Alison Beeston: Bridgewater Equity Release

4There are a number of factors to consider, including the ­flexibility the client is looking for, the ownership of the property, the possible alternatives available, the impact on benefits and taxation, the timescales to work within, how adaptable she needs the product to be and the provision of supporting documentation to take the case through. As with any financial decision, this is not one to be taken lightly and all questions need to be answered.

The potential benefits of a lifetime mortgage are that your client retains legal title of the property, there are flexible drawdown schemes available and a large choice of lenders. There are also income schemes available and in a rising market, beneficiaries will benefit from rising property prices. Potential disadvantages are that the compounding effect of interest can be significant, and further advances are typically not available for three or five years and may be on different terms.

The other main option, a home reversion plan, would ensure your client’s remaining share of the property is legally held for them within a trust deed, and the underlying lifetime lease agreement ensures that she is able to stay in the property as a tenant for life or until it is sold.

Again, there are flexible home reversion plans available, so your client could raise additional sums by selling off additional proportions of the property. Although these plans may allow your client to get more capital from their property, this is not your client’s stated requirement here. However, a home reversion plan can guarantee that her share of the remaining equity would be available to her estate on her death, subject to her having sold less than 100% of the property.

As your client only needs £50,000 now, less than 100% would be sold initially and additional reversions could be available in future up to the 100% maximum. This is also not a loan, so there will be no debt roll-up.

The main difficulty with these plans is understanding that the amount received for a percentage of the property is not equal to the open market value of that percentage of the property. The amount received would be a discounted value, based on the potential lifespan of the plan – a back-to-front ‘roll-up’, fixed at the outset. This means that if your client has a very short lifespan, a home reversion is not appropriate for her, but the reverse could also be true. n

Andrea Rozario: Private Finance

4This is an interesting question but by no means unique, and a situation many equity release providers will often come across. First, it is important that the client is getting all the help to which she is entitled to from the State. Depending on her income and savings, and also on what type of improvements she wants to do, she may be entitled to means-tested benefits and possibly a grant. She would need to check with her local authority and with the Department of Work and Pensions, or possibly the Citizens Advice Bureau.

Second, she needs to consider exactly how much extra income is required and to do a detailed breakdown of what the cost of the home improvements are likely to be.

At this stage, other options need to be considered. Is it possible her son could help her out or could she downsize? Are there any policies that could be cashed in?

At the age of 66, she is likely to have a considerable lifespan left, which will naturally have an effect on how much equity she can have now and what will be left in the future. Her attitude to future house price fluctuations and risk will help to determine whether she would be better off with a lifetime mortgage or a reversion scheme.

It is possible for her to have a flexible drawdown lifetime mortgage with an initial sum of £50,000, a further reserve facility and an element of equity that will be protected. However, the downside to this option means the reserve facility will be less. Your client needs to establish exactly what her priorities are and then discuss all of her options.

For instance, if the priority is for the home improvements and supplementing income and any equity left would be a benefit, then she might opt for a scheme with a facility that would be available until the very end, and increasing each year as time goes on up to a maximum amount.

It is imperative for your client to consider future plans, as there are no guarantees house prices will continue to rise, and she must bear this in mind when budgeting how much is needed to supplement her income. It is also important to remember that any equity she takes at this point will not be available at a later stage and could restrict her options in connection with care in the home or long-term care. n