Diary of an adviser

Roshan Percy Equity Release Specialist CeRER, CeMAP

Welcome to my series of client experiences you might find valuable. Although the scenario's below are real, client names are not.

Mr. Bond's £3 Million Property and a Hidden Hurdle

I recently had the pleasure of meeting Mr. Bond , a charming gentleman with a £3 million London property. He wanted to release £400,000 to help his son and daughter onto the property ladder. Sounds straightforward, right? Well, there was a twist...

The Asbestos Surprise

As usual, we began with a "fact find" meeting which was a very pleasant conversation. I went away with the information and came back to see Mr Bond with the recommendation a few days later. He was very pleased with my recommendation and wanted to proceed. I progressed the application further. Everything seemed perfect until the property valuation revealed asbestos in the loft – something Mr. Bond had no idea about. We discussed options and after consulting a professional asbestos removal firm, they managed to remove the asbestos for the cost of £20,000. Thankfully, Mr. Bond had an emergency fund to quickly address the issue.

Happy Ending with a Safety Net

In the end, Mr. Bond not only got the funds to help his children but also secured a £20,000 reserve facility for future emergencies at no extra cost (unless he withdraws from it) or increase to the interest rate. This gave him peace of mind, knowing he had financial backup if needed.

The Takeaway

Equity release can be a fantastic solution, but unforeseen issues can arise. That's where an experienced adviser comes in – to guide you through the process, tackle any surprises, and make sure you achieve your goals.

Mrs Brown's Dilemma

Mrs Brown 56 lives in Birmingham , and she recently moved into a retirement property. Property value £125,000 and she has no mortgage. She wants to raise £25,000 to help her son get on the property ladder. She is on rather low income so she cannot afford to repay a loan or a mortgage. So she called me for equity release advice. After going through the initial consultation, it became clear to me equity release is the right solution for her. However there was a problem. She has a 80 year remaining lease term. Due to the short lease and her age there is currently no equity release lender who would consider her application.

It was hard to disappoint her on this occasion but I had to convey this message to Mrs Brown.

Remember if you own a retirement property, also known as age restricted properties your ability to release equity could be hindered by the following (currently):

• If leasehold remaining lease term over 100 years ideally 120 years +

• Service charge usually over 2.5% of the property value

• Ground rent over a certain figure and also if its escalating

• Age restriction applicable to the property i.e the qualifying age. If this is high, its going to cause an issue

• Low property value, if the property is over £200,000 more lenders will consider

• Sell on fees over 3%

Mr Freeman's Bungalow

Mr Freeman , is 70 and lives in Essex and he owns a lovely bungalow, which he inherited from his parents. He really wants to make some improvements to his home and contacted me for advice. He is a lovely man and we had a great chat, and during the fact find meeting he confirmed he has no debts secured or unsecured , a single man with no close relatives as beneficiaries. He just wants to live a more comfortable life in his retirement.

After going through his circumstances thoroughly I recommended a Lifetime Mortgage and submitted an application to a lender. After the valuation was completed it came in at £380,000 which is vastly lower from Mr Freeman's estimated valuation of £450,000. Luckily , he could still borrow the amount he is looking to borrow , £50,000 albeit at a slightly higher interest rate. As the property has been downvalued , the loan to value ratio goes up. The higher the loan to value ratio, the higher the interest rate goes.

Now to the real problem: The solicitors did a title check on Mr Freeman's property and found out there is a charge on the property by an equity release lender. I quickly alerted Mr Freeman who said he knew nothing about it, except that his late mother who passed away in 2020 used to have an equity release plan !!

Update : Well, it turns out the equity release plan is in Mr Freeman's name , which he took out last year! And he said he completely forgot about it because he thought it belonged to his late mother. Well, I had to part ways with Mr Freeman at that point because you cannot have two equity release plans secured on the same property simultaneously. And its really important to answer questions accurately when speaking to any financial advisor or a mortgage broker.

Why I am advising Mrs Murphy against equity release.

Mrs. Murphy is 56 and has a mortgage with a term expiring in 6 months. She needs £90,000 to refinance her mortgage on a leasehold property worth £450,000. During our conversation, it became clear that Mrs. Murphy has a short lease with a remaining term of 65 years. This is not a long enough term for any equity release lender; therefore, meaning she will have to extend her lease, which is going to cost her a considerable amount of money. Unfortunately for her she doesn't have any other significant savings, investments, or assets.

As a starting point, I asked if her current lender would extend the term, and she confirmed they declined due to her low income as she has stopped working and is drawing on a private pension of £1,000 a month. As the next logical step, I advised Mrs. Murphy to speak with the freeholder of the property and obtain a quote to extend the lease. She did so and came back to me with a figure of £60,000 for the lease extension as required by the freeholder. I further advised her to obtain professional legal advice to ensure this figure is acceptable and not too high. Upon consulting a legal expert who indicated this figure might be too high, she negotiated with the freeholder, who brought the lease extension fee down to £50,000.

Now Mrs. Murphy needs £140,000. She can raise £120,000 via equity release/lifetime mortgage but will have to borrow £20,000 from her husband (48 years old), who is not on the property deeds. Upon further conversations, I came to understand her husband earns about £100,000 per annum. I asked Mrs. Murphy how she would feel about adding her husband to the mortgage. She said she has been considering this for a long time and she would love to add him to the deeds and the mortgage.

So I arranged another meeting with both Mr. and Mrs. Murphy and discussed their circumstances further. Mr. Murphy would feel very comfortable making a monthly payment on a regular basis and is open to discussing regular repayment mortgages too.

I went back and did some research on regular mortgages, and it was clear a regular mortgage would cost them significantly less than taking out a Lifetime Mortgage/Equity Release.

Therefore, I recommended a repayment mortgage over 15 years. They will now be able to refinance their mortgage, extend their lease, and be debt-free in 15 years. What a great outcome!