Helen and Graham’s story

Helen and Graham have both been self-employed for most of their working lives. Graham is in the construction industry and has had to reduce his work significantly in the last 12 months because of a recurring back problem. Helen has seen a similar dip in income too and they have struggled with mortgage repayments. They now find themselves in arrears and have been told that repossession is the next step by their lender. Graham has spent the last 5 years doing their barn conversion and they have no capital remaining but are desperate to stay in their home, which is worth £615,000.

They were delighted when they came to us to enquire about equity release and realised that they could borrow enough money to pay off their mortgage of £127,000 including the arrears and have an extra sum to allow them to finish the interior decorating of the barn. They also wanted to take a well-needed holiday after all the stress they have both endured. Helen and Graham made the decision to choose a lender that offered an interest payment facility; this means that while they can still afford to they are paying the interest only each month (£427.00) They can stop this payment at any time, but while they have the income to do this they are maintaining the borrowing at £134,000.

As with all the Lifetime Mortgages that we recommend, the rate is fixed for life, so Helen and Graham will know exactly how much the debt will roll-up by once they decide to stop making the interest payments.

Irene’s story

Steve and Angela live in Penn Street and are both in their mid to late 60s, retired with 2 grown-up daughters and 1 grandson. They have lived in their house for almost 40 years. They would like to help their youngest daughter with renovations to her house but feel they should treat their other daughter the same. Steve and Angela’s pensions give them enough income for their day to day needs and they can afford an annual holiday. They have very little savings, so they did a lifetime mortgage to release equity from their home. It did cross their minds to downsize to release the money, but they love their house and the village of Penn Street with their friends nearby and surrounding countryside. They also feel that they want adequate space in the house for when their grandchildren come to stay.

Steve and Angela’s house is worth £765,000. They decided to borrow £75,000: £30,000 for each of their daughters and £15,000 for a new car for Angela and a few other ‘treats’ for themselves. They had always loved the idea of building a garden room at the back of the house coming off the lounge so they have built in a ‘cash reserve’ facility into their lifetime mortgage for them to draw down at the point when the plans are complete and they are ready to go. They are not being charged interest on this extra £75,000 facility until the money lands in their bank account. Steve and Angela have decided not to pay the interest and so this will ‘roll-up’ in the background and will be added to the amount borrowed.

It was a pleasant surprise to Steve and Angela that the amount outstanding after 10 years wasn’t a frighteningly large amount: interest rates on Equity Release mortgages are at an all-time low (July 2018). The rate applying in this case is 3.53%. The lifetime mortgage becomes repayable only in the event of the second of Steve and Angela’s death or the second of them to go into long term care.

Irene’s story

Irene, 81, is enormously proud of her granddaughter, Chloe. She has watched her grow up and qualify as an engineer and get a great job, working in London. At age 27, Chloe is still living with her parents, Tom and Jacky, commuting and saving hard for a deposit for her own place, preferably in London.

Tom and Jacky, both 53, like many of their generation, still have a mortgage, so while they help Chloe out to some extent financially, they don’t have access to lump sums to assist her with raising money for her deposit.

Irene wants to help out:

Her house is worth £440,000 and at age 81 she can release more than 45% of the equity. Chloe only needs £60,000 towards a 25% deposit. Having a deposit of at least 25% reduces the interest rate on her mortgage by almost 2%, so Chloe’s mortgage payments reduce from £1,250 to £800.

In addition to her state pension, Irene receives a pension from her job as an education adviser, so it would probably be possible for her to pay the interest on the equity release loan. The decision is made within the family not to pay any of the interest, but let it roll up, because the interest rate is low at 3.89%, fixed for life.

The option is there to pay off up to 10% of the loan each year, which between them, Chloe and her parents intend to do. Chloe now has a much lower monthly mortgage payment than she expected because of her large deposit, and now her commuting costs have been reduced to a fraction of what she was previously paying to travel into London every day.

Irene is delighted that she is able to see Chloe enjoy her inheritance at a time when she most needs it. Irene was advised to build in a no-cost Inheritance Guarantee, so she is happy that at least 50% of the value of her house is guaranteed to be passed on to her family, however long she lives, regardless of what happens to property values in the future.