Equity Release case studies

Background

Mrs P is a retired widow (aged 67) who lives alone in a detached house in Surrey valued at £500,000. She has considered downsizing, but doesn’t want to leave the family home, so she would like to release equity from her property to enable her to buy a new car for £10,000. Mrs P also needs a hip replacement to ease painful and immobilising arthritis, and would like to pay for this privately to ensure speedy treatment, at a cost of £9,000.

Possible solution

Using a Just Retirement Lifetime Mortgage Plan, Mrs P applies to release £20,000 from her property immediately, which (after the deduction of fees) allows sufficient funds for the new car and her surgery. As she has not released the maximum amount of equity from her property, there is the ability to drawdown further amounts in the future.

Things to consider

• Flexible future drawdowns
• Overall cost of borrowing is kept lower than if the full amount had been taken out in one go as interest is only charged on the amount drawn.
• By taking only small lump sums as required, Mrs P is unlikely to reduce her entitlement to Pensions Savings Credit (unless she starts to accumulate more than £10,000)
• Mrs P may wish to involve her children in the discussion, so that they are aware of her plans
• She understands that interest payments will be accrued until repayment and that the debt will increase substantially as a result.
• If Mrs P decides to move home (e.g. to a lower valued property) she may be required to repay some of the mortgage outstanding
• Although she is not intending to repay the loan within her own lifetime, Mrs P needs to be made aware of any potential Early Repayment Charges that might apply

Background

Mr and Mrs G are aged 76 and 74 respectively, and currently live in a detached bungalow in Plymouth, which they estimate to be worth £210,000.

They would like to fulfil their dreams of travel and buy a caravan worth £10,000, as well as building a conservatory on their property at a cost of £25,000.

They have recently downsized to the bungalow, and so do not wish to downsize further. They would like to preserve some of their estate for their children as inheritance, and have savings of approximately £5,000 which constitutes their ‘emergency fund’.

Possible solution

Mr & Mrs G could release £35,000 from their property immediately with a Just Retirement Rollup Lifetime Mortgage, providing them with the funds they need to build a new conservatory and buy a caravan.

• Further cash could be released at a later date if required, as the full amount was not borrowed
• If Mr & Mrs G move home (e.g. to retirement accommodation, perhaps following the death of one of them) they may have to repay some of the outstanding mortgage, including interest from the sale proceeds
• Although they would not plan to repay the loan within their own lifetimes, Mr & Mrs G need to be made aware of any potential Early Repayment Charges that might apply
• Mr and Mrs G may wish to include their family in their discussion so that they are aware of their plans

Background

Mr B (aged 65) and Mrs B (aged 63) live in a semi-detached property worth £200,000 and would like to release £20,000 from the equity of their property for amendments to their house (a ramp, stair lift and walk in shower) and to fund a holiday. They are reluctant to delay the holiday until they have saved sufficient funds due to Mrs B’s deteriorating health.

They would like to leave some inheritance for their children, but this is not a priority, and they are not anticipating needing any further funds in the future. They had looked at taking out a personal loan, but monthly repayments were in the region of £250, which they were not comfortable with committing to out of their monthly income.

Possible solution

Mr & Mrs B could take out a Just Retirement Rollup Lifetime Mortgage and release the cash they need for their home improvements and a holiday, whilst still having funds left to use at a later date if they need to.

Things to consider

• Mr and Mrs B may wish to include their family in their discussion so that they are aware of their plans
• They understand that interest is accrued until repayment and the debt will increase substantially as a result
• Although Mr and Mrs B do not plan to repay the loan within their lifetime, they need to be aware of any potential early repayment changes that might apply

Backgound

Mr & Mrs S are both well for their age and would like to release their grandchild’s inheritance of £135,000 now, to help with the deposit for his first house, and £45,000 for a Jaguar S type for themselves. Leaving an inheritance for their son and daughter-in-law is an important requirement also, and they are not expecting to need any additional sums or income in the future.

Possible solution

With a Just Retirement Rollup Lifetime Mortgage, Mr & Mrs S could release £180,000 (36%) from their property, using this to gift £135,000 to their grandchild and spending the remaining £45,000 on the Jaguar. A low rate of interest is also important to avoid eroding too much of the equity in the property.

Things to consider

Mr & Mrs S have not yet spoken to their son or grandson about their decision.

• There may be an IHT implication on the arrangement
• The rolled up interest could erode some or all of the equity remaining in the property over time
• Mr & Mrs S need to be made aware of the Early Repayment Charge applicable, even though they are not intending to repay the mortgage in their own lifetime
• Further cash could be released at a later date if the maximum amount has not been borrowed

Please note, these are fictional case studies for illustrative purposes only.