Alex: Hello, and welcome to the equity release podcast. And today I'm with Mark Thompson from CS Retirement Solutions who just surprised me off air by saying that majority of inquiries that you're getting in business, you're doing it on people that don't realise they're on an interest only mortgage sort of burying their head in the sand thinking they're paying off their mortgage but no, I just couldn't believe people didn't know they were on interest payment.
Mark: I know. It's amazing, isn't it? That about 20% of the overall equity lease market in the country. And there are over a million interest only mortgages ongoing as we speak in 2020. But the staggering figures is 126,000 of those are going to be coming to an end.
Alex: Yeah.
Mark: This year in 2020. So you've got somebody there has an interest in him or he's been paying the interest only in their mortgage, and the bank has turned around to them and say or the building society. Okay, your mortgage comes to an end in June. So we want you to pay back the amount that you owe us. So customers are left thinking, well, what am I going to do? Because my situation now in retirement is a lot different or coming up to retirement a lot different to was when I was earning a lot more 15 or 20 years ago. So a lot of people are faced with actually losing their homes.
Alex: Yeah.
Mark: The banks are quite brutal, just say, we want the money to be paid back please. So where do you go?
Alex: Yeah, exactly. So it kind of makes sense that I suppose it depends on everyone's situation is gonna be different. And so they I suppose that actually does not really help every single person there. They need the right amount of equity available. And so what do I do then? If I'm kind of I've just realized today that I've got an interest only, the banker chasing me, what's the first thing I should do?
Mark: Well, a lot of people approach initially seeing if they can get a mainstream mortgage if you like it.
Alex: Yeah.
Mark: And all mortgages, you know, is the one available and how much does it cost?
Alex: Yeah.
Mark: The thing is, if you've been paying an interest only mortgage, you're paying less payments per month.
Alex: Yeah.
Mark: So quite often the face with the fact that if they're looking at then a capital interest where they're paying back some of the capital, that then becomes prohibitive in terms of the amount they're gonna have to pay back or what, you know, what vehicles they've got in place to pay back the money in any event. So a lot of the inquiries come from people that are just generally looking out there in desperation, lots of cases it's people tend to leave things to the last minute in the mortgage world.
Alex: Yeah.
Mark: It's amazing that they don't always plan ahead.
Alex: Yeah.
Mark: You know, I've had a letter from the bank and in two months time I'm going to be homeless, what can you do for me? And you made a valid point though that equity release it's not it's not for everybody and it isn't everybody's situation is different. So we don't just go into equity release is the answer.
Alex: Yeah.
Mark: But it's one of several possible solutions, one of which you sign for a home which a lot of people don't do a mainstream mortgage, but they have to service that payment then. So if you're taking a normal mortgage, you've heard of possibly other retirement interest only mortgages where you can carry it, take another interest only mortgage, but based on your retirement income, but you've got to service that in interest. And so you've got to be earning enough and have enough pension enough income to make sure that can be paid back.
Alex: Yeah, absolutely.
Mark: So give me just an example.
Alex: Yeah.
Mark: The easiest things a couple came to me a few weeks ago, and they'd had a letter from the bank, you know, they've been in their community for 20 years. And the bank was saying we want you to pay back the money. Now they were both retired but both had small part time jobs to maintain the lifestyle.
Alex: Yeah.
Mark: And they were fairly desperate because this has been stressing them out. They were faced with selling the home that they didn't want to do, guess they could downsize, boom, they spent 20 years in their home and invested in it, it was lovely. It was their palace. And all of a sudden they're faced with having to move out. And so, we go on to talk about equity release solutions. And when they understood the concept of it and how easy it was, and the fact that they could take an interest only equity release lifetime mortgage, which meant they could pay back the interest if they wanted or not. They were so grateful and happy to be able to move into that position. So they just took an amount of pay off their existing mortgage. They then had a lifetime mortgage, which didn't then have to be repaid until either one of them died, the last one of them died or went into long term care, which is the beauty of the equity release product. So they were never going to have to pay it back until the property was fully vacated. And they had the potential of paying back the interest if they wanted or not. So they can service interest or just let the interest build up. And their decision was, well, we can take things a little bit easier because these jobs that they've been doing to keep the lifestyle going all of a sudden meant that they weren't working, it wasn't end of the world because they wanted to pay back some interest on the mortgage, they could but they didn't necessarily have to so fantastic solution for those people, you know, and try their alternative was, you could sell a house because there was no other mortgage available to them based on their income. Well, that would have got them out of that situation.
Alex: Okay. So what would happen then if one of them did pass away to the other person, if they're in that equity release?
Mark: That's the question. Nothing per say in terms of the surviving partner is losing the house until their death or they go into long term care?
Alex: Right. Okay.
Mark: So that's the key thing that you never lose your home on a lifetime mortgage.
Alex: Yeah.
Mark: And so they basically would live there until they no longer have a need for it.
Alex: Yeah, absolutely.
Mark: So it's that straightforward.
Alex: And then what happens when they're both gone property goes up for what complications are there in the terms.
Mark: There aren't really, it's like any other mortgage, the lifetime mortgage or equity release with a lifetime mortgage is just a mortgage.
Alex: Yeah.
Mark: It is, as it says on the tin, it's a mortgage for life. And it's fixed for life as well. So we have the payment, the payments are fixed. And as with any mortgage, if the property sold the mortgage plus the interest that accrued, it's been paid off.
Alex: Yeah.
Mark: So it's whatever is outstanding at that time.
Alex: Yeah.
Mark: Isn't paid off any balance obviously goes to the state.
Alex: Yeah.
Mark: The benefactors children, whatever. So if the mortgage itself is just paid off, this concept of losing the house is something that people struggle with.
Alex: Yeah.
Mark: The old equity lease as was many years ago that wasn't fully regulated.
Alex: Yeah.
Mark: And there were these things called home reversion plans where people actually sold their property. So companies where we're buying, we're buying the property.
Alex: Yeah.
Mark: So the property wasn't mine, all of a sudden, I just sold it to a company. They let me stay in it, but I didn't own it.
Alex: Yeah.
Mark: Which isn't the same as having the mortgage. Home reversion plans now make up a very, very small percentage of the overall equity release mark up. I think it's something like .5%
Alex: Yeah.
Mark: The overall market in total. So just like a normal mortgage, it has to be paid with the interest if somebody is paid the interest often serviced interest as we say. So if you bought 100,000 pounds and you service the interest, then you owe the hundred thousand pounds.
Alex: Yeah.
Mark: You know if you've taken 100,000 and you've let the interest just compound that build up an interest on interest, then you just pay back what is owed at the time. So it was people's decisions or what to do.
Alex: And then what the factors the lenders look at we're not kind of looking at income and things like that if we're if we're so if you are kind of retired, you've got an interest only coming up what they're looking at your age and what's gonna left in the properties.
Mark: Yeah. Generally the equity is your property generally you've got to be over 55. Property has to be of a certain value lenders are all slightly different. But usually a property was worth at least 70,000 pounds as a minimum. And a property that's going to be saleable. So obviously if they grant you a mortgage for life, they will know when they get the property back that it can be sold. But generally there's no income, so I will not be interested in income. It's based on a client's age, and the value of the property, and more importantly, how long they expect that client to live. So the amount they'll lend depends on the life expectancy. So a bizarre label, if somebody is ill and hasn't got a great life expectancy, they can borrow more money because there's less risk to the lender in terms of the amount of time that the mortgage will be outstanding.
Alex: And what they send like surveyors around to the properties and work out the value house price.
Mark: Yeah. It's still like it will still be severe go around in the main to evaluate it, you know, and to make sure it's saleable.
Alex: Yeah.
Mark: That's the main thing.
Alex: Yeah.
Mark: Like any other mortgages,
Alex: Yeah.
Mark: If they thought, well, we're going to invest money in this property. This is our security.
Alex: Yeah.
Mark: Is it good security? Is it something that we think we would sell on the market.
Alex: Okay. Excellent. Anything else I should be aware of? Or any other options are there? If I'm in that situation where I've got that letter? Or I suppose the broad question.
Mark: What well, yeah, it is. I mean, obviously, you should first and foremost speak to your bank or your building site to establish the position with them and whether or not they can help you in any shape or form. So that's the first port of call. It is really, what is your exact position? There's no point, you know, getting where you need to understand. seek legal advice. As well, you know, people always seem to be a bit slow in seeking the proper advice. But then speaking to people like us that, you know, we're there to sort of guide them and direct them to the right place. You know, and obviously, with this work where we could, and I would say the point it's not just right, this is equity release, we've got a look at all the options and identify the best option for the client at the time.
Alex: Okay.
Mark: But like anything if they don't want to move now, then what are their options, you know?
Alex: Excellent. So it's kind of like don't bury your head in the sand. It might not be the end of the world you may not have to sell.
Mark: Um, it depends on most definitely and look at it earlier.
Alex: Yeah.
Mark: Don't leave it to the last minute.
Alex: Yeah.
Mark: You know. I used to say many years ago talking to clients that so are my bankers grey, right? Well, they're all moneylenders.
Alex: Yeah.
Mark: That's what they do. You know, they're lending you money and they're lending you money at a rate. What you want to do is get the best rate you can.
Alex: Yeah.
Mark: But if it comes to a point when you're not paying them back, then they take on a different persona in that sense.
Alex: Yeah.
Mark: Repossessions if you're not paying your loan back, they're going to repossess It doesn't matter how nice they are. Like that's what they're in business for.
Alex: How often should I review it if I say I've taken it out? The lifetime mortgage? Can I review it? Or is it set in stone? You talked about a bit of flexibility?
Mark: Yeah, that's a really good question. Interestingly, about 5% of the market are people actually either taking more from an equity release notes, or actually totally swapping one architraves product for another. In fact, you know, the old equity release as well as with the higher interest rates, the higher interest rates where the interest if you didn't pay it back was compounding very quickly, and people could see the depth going up. There were still those deals around and that and that's what gives the industry all the money, a bit of a bad name, but with some of the all time low interest rates now, there'll be a lot of people out there that should be thinking, well, I've got an equity release product. The only alternative is perhaps another equity release product, but the new one will be so much cheaper than the original let's say that forms about 5% of the market. So that's quite a heavy number. Really?
Alex: Yeah, absolutely. We have to come back to that case study earlier whether that couple was AC grands that they kind of owed on interest only what were their payments compared to what they were paying before was?
Mark: That's a good question. Not too dissimilar if I recall probably slightly cheaper. Again, the rates with an equity lease vary depending on how much you're borrowing, how much borrowing against the equity, how old you are. So the rates again, the rates are different for everybody.
Alex: Yeah.
Mark: I think what does surprise people is how cheap the rates are. Bearing in mind the historic Oh, yeah, yes, eights, nines 10s 12%. So I mean, I'm old enough to remember them highly.
Alex: Yeah.
Mark: Unfortunately you know, there is a fixed rate mortgage interest, you know, for life at 2.5%.
Alex: Yeah.
Mark: Which, where can you go and borrow money and fix it for life at that rate? I'm not saying every case is like,
Alex: Yeah.
Mark: But obviously they vary, but there are some extremely cheap, right.
Alex: A lot of people search online for an equity release calculator, but it feels like there's too many factors at play to have a form or a calculator on the website, that's going to give you the best solution.
Mark: Well, yeah, I mean, obviously, as a mortgage professional, I don't advise anybody doing it online. Yeah, it was, I mean, you know, it's amazing that there's so much online but unless you've got a full knowledge of the old saying is garbage in, garbage out. If you put the wrong information in, and you're gonna get the wrong information out. So as with just the general rule of mill markers I get, I get so many people coming to me saying, well, I've got an agreement in principle, and I've got it online and then you look at it their situation you think, but you've neglected to put in this or the other and actually the worksheet that that way, so before you know it, they can follow 40,000 more than they thought or 50,000 less than this. Yeah. So, and yet, it's always good to, I like my clients to have knowledge and knowledge gives them the confidence to proceed with it. When I'm first dealing with anybody I'm at, you know, I want them to understand what it's about, understand the concept. So it's an educational thing, really getting to really understand the point and they feel more comfortable with it, you know, quite a frightening thing to do and quite foreboding, especially as people are getting older. Having said that, a lot of the older clients are a lot more savvy than some of the younger clients are gonna be very careful.
Alex: Yeah.
Mark: I've got some elderly clients that will run around the block on finance.
Alex: Yeah.
Mark: Very, very savvy, which is good. But I think anything that educates them about what they're doing and you do find clients do do that anyway, I speak to people who have been looking at it for a while. It's not unusual to say to myself, I've been looking at this for a year now.
Alex: Yeah.
Mark: And thinking about it. But what I can explain in 10 minutes or 15 minutes.
Alex: Yeah.
Mark: You know, overcome what they can take, and if they've got quite understand or the real end of the stick with something, so, so
Alex: Yeah.
Mark: I like people to have that education on it. But sometimes, a little knowledge in doing yourself.
Alex: Yeah.
Mark: And then you're only looking at maybe one provider and as it's at all different. So I wouldn't even know until I go on a system and look at the thousands of products that there are, isn't it which is going to be the right one for the customer? Right, right. Right. So
Alex: I think I've got one last question.
Mark: Yeah.
Alex: I know he says kind of plan and not leave it to the last minute but someone's listening now. And they have how long will this process take if we had a meeting with you, we arranged it. you were available tomorrow. How long will I know that there's something that can be done. I don't have to sell if I don't want to.
Mark: And we'll, two questions. The first one, how long does the process take? I think the average equity release time scale is about five weeks. That's the average.
Alex: Yeah.
Mark: So you can have some that take quite a lot longer than that.
Alex: Yeah.
Mark: Sometimes it depends on the income all sorts of things come up with regarding the property our clients where they've looked at the property and said, Actually, we have to lend you the money, but the property isn't quite where we want it to be. So we want you to do this repair, do that repair, make that roof good.
Alex: Okay.
Mark: Yeah. So that can contract something on here. I've literally known of clients get money released when they're looking to buy a house. Awesome, because, again, people don't understand they can take it on the property that they're going to buy in the transport. Leave politics with you guys. They can have an offer out within less than a week. So again, it's like a normal mortgage. I have some offers come out in a day and some
Alex: Yeah.
Mark: But yeah, it is, it is a much quicker process. And generally, I would say about the industry average is about five weeks.
Alex: Yeah. Okay. And then if I'm, if I'm panicking and thinking I really left this at the last minute, will the banks consider that I'm looking at it? Would they ever delay if they say we're gonna, we're gonna go to pay this in too late?
Mark: That's a really good question. I mean, again, in my lifetime of advising people, yes, you would all banks have got a duty of care to the client.
Alex: Yeah.
Mark: And they've got to be seen to be doing the right thing. And if they can see that you're doing something, if you've got the right bank and the right person on the end of the failure, then there's no reason why they shouldn't give you more time.
Alex: Yeah.
Mark: To sort something out. And again, that's why I would always encourage speaking to the bank, and keeping a good dialogue with them. So yeah, that's a really good, really good question. But yeah, you would keep in touch. And you would hope the bank would give you time. I mean, it's not gonna be looked up very nicely in court. If, yeah, you know, some elderly couple has told me that I moved out of the home on the basis that they've not given them time to actually resolve the situation. Say, actually, this is when we're relevant, can be can be sorted very quickly.
Alex: Fantastic. So if I've not asked any questions, I'm thinking of an okay to drop you an email or how's the best to kind of cover it off if someone listening has got a question about
Mark: Well, give my phone number if they want to know.
Alex: Yeah, absolutely.
Mark: 07789941700 is the mobile and mark@csmortgage.solutions.co.uk is the email address. I mean, obviously they can go to the CS Retirement Solutions website and see the team there. There's some great information on there. They could probably even get a picture of me too. So all I am but they can get information from there as well. So I would send them down at them to go to the website or if not to contact me directly.
Alex: Fantastic. Thank you very much. Thank you Cheers.
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