May 19th, 2014

A lot has happened in the last eight years. Housing prices declined rapidly, mortgage products left the market swiftly, and interest rates bottomed out. Now with two recessions behind the UK, housing is starting to come back. Unfortunately it is not an even process. Economic recovery occurs fastest where the money is, which translates into London seeing the best housing prices since the decline and the rest of the UK slowly following. For Londoners it means equity levels are up, which offers a higher equity potential to be withdrawn for all kinds of purposes. Equity release schemes include interest only, roll up, drawdown, and enhanced lifetime mortgages. With enhanced lifetime equity release the health and lifestyle questionnaire is a handy tool.

Explanation of Lifetime Equity Release Schemes
A roll up lifetime mortgage is a traditional London equity release product. The repayment of the principle balance and compounded interest is not due until death or the homeowner decides to sell. Actually, it is possible to transfer the lifetime mortgage if the homeowner decides to buy a new home in London or surrounding counties. It is a matter of whether the homeowner sells to rent or to live in a care home. In any case, the interest “rolls-up” and every 11 to 12 years this doubles the principle loan amount.

The drawdown equity release product sets up an equity account. A small lump sum of tax-free cash is then provided in the beginning which is tailored towards the initial capital spend of the retiree. After the initial payment, homeowners can tap into the account as needed. Interest only compounds on to the loan amount used rather than the entire home equity amount supplied. It keeps the interest and principle balance more affordable and beneficial for the heirs of the estate.

Interest only lifetime mortgage products allow the interest to be paid on a monthly payment system. The principle or borrowed loan amount is never repaid until the end like all lifetime products. The amount also remains the same as the interest is paid off.

Enhanced lifetime mortgages allow London homeowners to take advantage of poor health situations they may have. Under this type of mortgage the absolute maximum amount that can be borrowed through equity release can be provided to the homeowner. Poor medical records are a must for this type of London equity release scheme, which is why there is a health and lifestyle questionnaire to fill out and see if any of your health concerns would apply. No medical is ever required, but the lender may write to your doctor to confirm the information provided.

Some Examples of Current Products
Aviva has a standard lifetime mortgage available right now with a low equity release interest rate of just 5.63%, and a representative APR of 5.83 per cent. It is a fixed interest rate so the compounding effect is less troublesome than variable rates. Rates tend to increase when the economy has high inflation and is in a good position. By locking in low rates now, it saves the homeowner from spending more in a few years.

There are now also the competitive and flexible plans in which 10% of the interest and/or capital repayments can be made. Aviva and Hodge offer the London equity release market schemes in which 10 per cent of the interest and capital can be repaid each year, so that the mortgage is paid off within 15 to 16 years. This is a first in the history of equity release schemes & certainly people in London should be aware of.

Not Without Disadvantages
Everything sounds pretty rosy as you read about the various product types, the examples, and potential help you can gain in tax free cash. The fact that you can use the money as you desire also helps keep it an attractive product. The downside is that the eventual repayment can be quite large. Since equity release interest rates can double the capital balance every 11 to 12 years there is the potential for most of the London home equity to be used up in the lump sum and interest leaving little inheritance behind.

This is where the good news of London property types comes in. Certainly there is a loss of equity and some inheritance savings with equity release; however, property values in London are growing quickly ensuring there is more value in the home. London property is also more likely to retain their value throughout a person’s life span especially if they are ex-council houses and flats. Equity lenders know that prime real estate is in London versus other areas of the UK. Country homes may not retain value, or fluctuate more than London.

It is definitely possible to reduce the risks one can face with London equity release schemes. Some of the products like interest only lifetime mortgage or drawdown are better to save homeowners from risks. Still, filling out the health and lifestyle questionnaire gives you a different perspective on what you might expect as you age with health ailments. Poor health can at last have a positive effect on one’s life.