The number of people taking out equity release reached over 28,000 in 2008, according to end-of-year figures from Safe Home Income Plans (SHIP). The average age for equity release customers is between 69 and 74, according to Equity Release Solicitors’ Alliance (ERSA) data, and the number of people aged 60 to 90 plus years seeking general medical care in 2007/08 reached over 1.6 million, according to the NHS.
As these figures show, there is a high risk of older homeowners suffering from poor health, and so the only conclusion is that impaired life advice is a must for any IFA with equity release clients.
Impaired life products are commonplace in the retirement finance market and are designed for clients with medical conditions that may reduce their life expectancy. Applications for enhanced options in equity release planning consider several aspects of a client’s current status across two dimensions – the severity and prevalence of major and minor medical conditions and the client’s physical ability. With a wide matrix across these two areas, there is a high probability that many individuals applying for an equity release loan will qualify for an impaired option, and this can enhance their LTV.
The loan amount for an equity release plan is decided by a valuation of the homeowner’s property and the client’s life expectancy, with the severity of a client’s condition considered alongside their current age and gender.
Client A, who is wheel-chair bound with multiple sclerosis, may have a shorter life expectancy than Client B, who has multiple sclerosis but only minor mobility problems. Client A would therefore receive greater enhanced terms, but both clients would qualify for impaired life plans, thus increasing the amount of equity they can release from their homes. This would also improve their chances of remortgaging if they were moving from another product.
Like the residential mortgage market, the number of equity release products available to clients requiring high LTVs has diminished in recent months. Last year, it was possible for a typical equity release client aged 60 to receive a maximum LTV of 25%, but now the greatest they can achieve is just 21%. While this would not have created cause for concern a couple of years ago, with many clients taking out products fixed for life with one provider, today, the options have changed.
Minimise the debt
With interest rates becoming more competitive, and clients living longer, the desire to remortgage their loan to a cheaper rate is increasing. This option should also be of prime consideration for advisers. Unlike sales of average mainstream mortgages, where the central premise of advice resides in the method and timing of repayment, advice for equity release hinges on ways to minimise the debt left to the estate once the client dies. Remortgaging is an option – however, to achieve it today, LTV levels need to be raised in many cases.
Impaired life application addresses this issue and increases the opportunity to turn to remortgaging as an option to reduce the eventual debt to a client’s estate. And there has never been a better time for advisers to consider this route. Over the past month, big providers such as Mortgage Express have removed redemption penalties, allowing penalty-free transfers to other providers, yet those requiring similar high LTVs, as agreed initially, are unable to take advantage. Application for enhanced life choices is free through some providers, with a quotation returned within 24 hours in many cases. By exploring this option for each client at the outset and throughout the life on the loan, advisers place their clients in the best possible position for the future. Those clients who qualify will be able to release greater amounts of equity from their home and remortgage if appropriate.
Ultimately, the advice process for equity release is centred on minimising eventual debt. The majority of clients who choose these loans use them for life, and throughout this time, as they age, their circumstances are likely to change. An adviser who considers all the options open to their clients and follows their progress throughout the loan will help reduce the final amount payable at the end. n
