Redmill Week 1 Flashcards
What does the term ‘equity’ mean?
Equity means ‘ownership’ in the property
What is meant by the term ‘equity release’
Equity release is releasing equity from the value of the property
If the property is owned without a mortgage, how much equity would one be said to have?
100% equity
Name 4 reasons one may consider an equity release product?
- Repaying debts
- Funding home improvements
- Making gifts
- To provide for costs of long-term care
- Lifestyle improvements
Increasing income
How is the state pension funded?
The state pension is funded by the working population paying NIC
What are 3 reasons one may not want an equity release policy?
- Reduces inheritance
- Impacts means tested benefits
- Difficult to come to terms with not owning 100% of property
- High costs
What is a lifetime mortage?
An open-ended loan against the property which is repaid on death, sale of property or entering long-term care
If one takes out a lifetime mortgage, can they remain in the property rent free?
Yes
How is the debt of a lifetime mortgage secured on a property?
Against the value of the property on a ‘1st Legal Charge’
What is the usual remaining lease required for a lifetime mortgage is the property is a leasehold?
- 80 Years, or
- 155 years minus the youngest customers age
If a lifetime mortgage customer fails to maintain the property, what may happen?
The cost of repairs can be added to the debt
If interest on a lifetime mortgage is rolled up, on what basis will it be?
On a compound basis
Which two factors determines how much a lifetime mortgage customer can borrow?
- The age of the customer
- Property value
Is the LTV based on the younger or older life?
The LTV is usually based on the younger life
What does a drawdown lifetime mortgage allow you to do?
Allows for some money now and some later on, with no interest charged until the money is taken.
It allows for a pre-agreed cash reserve that the customer can draw on
Who could a drawdown lifetime mortgage be suitable for?
Those who are ‘asset rich and cash poor’
What is an Enhanced Lifetime mortgage?
It offers a higher LTV for those with worse health, although it comes with higher interest rates
What is a home income lifetime mortgage?
A lifetime mortgage that provides an income for the remaining life - like an annuity
What is a shared appreciation mortgage (SAMs) and why are they now a legacy product?
It involved the provider to take a share in the future growth of the property.
They are now legacy products as it meant in a property boom there would be significantly more owed to the lender.
What is the usual type of interest rate for lifetime mortgage policies?
Fixed interest
How much of an overpayment may be paid on a mortgage without penalty?
10%
Who may a payment holiday be offered to?
A payment holiday may be offered to those who have made overpayments in the past
Who is a secured advance covered by?
Mortgage Credit Directive (MCD)
Who is an unsecured advance covered by?
Customer Credit Act of 1974 and 2006
To be covered by the SHIP standards allowing a transfer from one to provider to another, what do you need to ensure?
You need to ensure that the provider is a member of The Equity Release Council
What does ‘equity of redemption’ mean?
It gives the legal right from an individual to settle the debt and clear the legal charge
What is a no negative equity guarantee
It ensures that the debt will never be more than the full value of the customers equity
What is guaranteed inheritance?
A guarantee allowing a percentage of the property value at death to be inheritable.
What is a home reversion policy?
A home reversion policy is the sale of part or all of the property in return for a lump sum
What is the relationship between the age of a customer and percentage of the property value a customer will receive in a home reversion plan?
The older the customer, the higher the percentage received.
There is a positive correlation
When can a customer with a home reversion plan stay in the property until?
Until they enter LTC, sale of property of death
Which 4 things means that an arrangement is not a home reversion plan?
- Occupier is not an individual
- Land is to be used as letting to someone not related to the owner or beneficiary under the trust who owns it
- The land is primarily used for business purposes
- Land is overseas
What happens when under a home reversion policy the whole property is sold?
The provider becomes the owner and the customer becomes a tenant.
When may a minimum inheritance guarantee be good for a home reversion policy
If someone dies shortly after taking out the policy
Is the equity released from the property in both a home reversion and lifetime mortgage policy taxable or tax free?
Both are tax free
How do lifetime mortgage providers fund operations?
- Through deposit taking
- By offering annuities
- From the markets
Which arrangement would release the highest possible equity for a health life, lifetime mortgage or home reversion?
A home reversion plan will release the highest possible equity
What is the usual minimum age for a home reversion plan and a lifetime mortgage?
- Home reversion is usually 55+
- Lifetime mortgage is usually 60+
What is the average defined contribution pension size?
Around £30,000
How much can be received tax-free each year by taking in a lodger?
£7,500
Will taking out an equity release plan reduce inheritance?
Yes
Which type of properties may a bank/building society not consider equity release on?
- Former local authority properties
- Those too close to commercial property
- Property with the presence of Japanese knotweed, subsidence, structural defects or a history of flooding
Is any further legal work required to access the ring-fenced cash in a drawdown lifetime mortgage?
No further legal work is required
When are interest rates set for drawdown arrangements?
At each subsequent drawdown
What is the minimum period for a home reversion arrangement to be used as a dwelling for?
20 Years
