Your Guide to Equity Release

Transcription

1 Equity release has enabled me to go on more holidays, purchase a new car and make some major household purchases. The service provided met our financial needs in an efficient and helpful way. John, Sutton Coldfield Your Guide to Equity Release

2 Contents Page Your introduction to equity release 3 What is equity release? 4 Why are people releasing cash from their homes? 5 The two main types of equity release 7 Three good reasons to choose equity release 7 The Equity Release Council 8 Some points you should consider 9 How the Saga Equity Release Advice Service can help 10 Saga Equity Release Plan 11 Some examples showing how equity release can be used 12 Frequently asked questions 14 2

3 Your introduction to equity release Your retirement should give you the freedom to do all of the things in life that you haven t had time for. With advances in modern medicine, we are all living longer meaning that retirement income has to stretch further. Also, in these difficult economic times you may not be able to rely on your pension and savings. Even though you may have planned for your retirement, you may not be in the financial position you had hoped for. As a result, you may not be able to afford to do all the things you dreamed of doing in retirement. The good news is that, despite the ups and downs of the property market, UK house prices are still significantly higher than 10 years ago, with the average home worth tens of thousands of pounds more. Equity release may be able to offer a way to release cash from your home to use for almost anything you choose, without having to move. Our informative guide to equity release explains the main types of plan available and can help you when considering all of the factors involved. Taking out an equity release plan is a major financial decision and having specialist advice is essential. With the Saga Equity Release Advice Service, provided by Just Retirement Solutions Limited (JRS), you can receive expert advice without being charged a fee, whether you proceed or not. This allows you to find out whether equity release may be suitable for you without worrying about the cost. JRS works with a range of carefully selected providers, so you can be assured that the product recommended is best suited to your individual needs. As a member of the Equity Release Council, JRS adheres to a statement of principles which aims to protect customers by offering a number of safeguards and guarantees. You could use equity release to: Pay off any outstanding mortgage Settle any other debts you may have Help your family financially Go on a trip of a lifetime Make some home improvements Make day-to-day life more comfortable. Think carefully before securing other debts against your home. 3

4 What is equity release? The equity in your home is the difference between its current value and any loans, such as a mortgage secured against it. Equity release is a way of unlocking a proportion of the value in exchange for a tax-free cash lump sum. As you have probably invested a lot of time and money into your home over the years, now might be the time to take some money back out. If you and your partner are homeowners aged 55 or over, you could use equity release to help you access cash from the value of your home. As is the case with any other mortgage, the decision to take out an equity release plan is an important one. Your home may well be your main asset, so taking specialist advice from equity release experts such as the Saga Equity Release Advice Service is essential. Am I eligible? To be eligible for equity release, the youngest applicant must be 55 or over, and you must own and occupy a property in the UK that is worth at least 70,000*. If you have an outstanding mortgage or other debts secured against your property, you may still be eligible, however you would need to repay these with some of the money you release. The ownership status (leasehold or freehold), property type and even construction are all factors that will influence which product is most suitable for your needs. The specialist adviser working for you through the Saga Equity Release Advice Service will explain things fully and only recommend products that are right for you and your individual circumstances. How much money can I release? This will depend on a number of factors, the main ones being your age and the value of your property. The older you are, the greater the proportion of your property s value that might be released. The total amount available and the means by which you may access it will depend upon the plan you choose. For an indication of the maximum amount you could potentially release, visit our online calculator, which can be found on our website, saga.co.uk/equity-guide3 or call Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release is not right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate. 4 *Minimum age and property value varies between product providers.

5 Why are people releasing cash from their homes? To pay off an existing mortgage Many people look forward to the day when they can stop work and spend more time on their hobbies and interests and with their grandchildren. However, these days more people reaching retirement are finding they still have a mortgage to pay. Having to make a monthly mortgage repayment can mean that they don t have much money remaining each month to enjoy their retirement. Equity release can be used to pay off an existing mortgage, allowing homeowners to free up some cash to spend on other things. Usually the loan is then repaid when they die, or move permanently into long-term care, and their home is sold. When it comes to generating additional cash, people may feel that they have no option but to sell their home and downsize to get the money they need. Equity release can provide an alternative option for releasing extra cash, without the cost and upheaval of moving. Please note: If you do have an outstanding mortgage and you take out equity release, the money released must be used to settle your mortgage first. Any remaining funds can then be used for other purposes. Equity Release has enabled us to access sufficient funds to help us to go ahead with a number of home improvements. The service provided met our requirements and was done well. Mr C & Mrs B, West Yorkshire To make some home improvements A lot of our customers use the money they release to make improvements to their home, such as buying a new kitchen or building a conservatory. To help their family or pass on an early inheritance Some of our customers are also using the tax-free cash they get from equity release to help their families. For example, they may want to help children or grandchildren onto the housing ladder, contribute towards education costs, or simply wish to see their family enjoy their inheritance early. It can now be very difficult to get onto the housing ladder and what could be better than seeing a family member benefit from some financial help? With equity release, homeowners can choose to have the memories of enjoying their hard-earned cash with their family, rather than just leaving the money behind. 5

6 To pay off existing debts Paying off existing debts could reduce any monthly outgoings, meaning that there is more money available for you. Think carefully before securing other debts against your home. I have been able to clear my outstanding mortgage and other debt, I ve also been able to free up my finances. From first contact to conclusion I have had a very good experience. The service provided was excellent and efficient. Our adviser was first rate and knew the product. Well done. Mr Evans, Staffs To enjoy their retirement Many of us spend our working life having very little time to do the things we dream of like taking the holiday of a lifetime, spending some time with friends and family, or trying out a new hobby. Whilst we all try to make provision for our retirement so that we can do some of these things, it s not always possible to save as much as we need, and our pension income may prove to be insufficient. Many of us have worked hard to build up the equity in our homes, and now could be the time to enjoy it. 6

7 The two main types of equity release There are two main types of equity release lifetime mortgages and home reversion plans. Your adviser will help you understand which one will best suit you, depending on your individual circumstances. Lifetime mortgage A lifetime mortgage allows you to release a cash lump sum (or, with some plans, take smaller amounts as and when you need them) from the value of your property. With most lifetime mortgages, there are no regular payments to make and nothing has to be paid back until the end of the plan. This is usually when the last planholder living in the property dies or moves permanently into long-term care. You continue to own and live in your own home and may benefit from any future increases in its value. It is important to note that a lifetime mortgage is a lifelong commitment. If you choose to repay the loan early, repayment charges may apply. Home reversion plan Home reversion plans involve selling part or all of your home to a home reversion provider in return for a cash lump sum. If you choose a home reversion plan, all or part of your home will belong to the provider company. You can remain living there for the rest of your life rent-free and continue to be responsible for its maintenance and upkeep. There s no interest to pay either, because a home reversion plan is not a loan. However, if your property increases in value, you will only benefit from the increase in value of the proportion you still hold. Usually when you die or move into long-term care, the property will be sold and the company receives its share of the proceeds. A home reversion plan is a lifelong commitment and if you wish to buy back your share of your home, you will have to do so at the current market value. Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. If equity release is suitable for you, you will be offered advice on which type of plan would best meet your financial needs. The benefits of equity release No need to move home With equity release you don t have to move or sell your home to unlock the equity it holds. Enjoy your money now If leaving your property to your family is not a key concern, then releasing the cash tied up in it may be an alternative worth considering. With equity release you can usually unlock this money as and when you need it, subject to your eligibility and entitlement. You could then see your family enjoy the money during your lifetime. Tax efficiency Money released from the value of your main home is free of tax, although if the cash is then invested there may be tax to pay on any income or growth. Tax treatment depends on the individual circumstances and may be subject to change in the future. 7

8 The Equity Release Council Saga, Just Retirement Solutions and Just Retirement Limited are all members of the Equity Release Council. This is the industry body for the equity release sector ensuring that all plans are both safe and accessible for consumers. As members of the Council, the three organisations all adhere to a strict Code of Conduct, which provides a number of safeguards and guarantees for customers. The Code of Conduct states that: any recommended plan will have a no negative equity guarantee, meaning you will never owe more than the value of your home you have the right to stay in your property for life, as long as it remains your main residence a plan should be presented in a clear way, including an explanation of its costs, benefits and limitations all legal work is carried out by a solicitor of your choice you have the right to move your plan to another suitable property without any cost the main impact that equity release will have on your estate is clearly explained. 8

9 Some points you should consider Although equity release could enable you to help your family whilst you are still living, it will reduce the value of your estate and the amount that will go to your beneficiaries on your death. In order to protect some of the value of your estate, you could purchase a plan where you continue to make interest payments thereby keeping the value of the outstanding loan level. Equity release schemes involve borrowing against (lifetime mortgages) or selling all or part of your home (home reversion plans) and there may be more suitable methods of raising the funds you need. For example, making sure you are receiving all the state benefits you are entitled to, or moving to a smaller property. Equity release may affect your tax position and your entitlement to means-tested benefits and grants. If you choose to meet or talk with an adviser from the Saga Equity Release Advice Service, your adviser will explain all of the above in more detail. The whole process has been very good, I d recommend it to anybody. They were able to answer all of my questions, and were very straightforward and honest. Mrs D Powell, West Sussex Equity release is not for everyone. Taking professional advice such as that offered by the Saga Equity Release Advice Service is essential. 9

10 How the Saga Equity Release Advice Service can help Equity release is a serious decision and it is important you understand the advantages and disadvantages so that you can make a decision that s right for you. The first important step to achieving this is to seek expert advice. This is essential when taking out equity release, and it also helps you to make an informed decision as to whether equity release is right for you. That s where the Saga Equity Release Advice Service, provided by JRS, can help. Expert advice with no advice fee There is no fee to pay for the advice provided by the Saga Equity Release Advice Service. If you decide to take out a plan through the Saga Equity Release Advice Service, JRS will pay Saga an introductory fee. What your specialist equity release adviser will do for you. To find out more about equity release, you can book either a telephone or a face-to-face appointment in your home at a date and time to suit you. You are also welcome to have a friend or members of your family present if you choose. Your adviser will: review your circumstances in full, assess whether equity release is right for you and explain the advantages and disadvantages of equity release assess the impact equity release will have on your eligibility for state benefits, your tax position and your provision for leaving an inheritance check to see whether you qualify for any additional state benefits. If the adviser decides equity release is the right solution for you they will: provide you with a personal illustration based on your situation though there is no obligation to proceed with any of the recommendations that your adviser makes only recommend plans that offer a no negative equity guarantee, meaning that as long as you adhere to the conditions of the plan, you will never leave a debt to your estate as a result of taking out a plan support you through every step of the process. Equity release is not suitable for everyone and if it s not right for you your adviser will tell you and may also suggest alternatives. Call Saga on and ask to be put in touch with a specialist adviser. 10

11 Saga Equity Release Plan with no upfront fees One of the plans available through the Saga Equity Release Service is the Saga Equity Release Plan and your adviser will be able to tell you whether this option is the most suitable for you. If it is not, they will explain why and recommend another plan more appropriate to your needs. The plan is only available to those aged 60 or over. What is the Saga Equity Release Plan? The Saga Equity Release Plan is a lifetime mortgage which gives you the flexibility to release tax-free cash either as a lump sum or in smaller amounts as and when you need it. legal fees. You will be responsible for paying any additional fees over and above this. The Saga Equity Release Plan is provided by Just Retirement Limited. As a member of the Equity Release Council, Just Retirement Limited adheres to a strict Code of Conduct, which provides a number of safeguards and guarantees for customers. See page 8 for more details. The Saga Equity Release Plan is only available through the Saga Equity Release Advice Service provided by Just Retirement Solutions. The no upfront fees offer applies to the Saga Equity Release Plan. If a plan from another product provider is recommended, an upfront application fee, as well as valuation and legal fees may be charged. This is a lifetime mortgage. To understand the features and risks ask for a personalised illustration. You continue to live in and own your home and there are no monthly repayments to make. The loan only becomes repayable on the sale of the property, or when the last planholder dies or moves permanently into long-term care. No upfront fees more money for you We understand that if you are looking to release cash from your home, the last thing you need is to find additional cash to pay fees. The Saga Equity Release Plan has no set-up or valuation fees and 425 will be paid towards your 11

12 Some examples showing how equity release can be used The following examples are fictional, designed to illustrate typical situations and do not relate to particular individuals. If you want to find out how equity release could be used to address your particular needs, please contact the Saga Equity Release Advice Service on Improving the home Mr and Mrs Adams, aged 72 and 70, have lived in their current property (a four-bed detached house) for 26 years. They bought it for 80,590 and it is now worth 241,377, a staggering increase of over 190%. Having been there for so long, they could not imagine living anywhere else. However, the property has become quite expensive to maintain and could do with some modernising. Their younger son read an article on equity release and suggested it as a way for them to remain in their home without reducing their standard of living. They sought specialist advice and their circumstances were reviewed, including looking into any grants that might be available. They were recommended a plan that would provide them with 25,000 now to replace the kitchen and carry out other home improvements, plus another 15,000 for a longed-for trip to Australia to visit relatives. They also have the option to withdraw a further 39,654 from their property in the future. The interest charged will be added annually to the value of the loan, so they do not have any repayments to meet. Also, interest is only charged on the value of the equity released they will not pay interest on funds until they are accessed. Paying off the mortgage and helping the family Mr and Mrs Thompson, aged 60 and 65 have lived in their home for 24 years. They bought it for 90,348 and it is now worth 233,329, an increase of over 150%. Mr and Mrs Thompson were still making repayments on their mortgage but as their pension was not providing them with the income they had planned, they were not able to do everything they had hoped to in their retirement. They were therefore having to budget carefully each month. They received some information about equity release from Saga and decided that, because 12

13 it would not cost them anything to speak to an adviser through the Saga service, they had nothing to lose in finding out more. After meeting and discussing things with an adviser, Mr and Mrs Thompson decided to go ahead with an equity release plan and released 48,999 from their property. They were able to settle their existing mortgage of 30,500 and therefore reduce their monthly outgoings, meaning that they now have more money to enjoy their retirement. They also wanted to give some money to their children and their families so that they could see them enjoying some of their inheritance early. Their plan allows them to set some money aside to access as and when they need it throughout their retirement. They are now starting to plan some of the things they would like to do during their retirement, which they would not have been able to afford to do without equity release. Source: Original and current house prices Halifax Price Index October-December Released amounts based on Just Retirement Limited Roll-Up Lifetime Mortgage June

14 Frequently asked questions Will I still own my home? If you take out a lifetime mortgage (such as the Saga Equity Release Plan) the property remains in your name, as it would with a conventional mortgage. There may be an early repayment charge if you settle the mortgage early. Your adviser will explain this in detail. However, if you take out a home reversion plan, the reversion company will own all or part of your property (although you can continue to live there for the rest of your life). You should be aware that when you take out the plan you will normally receive less than the current market value of your home this is because the reversion company cannot sell it until you die or move into long-term care and so need to protect themselves against any potential loss in value. How much does it cost? If the Saga Equity Release Plan (see page 11) is recommended, there are no valuation or set-up fees and 425 towards your legal fees will be paid to your solicitor on completion. You will be responsible for paying any additional fees over and above this amount. If equity release is suitable, but this plan is not, the adviser will recommend a plan from another 14

15 provider. Costs will vary depending upon the provider. A rough guide would be between 2,000 and 3,000. The fees involved include set-up, valuation and legal, and will also vary depending on the plan you take. The specialist adviser, after reviewing your circumstances and requirements, will recommend the most suitable plan for you. Whichever plan is recommended, this no-obligation expert advice is provided at no additional cost to you. Will equity release affect my state benefits? The Saga Equity Release Advice Service includes a full review of your entitlement and you may find you are eligible for additional state benefits you were not aware of. Will I be able to leave an inheritance for my children? Although equity release could enable you to help your family whilst you are still living, it will reduce the value of your estate and the amount that will go to your beneficiaries on your death. The adviser will assess the likely effect on the value of your estate. However, it will not affect any other money that you may leave as part of your inheritance for example, from savings or life assurance policies. than if no interest payments were made during the term of the loan. Are there any alternatives to equity release? Equity release schemes involve borrowing against (lifetime mortgages) or selling all or part of your home (home reversion plans) and there may be more suitable methods of raising the funds you need. For example, making sure you are receiving all the state benefits you are entitled to, or moving to a smaller property. Your adviser will go through any suitable alternatives with you. How long will it take to get my money? We would estimate that it normally takes three to four months from your first contact to the time you receive the money. This includes the time taken for your adviser to assess your situation fully, make his/her recommendations and for you to then make a decision. Please note: Additional frequently asked questions can be found on our website, saga.co.uk/equity-guide3 Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. What s more, when the time comes, if your home sells for more than you owe, the remaining equity could form part of your estate. You could protect some of the value of your estate by choosing an equity release plan where interest payments are made. This means that the amount owing when the loan has to be paid off, will be less Equity Release Council website, FAQs, June

16 The next step to take To find out more about equity release and the Saga Equity Release Advice Service visit saga.co.uk/equity-guide3 Or if you think equity release may be of interest to you, call the Saga Equity Release Advice Service on to be put in touch with a specialist equity release adviser. Lines are open 9am-5pm Monday to Friday. Calls may be recorded. Other financial services offered by Saga Savings accounts Make the most of your money with Saga Savings. Stocks and Shares ISA Keep more of your profits and pay less in tax and commission fees, and no annual fees. Saga Credit Card The ideal travel companion whether you spend at home or abroad. Life insurance Provide your family with some peace of mind at a difficult time. Choose from level or decreasing cover. Share dealing Competitive commission rates, no annual fees and a wide range of investments to choose from. Care funding advice Specialist care funding advice to help those paying their fees privately. Annuity service If you are retiring soon you may be able to get more income through the Saga Annuity Service. For more information of any of these products visit our website saga.co.uk The Saga Equity Release Advice Service is provided by Just Retirement Solutions Limited. The Saga Equity Release Plan is provided by Just Retirement Limited. Saga Personal Finance is a registered trading name of Acromas Financial Services Limited, which is registered in England and Wales (Company No ). Registered office: Enbrook Park, Sandgate, Folkestone, Kent CT20 3SE. Acromas Financial Services Limited and Just Retirement Solutions Limited are authorised and regulated by the Financial Conduct Authority. Just Retirement Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. CSB-AF0588v2