. if you do not, then the scheme provider may arrange to do necessary repairs, but you will have to pay for them, or the cost be added to the amount you owe. Should i discuss this with my family? it may be a good idea, and we would encourage you to do so. however it is appreciated that you may not wish them to know about your financial affairs and the decision is with you. True Bearing does not release information to anyone unless you ask us to. What happens if i die soon a er taking out one of these schemes? if there are two of you, the scheme continues until the second of you dies. if there is just one of you, the property would need to be sold and the debt repaid, without any penalties incurred, although interest would still be charged up to the time the house is sold. if you have bought an annuity (an income) with the capital raised from the equity release, then the annuity may cease, and it may then turn out to have been poor value. At True Bearing we explain clearly the impact on your personal situation of the scheme recommended for you. What if i or my partner needs long term care? e scheme will carry on unchanged if care is provided in your own home or just one of you has care provided away from home. if you both move into a care home, the scheme will usually end and your home will normally be sold and the debt repaid. Any surplus funds will then belong to you. At True Bearing we have specialist advisers qualified to advise on the best way to pay for long term care fees.

6 Equity Release A Buyers Guide PART A: Questions and Answers Can i lose my home? if you have a secured loan on your property and are making interest only monthly repayments, your home will be at risk if you do not make those payments. if you are not making any repayments, then unless you break the terms of any contracts (for example do not maintain your property) then the answer is no. Can i move home? Most schemes can be transferred if the new home is acceptable to the lender. if you are moving to a lower-value property, you will usually have to repay part of a lifetime mortgage or repay part of a home reversion from the sale proceeds of the original home. if the loan is repaid in full, there may be early repayment charges (usually within the first five years). Can i change my mind? You can always pay off a lifetime mortgage at any time, although there may be early repayment charges. You cannot cancel a home reversion scheme. What if my circumstances change? You might take out one of these schemes whilst single, but may later decide to share your home with someone else. if you wish to transfer the scheme into joint names it may not be possible if that person is younger. e person could move in, but on your death or move into care, that person would not be able to continue to live there. What is ShiP? You may have seen this acronym used. it is an abbreviation for Safe home income Plans. not all providers are members of this organisation, which operates a code of practice. All schemes offered by ShiP members have a no-negative equity guarantee. At True Bearing we will always consider a provider who is a member of the ShiP scheme before any other. ere are more details on ShiP at the end of this leaflet.

7 Equity Release A Buyers Guide PART A: Questions and Answers What happens if i live a long time? if interest is being added to the loan, then the debt will increase. With lifetime mortgages with a shared appreciation element, and home reversions, the amount the scheme provider gets when your home is sold depends on how the value of your home has changed since you started the scheme. if house prices rise sharply then the scheme may turn out to be very expensive. Alternatively, if house prices rise very slowly, or fall, you will have had a good deal. ere is therefore an element of risk involved with any of these schemes. however, your estate will not be liable for any debt beyond the property value, regardless of future house prices. is it right for everyone? no. ere are alternative solutions, some of which may even be better for you such as selling and buying a smaller property; checking with the council to see if you can claim income benefits; claiming state benefits; using your savings or investments. it is really important to seek good, independent advice from someone who is aware of all the alternatives. At True Bearing we focus on offering advice which is relevant to a client s whole situation, not just on one matter. how do i find out more? Contact True Bearing Chartered on for a no obligation appointment at our expense, to discuss whether a lifetime mortgage is right for you. is informative guide explains in simple terms what options are available if you are considering releasing money from your home. Of course such a guide can never be completely definitive. If you would like to discuss in detail how some of these areas may be of help to you please call us to arrange an appointment with one of our financial advisers. You can also obtain a free guide from the Money Advice Service at;

8 TRuE BEARing ChARTEREd e Right direction for Financial Advice Equity Release Schemes True Bearing Chartered 2 Buckshaw Court, East Terrace Business Park Euxton Lane, Euxton, Chorley, Lancashire. PR7 6TB Tel: contact@truebearing.co.uk

9 Equity Release Schemes PART B: An explanation of how the two types of equity release work ere are two methods of extracting some of the wealth that your home represents. Cash Release Plans home Reversion Plans ese schemes allow the over 60s (in some cases over 55s) to release the equity in their homes to augment their income with no restrictions on how the capital raised is used, for example; To augment pension income; To repay outstanding debt; To fund long-term care; To make gi s, with a view to reducing inheritance Tax liability; To enjoy holidays and recreational pursuits; Cash Release Plans (sometimes referred to as a Roll up Mortgage) A loan is taken out on the value of your home. e loan is secured on the property and provides additional monies (lump sum, regular income, or combination) that you can spend or invest as you choose. ere are no monthly repayments to be made on the loan as the interest due rolls up each year and is added to the loan amount. Repayment of the loan and rolled up interest is deferred until your home is sold, usually when you move into long term care, or on death. Some plans offer the additional option of a no-negative equity guarantee. e amount that can be released is typically linked to the borrower s age.

10 Equity Release Schemes PART B: An explanation of how the two types of equity release work home Reversion Plans With this plan you agree to sell a specific percentage of your home to a reversion company, for a fixed amount. e plan provider becomes the owner (or joint owner) of the property, but the plan-holder retains the right to live in the property for the rest of their lifetime. e cash sum that the plan-holder receives from the sale is based on both age and the proportion of the property that is sold. however, even if 100% of the reversionary interest is sold, the capital sum received will only represent a proportion of the current value of the house, because of continuing right to live there. e planholder is still responsible for the upkeep of the property. if only a share in the property is sold, it is possible to sell another share in the property at a latter time, taking advantage if any increase in property values. e payment to the plan-holder is not a loan. ere is no interest or loan to repay. instead, when your home is sold the reversion company receives the same proportion of the sales proceeds. When the last surviving plan-holder dies, the property is sold. if the policy provider took full ownership, it takes the whole of the sale proceeds (including any appreciation in the value of the property). if the policy provider took only a share of the property, it takes that share plus any appreciation in value of the share, the remainder passing to the plan-holders estate. if house prices have risen the company will benefit from this. Home Reversion Plans are regulated by the Financial Conduct Authority. Safe home income Plans (ShiP) Safe home income Plans (ShiP) is a company supported by the leading providers of home income Plans. it was launched in 1991 and is dedicated entirely to the protection of plan-holders and promotion of Safe home income Plans. All participating companies are pledged to observe the ShiP Code Of Practice. e ShiP Code binds these companies to provide a fair, easy to understand and full presentation of their plans. eir website is

11 Equity Release Schemes PART B: An explanation of how the two types of equity release work ShiP Code Of Practice e members of ShiP agree to provide fair, simple and complete presentation of their plans. e benefits, obligations, variables and limitations must be clearly set out in their literature, including costs which the applicant has to bear in setting up the scheme, the position on moving, the tax situation and the effect of changes in house values. e client s legal work will always be performed by the solicitor of his or her choice. in all cases, prior to the completion of the plan the solicitor will be provided with full details of the benefits the clients will receive. e solicitor will be required to sign a certificate to the effect that the scheme has been explained to the client. e ShiP certificate will clearly state the main cost to the householder s assets and estate: e.g. the loan amount repayable on death, whether part or all of the property is being sold. Why True Bearing Chartered? We are specialists in advising the older client, qualified to the highest levels and passionate about giving correct advice and help. is guide contains information about Lifetime Mortgages. To understand the features and risks ask for a personal illustration. is guide is designed for general information only. Individual specific advice should be taken by all individuals from a financial adviser. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be accepted by True Bearing. Whilst True Bearing Chartered has endeavoured to ensure that all the information supplied in the document is factually correct, it accepts no responsibility for the content.

12 Who are True Bearing Chartered? True Bearing is a Chartered independent Financial Advisory Firm, which is authorised and regulated by the Financial Conduct Authority. e Firm celebrates 10 years in business this year. Based in Euxton, Central Lancashire, the Firm's growth has accelerated through a focus on professionalism, excellence, strong mutual business partnerships and creative business thinking. e firm has grown to 43 Advisers, Staff and Management. it has three directors, one of whom, george Critchley, is the Managing director and works full-time on the business. it has a Management Team of three - also including george. giving advice is a team of 19 independent financial advisers and one mortgage adviser. ey are supported by a highly dedicated backoffice team of paraplanners, adviser assistants, administrators and compliance staff. Our vision is to be the premier Chartered Financial Planning firm in the north West. We are one of the north West's most highly qualified and entrepreneurial independent financial advisory firms. Our diverse service portfolio comprises wealth management; pensions and retirement planning; mortgages and protection planning; care fees planning; tax planning and corporate/business planning and advice. e Firm's client base is primarily located throughout the north West and London. True Bearing Chartered are proud to be a local firm with local people's financial interests at the heart of our business. True Bearing Chartered is in touch with regional issues and local concerns. Our Financial Advisers have decades of experience in advising and enlightening their clients. ey passionately believe in face-to-face financial advice. Fundamentally, the Firm cares about their client's future and is committed to assisting clients to achieve their personal financial and business objectives. We became one of the first ifas in the uk to receive the new gold Standard investors in People. All of the True Bearing ifa's are diploma qualified or above with several achieving individual Chartered Status. We also gained Corporate Chartered Status in is puts the firm up in the top 4% of the country's ifas by qualification. True Bearing Chartered 2 Buckshaw Court, East Terrace Business Park Euxton Lane, Euxton, Chorley, Lancashire. PR7 6TB Tel: contact@truebearing.co.uk