MONEY BOX LIVE TRANSMISSION: 12 TH NOVEMBER RADIO 4

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1 THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE. MONEY BOX LIVE Presenter: VINCENT DUGGLEBY TRANSMISSION: 12 TH NOVEMBER RADIO 4 Good afternoon. Much has been written and spoken about the increased cost for homebuyers of taking out a mortgage, but much less comment and information for older people hoping to borrow money against the value of their homes - what is called equity release. So that s what my guests on Money Box Live will be talking about in the next half hour. Because these loans don t have to be repaid until death or until the house is sold, you needn t worry unduly about monthly repayments and that s one reason why the equity release market is continuing to grow strongly. It goes without saying that for most older people, their home is by far their most valuable asset. But the problem is lack of income to pay the bills, so the idea of borrowing 40,000 or 50,000 is very tempting. But it s not cheap, the conditions are not easy to understand and the knock-on effect on tax and benefits has to be considered. Hence the fact that specialist brokers dominate the market and most subscribe to an organisation called SHIP or Safe Home Income Plans, which sets standards to protect borrowers. As with other types of mortgages, there s commission and admin fees which need to be sorted out in advance. With brokers, valuers and solicitors involved, these can easily run to 1,000 or more. The two main ways to borrow are through a lifetime mortgage, which now offers an increasingly popular drawdown option with money being released as and when you need it, or the home reversion plan which means selling part of your home and of course giving up any future growth on that percentage. As to which is better, it depends on your circumstances and you may well think it wise to consult your children or other 1

2 relatives. In the meantime, I have three experts at your disposal here on Money Box Live Kathleen Tedstone is an independent adviser from Helen Brown Financial Services; Dean Mirfin is from Key Retirement Solutions; and Sally West is the income policy manager at Age Concern. Welcome to you and to our first caller, Jean in Hayward s Heath. Jean, are you there? JEAN: Yes, I m here. Your question? JEAN: I m single and no dependents that need money from me. There are charities of course that I shall want to give. But I would like to know how much I could take out of my house, what all the dangers are. I m an ME sufferer, so excuse me if I m a bit slow in understanding and thinking. Not at all. JEAN: Because of that and also because I m single, I feel very vulnerable about who to choose, the safety of any money that I do take out and so on. Yes. Indeed what you re doing is you re expressing the views of many people for whom borrowing money against their home is a mystery, it s frightening and you want some reassurances. JEAN: Absolutely. So Kathleen, will you start off? JEAN: And what to do. TEDSTONE: Good afternoon, Jean. Can you hear me okay? JEAN: I can. 2

3 TEDSTONE: Jean, there are dangers out there and you are what we would consider a vulnerable age, but the main concern for you is indeed to get specialist advice. Number one is getting the right advice and there s many fact sheets out there that you can actually get. JEAN: out about this. I ve got a list of SHIP people. I phoned Age Concern to find TEDSTONE: Good. JEAN: them completely? Can one trust them? It s an awful thing to say. Can one trust TEDSTONE: I think you can trust them, Jean, to be honest. The Safe Home Income Plan voluntary code was set up to protect people like yourself. And although as advisers we will always make sure you get the best advice, I think the other important thing is that you do have to have a solicitor acting on your behalf and your solicitor would not allow you to proceed with any finance if he didn t feel you understood what you were doing and the implications of taking out equity release. Sally West? Well, Jean, we ve got somebody from Age Concern here. WEST: Hello Jean. Yes, I think the first thing is to perhaps read through some of the general fact sheets, the information available, and then, as we ve just been saying, talk to an adviser. And equity release is now regulated, so that nobody can just sort of sell you a scheme without being regulated and that gives you some recourse. I think the thing to think about is what you re really looking for. Are you wanting a lump sum? Are you wanting to increase your income? And one of the things we would always say is are you receiving any benefits such as pension credit or? JEAN: No. 3

4 WEST: No, so that s something that other people would need to think about, whether you re getting any benefits that might be affected. And of course you said that you didn t want to leave your money particularly, hadn t got any dependents, so again that s another thing that a lot of other people might want to think about. So that s really the sort of starting point and if it looks like it s a good idea then talk to an adviser. You re not committing yourself to anything. Ask all the questions, talk to an adviser and see what your options are, what income or capital you might get and how that will affect the equity in your property. Now before I bring in Dean Mirfin with some of the types of products available, Joanna in London you want to come in here. JOANNA: Yes, hello. Hello. JOANNA: Is there an age limit? Is there a minimum age because I ve been refused by Halifax? I ve nearly paid off the mortgage and I wanted actually to get some money off them because I don t have a decent income at the moment. one of the criteria. Okay, well Dean there are some criteria and obviously age is Yeah, absolutely correct. Good afternoon, Joanna. JOANNA: Hello. You re is it 51? JOANNA: Yeah. Yeah. There are schemes available but unfortunately they only start at age 55, which maybe seems a long time off when obviously you re looking at your circumstances now. There is a reason for that and that s because with 4

5 these plans interest, especially with lifetime mortgages, interest is accruing obviously over time and the longer you potentially will hold one of these for, the more you will owe. I suppose in one respect it s really looking at your overall circumstances at the moment and looking at - and I m sure Sally will have more information on that - at whether from an income point of view, whether there are any benefits that you re eligible for or any other help that you can get as well as looking at other traditional forms of borrowing. But when we look at the principles of how these plans work, both for Jean and perhaps ultimately Joanna although not yet, we have to remember that this is a long-term loan given to you by a lender of maybe an insurance company at a fixed rate of interest? TEDSTONE: Most lenders generally have a fixed rate. There are some variable ones out there though, which normally have a capped level. into care, is that right? Not repayable until you die or leave the property perhaps to go TEDSTONE: Correct. Right. So once you ve signed on, it s not the end of the matter because you still live in the house too, Dean, as long as you want to? That s right, you ve got complete flexibility to live in your property for as long as you want to. All the companies that are members of Safe Home Income Plans also have to give a guarantee that you can take the loan with you to another property should you move. That said, they do have different criteria and what specialists will do is talk you through the advice process about what your future plans are, because if you do wish to move, especially for example to maybe a retirement type property, some lenders are more flexible than others. And that s where the specialist advice really comes into its own; is not just about what you want today, but you want over the years to come. 5

6 Okay, well that s some of the general principles. We ll move the calls on now to Nicola in Kingston. Nicola? NICOLA: Hello. My question is related to equity release. My parentsin-law are considering entering into a scheme and I m in a position where I could effectively replicate a commercial lender s scheme either by way of a lump sum or by way of a monthly income. And my questions are how that will affect the council tax benefit that they currently receive as well as pension credit which they currently receive? Interesting point, Nicola, because we often say on these programmes that you should consult your children. I take it Are you the beneficiary under their wills of the property? NICOLA: No, no, no, no, no, no. You re not, no? Okay because this is an interesting point; that you feel that you could do better and obviously presumably you wouldn t charge them interest or anything, you d just give them whatever money they needed? NICOLA: Well yes, one would lend them the money - I mean maybe with some rate of interest, but obviously a lower rate than a commercial lender would provide. Right. Okay, well who d like to take this one up as a Sally, would you like to start on the benefits point because here s a couple who are in receipt of benefits? WEST: Yes that s right and I mean it s really important to look at the benefit side of things. Do you know what they re particularly interested in? Is it just a higher monthly income that they re interested in or is it? NICOLA: Primarily, yes. 6

7 WEST: Yeah, rather than a lump sum for specific items? NICOLA: position or their income tax position either. Yes, well whichever way would not impinge on their benefit WEST: Right. I mean in terms of if you gave them a regular amount, if it came from you, it would be a voluntary payment And it would be tax paid as well because Nicola would have paid the income tax on it before she gave it away. WEST: Yes and that wouldn t affect that wouldn t affect their benefits. Voluntary or charitable payments don t affect a benefit such as pension credit. On the other hand, if she took out equity release, which guaranteed a certain income, a certain regular income, then that would be taken into account as income, although not necessarily straightaway because they might have something called an assessed income period with pension credit, which means they don t need to report changes until they get to the regular review. So in terms of income, a payment from you to them is likely to be the best thing in terms of the benefit situation. And, as Vincent said, you re not going to be charging them income that will be rolling up. NICOLA: Okay. Would you have any suggestions for any other way I mean would you think this is the best way of doing it? Potentially. I mean when we talk about obviously eligibility for benefits, as Sally s touched on, there s an assumption automatically that benefits will be affected. What specialist firms like ourselves do is we actually evaluate with everybody we see before going ahead with the plan, their current eligibility but also we can analyse whether they take money in the form of income or as capital, exactly what the effect may or may not be. And in many cases it can be arranged that people can take equity release and have no effect on their benefits, but that s really where the specialist advice comes in - before you actually go ahead with the plan. 7

8 So in theory Nicola s right in her assumption that she would be better off doing it herself, but it s just as well to run a check over it to see whether in fact that is the case and whether if they were to take a plan it would not affect them. Definitely. Okay, let s take a couple of s next. Here s one from Frances in Wick and she says, I m a widow aged 66 owning my own home, which will be left to my daughter, my only child. But my daughter will never live in it because there s no work for her in this place, so would it make sense for me to get an equity release to help her buy a house now where she can live because I don t have any other capital I can give her? Is this the sort of question you get asked, Kathleen? TEDSTONE: We do. I mean obviously if you are in a position whereby you can release equity to help the family - in many ways and this is just one of the ways of raising funds - then yes. What you ve got to understand though, with her only being 66 the amount she s going to raise is only going to be round about 25 to 30%, so is that going to be sufficient to help her daughter? But yes, it is one way of being able to help now and see the benefits of it. Well that s the point really, isn t it Dean? It s saying look, my daughter s going to get the house in my will anyway. It s just she ll get the means of buying her own house perhaps 20 or 30 years before it would otherwise be possible. Yeah, I mean we analyse with everybody who does equity release with ourselves obviously what they re going to use the money for and it s now round about one in four actually gives some of the money away to their children because the view they take is they need it more now than in the years to come when maybe they ll receive it as an inheritance. Incidentally, can I at this point bring in the two different types? We tend to talk about equity release in terms of the income, but in this case would that be a home reversion plan where you actually sell a bit of it off? I mean 8

9 would that be perhaps an option there? There are bigger issues as far as if you like the pros and cons of the different plans. Either a lifetime mortgage where it s a loan and the interest rolls up or home reversion would do the same job. I mean I imagine the daughter wouldn t be worried about losing the equity in the house which her mother has if she was immediately getting an exchange - equity in her own house? I suppose the factor of specifically how much she would want to raise for her daughter is probably what will also affect the potential type of plan that may be more suitable. Again, we keep coming back to this role of the advisories to actually explain the principle of how they work and then actually look at specifically what she s trying to do and then obviously advise accordingly based on those priorities. Tony in the Isle of Wight has a question about a lifetime mortgage he took out with Scottish Widows. He says it allowed him to take the full sum ( 48,000) in one bite, but he didn t do that. He actually took it in smaller amounts and he s now drawn down 40,000 and Scottish Widows say they don t want to or they won t give him the last 8,000, which he thought he would be able to have and he s puzzled about this. Is this a normal feature of what he says is a drawdown plan? Any ideas here as to what s happened? Yeah, I suppose I can step in there. There are two distinctive types of lifetime mortgage: there are what are called in effect single advance when you take single sums; and there are drawdown schemes. Drawdown schemes are quite specific in that they will usually guarantee for a period of time that you re able to come back up to your limit that you ve been pre-allocated. Which Tony says he can t do in this case. Yeah, what it sounds like Tony s actually taken is a single 9

10 advance plan but where he s then gone back and borrowed further advances. They do come under slightly different rules and certainly it sounds like that s what his scheme is being governed by. And therefore depending on his age now when he s coming back and what s happened to his property value and also the interest that s accruing, they can actually then say, based on your current circumstances we won t advance any more. But with the drawdown plan, that doesn t happen. Of course that plan was taken out a few years ago and my goodness the world s changed in the last few years. Everything I think I m right in saying everything has become much, much more flexible in this market. TEDSTONE: Much better. Right, let s move on now. Jeremy in Oxford, your call? I m sorry, no it s not Jeremy in Oxford. I should have changed track and said it s David in Cirencester who s been patiently hanging on. David, sorry to keep you waiting. DAVID: Yes, hello. My parents have an equity release mortgage which they took out over 10 years ago. They re now both in a nursing home and it seemed sensible to let the house in order to give them a little bit more income to pay off the nursing home fees, but we re told by the mortgage company - Norwich Union - that that is not allowable under the scheme. Now if they sell their house, which is their only other alternative, it means they ve got money in the bank and they will lose something approaching 300 a week in benefits. Hmmn DAVID: is correct? And it seems very unfair to me and I m just wondering if that I think it possibly could be. Sally, can I just check with you first? When the home is sold - and we ll come to the point as to why it s got to be sold in a moment - but if they obtain a lump sum of money, then that of course will immediately be evaluated in terms of what benefits they receive. That s right, is it? 10

11 WEST: what they re receiving. Yes, I mean the home is counted as an asset, which will affect or one of the partners, it isn t. At the point when it s sold? If it s being lived in by somebody WEST: then it isn t counted as an asset. Well if there s a partner living there or certain close relatives, But in this case, it is? WEST: But with tenants, if the couple if they re both in a home and there s tenants who aren t close relatives, don t fit into the criteria, then it would be counted as an asset. But of course they re getting the income from the rent or they would get the income for the rent which hopefully would meet the care home fees. So, Dean, this is a Norwich Union plan, but I imagine it s in common with almost all of them, isn t it, where they have to sell it when the partners go into a home? Yeah, historically certainly the rules were very clear with the plans, which is that once that property is permanently vacated that the property would normally need to be sold and certainly what Norwich Union have said is correct. That said, there are plans available today which differ, where they will potentially consider the property being let. So it s changed slightly, but certainly from the point of view of what Norwich Union have said, they are correct, because their priority is obviously that that property is well maintained and ultimately the loan is repaid once that property is sold. It wouldn t bar David though - if you had the means David - to pay the mortgage off yourself. I mean the property doesn t have to be sold. It s the mortgage that has to be paid off, isn t it? 11

12 WEST: That s correct. DAVID: Yeah, indeed. So if you had the means, you could do it and keep the property. But I imagine that might not be possible. DAVID: I don t think I ve got the means, I m afraid. No, well I m afraid the rules are right and that s one of the things. But, as Dean says, you know these plans are evolving all the time and I m afraid to a certain extent you know you re a captive to the time you took the plan out and whatever you hear today about what s going on and you say my goodness, my plan isn t like that - well I m sorry, but actually it s probably right because these plans have changed over time. Okay, thanks for that call. Now we ve got Sheila in Paddington. Sheila, your call? SHEILA: Yes, I m ringing to ask about equity release on flats. A lot of older people are living in flats now and I wonder what the position is regarding flats rather than houses? Okay. Who s going to pick this one up? Kathleen? TEDSTONE: own property, is it a freehold flat? Hi Sheila, Kathleen Tedstone here. Sheila, in respect of your SHEILA: Yes, share of the freehold. TEDSTONE: It s share of the freehold. And how many flats are there? SHEILA: There are about eight flats in the block. TETSTONE: And is there a management in charge? 12

13 SHEILA: Yes, there is. TETSTONE: There is? And all the flats, are they all owned? SHEILA: because the housekeeper lives there. Yes except one. It s owned by the management company TEDSTONE: Right, okay, because there are certain criteria that have to be met by the lender and it will be a case of checking it out with a specialist adviser to see whether you could get lending. But indeed yes, if it s acceptable to the lender then there is no reason at all why you personally cannot raise equity release on the property. What you must understand though in respect of when you do do that, on the sale of your property that debt is going to be repaid but it won t affect any of the other flats within the six flats itself. SHEILA: Yes. Can we have a comment from you, Dean, on valuations in this case? I mean are flats less favourably valued in terms of percentages than freehold houses? No, not at all. It really again depends on the marketability of the property itself. I mean, as has been said, you know obviously a lot of people who are retired, these types of flats, especially in smaller blocks of maybe six or eight, are very, very popular and demand is high. And certainly amongst valuers now, they re a lot more knowledgeable about the marketability of flats and apartments for those who are retired. Okay, well let s just make the point of course to Sheila and other people that before you take out any of these plans an independent valuer comes in and says what it s worth and that then will dictate the amount of money that you ll be offered. And that amount of money will be a percentage of what the valuer says, which can vary, Dean, between what - the minimum of say 25, 30% up to 13

14 Oh, I mean literally the minimum loan amounts that you can take are as low as 5,000 right up to, depending on your age, up to 55% of the value. Right. So quite a big scale. But very much the first part of the process for any individual is to actually identify that firstly there s a purpose for doing it, which certainly the people we ve spoken to today certainly seem to have good purpose; and, secondly, that in effect they work through with an advisor on making sure that they arrive at the right amount. Okay. Jeremy in Oxford, your call? JEREMY: Yes, hello. I m phoning for my father who s 88 next Sunday and he lives in shared accommodation, which he owns half the equity with the local council, and he was interested in equity release but we didn t know whether a shared ownership scheme would be if there s anything under that system? Who s going to take that one? I ll take that. Dean. Hi, Jeremy. JEREMY: Hi. Unfortunately not. The rules are quite strict about ownership, as you possibly heard there with the conversation regarding the flat as well. JEREMY: Yes, obviously a similar question. Yeah. All of the equity would need to be owned by your 14

15 father. That said, one of the potentials to look at It really depends on how much equity is owned by the council. We ve certainly had some people do these schemes to buy out any particular share that s maybe still retained by the council, so there s that potential. But it s then whether your father would really see enough benefit from actually doing equity release. very long, Jeremy? Is he in good health? Do you think your father will likely remain independent for JEREMY: Well no, that s the reason that s why he s trying to get it together because he s not enjoying the best of health now, so he wanted to try and improve his sort of remaining years. I want to bring in Sally from Age Concern here because I think actually I would be a bit concerned about somebody taking out one of these plans if they were not in reasonable health, Sally. Would you be? WEST: Yes. And I don t know whether he s looked into other things such as whether there s other ways of increasing his income. We talked about benefits like pension credit and council tax benefit based on income savings, but there s also a benefit called attendance allowance for people who are ill or disabled. So it may be that the option for him to look at making sure that he s getting sort of sufficient income is to get a benefit check from somebody like a Citizen s Advice Bureau or a local Age Concern. Kathleen, I don t know about you, but I would be very reluctant to recommend anybody taking out one of these plans unless they had the reasonable prospect of at least 5 or 10 years of independence. TEDSTONE: That s true. However there are lenders out there now who appreciate that there are people who have ill health and there are lenders who ve now brought out what they call impaired equity release schemes, which actually in fact give a higher percentage because they do want to enjoy the rest of their days. 15

16 That s an interesting development - impaired equity release. TEDSTONE: Impaired equity release for those of ill health. There are only a few lenders out there at the moment. But just going back to Jeremy s father, although there s no equity release providers out there, if they did need to raise funds there is the potential that they could go down the traditional mortgage route on an interest only, what we call a retirement home plan. Okay. Now we ve got David sending us an from Taunton and he says, My wife and I currently receive pension credit and have 250,000 tied up in our home. We re coming up to age 65. But we think we re going to be dependent on pension credit for the foreseeable future, but we d like nonetheless to release some equity from our home while it s possible to enjoy it. What we d really like is 6,000 a year for the next 10 years. How would your panel react to that proposal? I think we touched on the subject earlier, that there are obviously various rules around pension credit and council tax eligibility. One which is quite clear is that if a regular amount is being taken - so for example if it was a predetermined sum, whatever that amount would be, whether that s weekly, monthly and potentially even yearly if it s preset - then that would be classed as income for benefit purposes. What is also though very clear from the rules is that ad hoc drawdowns of money are not counted as income. So you could get your 6,000 a year, but not expressed in that way? In other words, it would have to be seen as you might go for 5,000 one year, 7, months later, that sort of thing? That would just be then release of capital? Yes where you d actually take it as and when it s required. And amounts can be taken as low as 2,000 at a time. Sally? WEST: Yes, I mean the Pension Service would have to consider 16

17 whether it was actually irregular capital sum or whether it was income, albeit paid every year. It is quite complicated and we actually have an information sheet based specifically on benefits and equity release, which explains the different issues. But I mean, as Dean says, it s not true to say that you can t get help or get extra income or extra capital in particular if you re on benefits, and particularly if you need it for a specific sum. You know if you want an amount for repairs or for buying a new car or something like that, then the fact that you re on benefits probably isn t going to be a bar for that. Just what you mustn t or you don t even go down the route of saying I want a regular income. It s got to be in some shape or form outside the tax system in order for it to be properly effective. Definitely. Okay. Right a call now from Alex in London. ALEX: Hello. Hello Alex. ALEX: Hello. My mum is due to retire in January and she still has a small mortgage left on her property. It s about 18,000 and the property s worth about 170,000. My brother and I She doesn t have any other pension. She just has a state pension, but that s not really enough you know to cover all her bills and to pay the mortgage back, so my brother and I are in a situation where we re trying to decide whether it would be better for us to buy the house between us essentially and pay off that mortgage and possibly even buy it for a bit more so that we can give her some money to live on Alex, I m going to have to cut you fairly short because we re running out of time in the programme, but I get the The first impression I get is that we ve got to watch that your mother doesn t again lose benefits that she might qualify for. Sally? 17

18 WEST: Yes, that s right, and you might want to check or talk to a local agency about whether she ll get pension credit, whether she would get help with her council tax. And pension credit can include an amount towards mortgage interest in some circumstances, so I think that s the first thing you need to check before you look at raising equity. to me in this case. But as for going for some form of release, yes sounds possible TEDSTONE: It is possible. And in fact, Alex, you wouldn t have to re or your mother wouldn t have to repay the mortgage off first. The solicitor, if your mother did do equity release, can actually pay off the mortgage simultaneously. And again here we re talking about the possibility of children coming to the assistance instead, buying the house. Well that s possibly a little more difficult because it raises tax questions of whether they already own their houses because it wouldn t be their main residence and therefore it would lose its main residence relief, which might not be a good thing Dean. Do you cover that sort of aspect when you re advising? Yes we do and certainly we d recommend that anybody considering that - helping in any way as children - do get independent taxation advice as well because whilst they may be trying to do the right thing, it could have a knock on effect. Okay. Well thank you very much for your calls. We ve run out of time, I m afraid, but there is an information line on And alternatively if you have access to the internet, our website is at bbc.co.uk/moneybox where you can listen again. And if you re into podcasting, that too can be arranged via the website, which of course also contains links to Age Concern and other organizations with helpful information of their own. Thanks to Sally West from Age Concern, Kathleen Tedstone from Helen Brown Financial Services and Dean Mirfin from Key Retirement Solutions. You can hear the next edition of Money Box with 18

19 Paul Lewis at Saturday at noon or Sunday at nine in the evening and I ll be back same time next Monday afternoon to take more of your calls on Money Box Live. The subject is insurance. 19