Equity Release

Question 1

ER allows those who own their main residence to essentially release capital from their home from what age range generally?

Answer 1

55-60

Question 2

What 2 products are used in ER?

Answer 2

• Lifetime mortgages (more popular)
• Home reversion plans (less popular)

Question 3

How do lifetime mortgage work?

Answer 3

Loans are taken secured against the home.

Question 4

Under lifetime mortgages, in what 2 circumstances are they repaid?

Answer 4

• on LTC
• on death

Question 5

Under lifetime mortgages, what are the 2 ways interest is paid?

Answer 5

• either ‘rolls up’ and not paid until customer dies/goes into care or;
• is paid annually

(both either fixed or variable int rate)

Question 6

Under lifetime mortgages, who owns the home?

Answer 6

Still the borrower

Question 7

Under lifetime mortgages, what are the 2 ways money can be released?

Answer 7

• as a cash lump sum or;
• a series of capital payments

Question 8

Who can advise on lifetime mortgages?

Answer 8

Only specialist advisers authorised by the FCA

Question 9

Name 2 disadvantages of lifetime mortgages.

Answer 9

• cash recv from mortgage could reduce/remove entitlement to means-tested benefits
• early repayment charges can be v expensive

Question 10

How do home reversion plans work?

Answer 10

Either all or part of the home is sold to a reversion company and homeowner receives cash lump sum

Question 11

Under a home reversion plan, how long is the right of occupancy after sale?

Answer 11

Individual retains a lifetime tenancy so has right to remain there until death or perm residential care

Question 12

Some home reversion plans require the individual to pay a ~ rent, others allow the customer to recv a ~ sum by agreeing to pay a ~ rent.

Answer 12

• ‘peppercorn’
• higher
• market

Question 13

What is an advantage of home reversion plans?

Answer 13

There is a chance to gain from the future appreciation in the property value in the part which has not been sold.

Question 14

Name 4 disadvantages of home reversion plans.

Answer 14

• customer won’t get market value of property (often only 1/3)
• can’t make any structural changes without provider’s permission
• plans are difficult to reverse
• customer likely to lose out if they move soon after taking the reversion
• home reversion market is v small meaning few option for consumers

Question 15

Under home reversion plans, what does the customer remain responsible for? [2]

Answer 15

Insuring & maintaining the property

Question 16

What is a disadvantage of all forms of equity release?

Answer 16

They cannot provide for the cost of a single person moving into a care home, since the ER arrangement comes to an end upon moving into perm residential care.

Therefore ER can only be used to provide care in your own home, or else to provide care for 1 partner where the other partner will remain in the home.