Skip to content

The 4 Rs of ER: Release, Repayments, Remortgage, Reassurance

Posted on

The 4 Rs of ER: Release, Repayments, Remortgage, Reassurance

Equity release (ER) is an increasingly popular way for homeowners over 55 to unlock some of their property wealth. According to Key’s latest Market Monitor, more than 13,300 new plans were taken out in Q3 2022, which produced £1.5bn of new lending. In the current economic climate, equity release can be a sensible and flexible way to finance later life needs. But what is it about it that makes it such a sound financial proposition for many?

The first R: Release

Your client may be one of many whose financial resilience has been tested amid the cost-of-living crisis. They may have had plans, goals and aspirations for later life which they’re now no longer able to realise. Alternatively, due to interest rate rises, they, or a family member, may be facing a serious challenge to remain in their property or service existing debts. 

That’s where equity release could help. Equity release customers accessed an average of more than £114,000 from their property wealth, tax-free, in Q3 2022.1 

That went towards repaying existing mortgages, tackling and consolidating existing debts, gifting money to loved ones or making home adaptations and improvements to ensure properties remain suitable for later life needs.1 According to Key’s Market Monitor, 28 per cent (£420m) of all funds unlocked through equity release between July and September 2022 helped clear existing mortgages.

Meanwhile, 14 per cent (£210m) was gifted, including supporting children or grandchildren with a house deposit, helping them to repay debts, or providing an early, potentially more tax-efficient, inheritance.

Right now, your client could be facing several difficult decisions. But through equity release, they could utilise their property wealth to help meet and overcome current financial challenges and enjoy a more comfortable later life.

The second R: Repayments

Before taking out equity release, it’s important for your client to consider their long-term goals alongside current needs. That may include questions around the impact compound interest will have on their loan.

But thanks to the flexibility of a lifetime mortgage, they can have more control over their finances with several repayment options available, ensuring their plan meets their wants and needs both now and in the future.

No monthly repayments

With a lifetime mortgage, your client can clear their existing mortgage or debts and choose to make no monthly repayments. This should significantly reduce their monthly outgoings and free up additional disposable income. And with household costs rising across the board, those additional funds could be invaluable in helping service other costs, or indeed funding a more comfortable and enjoyable later life.

Partial capital repayments

However, if your client is in a position where they’re able to service the loan, partial capital repayments is also an option. This allows them to make voluntary, ad-hoc repayments each year, typically between 10–12% of the initial amount borrowed, to reduce the size of the loan on which the interest is charged. This will not only reduce the total borrowing amount, but ensure that when their plan ends, your client is able to pass on more of their property wealth to their estate.

Interest payments

And finally, much like a standard interest-only mortgage, your client could choose an interest-payment lifetime mortgage to help manage the size of the loan. This allows them to make regular full or part payments towards the interest each month, which could leave them with only the initial capital to repay at the end.

Interest repayment example

Paul and Christine are both 65 and wish to release £50,000 from their averagely-priced home of £296,000 to repay their existing mortgage. Securing a fixed lifetime mortgage rate of 6.15%, after 15 years, with no monthly repayments, Paul and Christine owe £122,397. However, by repaying just £100 a month, after 15 years, the couple’s outstanding balance has reduced to £96,026 – a net saving of £8,371, when including the £18,000 they’ve already repaid.

But if Paul and Christine were to repay £200 a month, they’d owe £66,569 – a net saving of £19,828. And if the pair were to service the interest in its entirety each month (£256), they’d enjoy a net saving of £26,317 – extra value which could be passed down to their loved ones as part of an inheritance

The third R: Remortgage

Amid the current economic climate, many customers may be turning to equity release to meet their needs because they have very few other options available. However, it’s worth remembering, should your client choose to take out equity release, they don’t have to be tied into the same plan forever.

In as little as five years, your client may be able to remortgage to a new plan to release further funds, should they need them, as well as add further protections to meet needs which have become a priority since their initial release, or secure a lower interest rate to reduce their total cost of borrowing.

By having the option to rebroke, your client has more control over their later life finances. And through the flexibility of switching, you can provide longer-term reassurance to your client that the plan they choose today doesn’t necessarily have to be the same plan for life.

The overarching (fourth) R: Reassurance

With current economic conditions, where factors such as a lack of financial resilience may be particularly prevalent, it’s important consumers find products that are highly personalised and aligned to their individual circumstances. Equity release offers such personalisation, and there are further features your client can choose to ensure their plan is tailored to their needs.

Inheritance protection, which is an option with some plans, allows consumers to ringfence a percentage of their home’s future value to be passed on when they die, should they not service the loan in the meantime. And downsizing protection ensures that should your client wish to move to a smaller home in the future for any reason, typically after five years of taking the plan, they can repay the loan in full without incurring an early repayment charge if their new property doesn’t meet the lender’s criteria.

In addition, lifetime mortgages that meet Equity Release Council standards come with several other built-in protections as standard, which is just one of the reasons why they stand out in the later life lending market. For example, the no negative equity guarantee ensures your client can never owe more than their home’s value or pass on any debt through equity release. Your client also has the assurance that they’ll retain full ownership of their home and can stay in it for as long as they wish.

These features, amongst others, are exclusive to lifetime mortgages and ensure equity release remains a flexible financial option for many in later life while providing reassurance to those who take the product that their future remains protected.

The importance of expert advice

In economic conditions such as these, where many people’s financial resilience is being tested, it’s crucial consumers receive specialist equity release advice in order to make an informed decision. Given the pressure your clients may be feeling in the short term, it’s important for them to consider if they really need to access the whole release amount now, or if they’d be better off waiting to see if their circumstances improve. 

Also, it’s paramount to explain the impact that making repayments have on reducing the amount owed should they be in a position to service the loan, either regularly or on an ad-hoc basis. This will help ensure your client has a better understanding of how to reduce their total cost of borrowing and provide a more personalised customer outcome.

Air is the next generation, industry-leading later life lending platform which lives and breathes your growth as an adviser. Enabled by technology, knowledge and people, we offer financial professionals, from advisers to lenders, best-in-class digital sourcing tools, personal development services and incentives; all designed to support and reward your business growth, especially through this challenging time.

Login in or join now here: https://airsourcing.co.uk/club-register

For more information, call our expert adviser support team who are on hand help you with your later life lending questions. Get in touch today on: 0800 294 5097

1Key’s Market Monitor Q3 2022


Related articles

Best Adviser Support (Firm)

In a complex and fast-moving market, providing advisers with support to help them keep their finger on the pulse has been critical. Whether it’s latest products, updates in technology or adapting to regulatory change, lenders have had to constantly evolve their support. So who’s done this best?