Dean Mirfin is business development director at Key Retirement Solutions
“Raising sufficient funds is not a challenge at all. The real challenge will be to ensure that they do not suffer a costly early repayment charge (ERC) or even one at all. The obvious first choice would be to select a provider offering a clear, costed ERC with a competitive interest rate. The problem is that this would still see an ERC over this period of 5 per cent, or £3,750.
There is a more clever solution available from Northern Rock. This option is its cash plus scheme. The plan is aimed at monthly drawdown but also lump sums are available. The minimum monthly income is £50. This plan, under no circumstances, has an ERC. Victor and Margaret could borrow the £75,000 lump sum with a £50 per month drawdown. Based on current rates the extra cost in capital and interest of this option would be £1,355, saving them £2,395 against the ERC based option.”
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Duncan Young is managing director of Retirement Plus
“In discussing the proposition, there are the normal factfinding questions which any broker should ask Victor and Margaret, such as about health or attitude to house price inflation. However, their plans call for two particular areas to be explored.
The fact that they wish to repay the loan in 18 months may mean that equity release, notwithstanding the accrual of costs, is inappropriate. With one exception, all equity release products have ERCs and these may make their plans uneconomical. An overdraft with their bank might actually be cheaper overall.
It is worth investigating whether they plan to let the holiday home to raise additional income. There must be a chance of this as they seem quite tight on cash. In which case, the tax position should be verified and a review of their state benefits carried out, as it may be that the impact is greater than they had anticipated.”
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Stuart Wilson is managing director of Equity Release Advisory Service
“Following a factfind, downsizing should be considered. By moving to a £350,000 property, they could raise the required amount and pay all costs. If this is not an option, it may be worth talking to the family to see if they wished to service an interest only loan on the clients’ home or their own. This would prevent a roll-up of debt.
Once views are established on inflation, risk and ownership, an equity release scheme could be considered. The problem with lifetime schemes is that redemptions run at least five years, so if this was chosen they would have to be willing to accept the potential penalty situation.
A scheme that linked to movements in Gilt or Base Rates may be worth exploring, but there’s no guarantee their timing would be right to allow redemption free repayment.”
