When people hear the words Equity Release, they often assume it’s simply a way of releasing money from their home later in life. Whilst that can certainly be one reason, equity release can provide life-changing solutions where conventional mortgage lending is no longer available. Today, the most common form of equity release is a Lifetime Mortgage, which allows eligible homeowners aged 55 and over to unlock equity in their property whilst continuing to own their home.
As an adviser providing Mortgage Advice in Romford, Brentwood, Chelmsford and across Essex, my role is always to explore every possible solution before recommending the most appropriate route for my clients.
Recently I helped a 66-year-old client who found herself in exactly that position.
She owned a property with an Interest Only Mortgage that had reached the end of its term. The outstanding balance had become repayable and her lender had begun taking steps to recover the debt. Without a solution, repossession was becoming a very real possibility.
Unfortunately, her circumstances had become more complicated because she was temporarily unable to work due to mobility issues.
Her income consisted of Universal Credit together with Employment and Support Allowance. Although she intended to return to work as soon as her health allowed, mortgage lenders can only assess affordability based upon a client’s current circumstances rather than future intentions.
Before recommending equity release, every realistic lending option was explored.
This included residential mortgages, Retirement Interest Only Mortgages (RIO), conventional remortgage options and other Interest Only Mortgages.
Unfortunately, every lender fell significantly short of the borrowing required.
Rather than trying to force an unsuitable recommendation, it became clear that a lifetime mortgage offered the safest and most appropriate solution.
Looking Beyond The Mortgage
The existing property also had several debts secured against it. Simply replacing the mortgage would not have solved the wider financial problem. Instead we looked at the client’s overall circumstances.
The existing property was sold. The proceeds repaid the expiring interest-only mortgage, cleared the secured debts and left sufficient equity to use as a deposit towards an onward purchase.
Rather than arranging equity release against the existing property, the Equity Release mortgage was structured as part of the purchase of the new home.
This enabled the client to move into a more suitable property while removing the financial pressure created by the expiring mortgage.
The result wasn’t simply another mortgage. It provided a genuine fresh start.
Why Equity Release Was The Right Solution
One of the biggest misconceptions surrounding Equity Release is that it’s only designed for people wanting extra money during retirement.
Whilst that is one use, it can also solve complex situations where mainstream lending is no longer available.
In this case it allowed my client to:
- Repay an interest-only mortgage that had reached the end of its term.
- Avoid repossession.
- Clear secured debts.
- Purchase a more suitable property.
- Move forward with confidence.
Importantly equity release wasn’t the first option considered. It became the recommendation only after every realistic lending route had been explored.
That is exactly how professional Equity Release advice should work.
Understanding How Equity Release Works
Equity Release is available to homeowners aged 55 and over, although eligibility depends on much more than age alone.
The property itself is one of the most important factors. Lenders will assess its construction, condition, value and suitability before making an offer.
Age also plays a significant role. Generally speaking, the older you are, the greater the percentage of your property’s value that may be available to borrow. This is because lifetime mortgages are priced using actuarial data, including life expectancy, rather than having a fixed mortgage term.
Unlike a traditional residential mortgage, a lifetime mortgage is an open-ended loan. There is no fixed repayment date.
Instead, the mortgage is normally repaid when the last surviving borrower dies or permanently moves into long-term residential care, usually through the sale of the property.
One feature that many people are unaware of is the flexibility surrounding repayments. Voluntary monthly payments can usually be made towards the interest, helping to keep the outstanding balance under control.
However, these payments are entirely optional. If you choose not to make monthly payments, the interest simply rolls up and is added to the mortgage balance.
Whilst this flexibility can be incredibly valuable, it’s important to understand that allowing interest to roll up will reduce the amount of equity remaining in the property over time.
In my client’s circumstances, she chose to service the monthly interest. This meant the mortgage balance would remain broadly the same, giving her a payment structure very similar to the interest-only mortgage she had been used to, whilst removing the pressure of the loan needing to be repaid at the end of a fixed term.
Equity release is a regulated financial product and should always be considered carefully. Before making any recommendation, I assess all suitable alternatives to ensure a lifetime mortgage is the most appropriate solution for my client. If you’re researching equity release yourself, the Equity Release Council provides useful information on industry standards and safeguards, while the Financial Conduct Authority (FCA) offers independent guidance on how equity release products work and the risks involved.
The Outcome
The final solution achieved everything the client needed.
- The existing interest-only mortgage was repaid.
- Secured debts were cleared.
- Repossession was avoided.
- A more suitable home was purchased.
- Monthly payments remained affordable.
- The mortgage balance could remain broadly level through voluntary interest payments.
Every client is different. That’s why I always explore every conventional lending route before recommending Equity Release.
Sometimes the answer is a residential mortgage. Sometimes it’s a Retirement Interest Only Mortgage.
And sometimes, as in this case, a lifetime mortgage provides the safest and most appropriate solution.
If you’re approaching the end of an interest-only mortgage, considering your options in later life or simply wondering whether equity release could be suitable for your circumstances, I’d be happy to help.
Visit my Home Page to learn more about my experience, or head to my Contact Me page to arrange an initial conversation. As an independent adviser providing Mortgage Advice Romford and across Essex, I’ll explain all of your options so you can make an informed decision with confidence.
