In Northern Rock’s experience, many customers of retirement age are reluctant to consider a lifetime mortgage as a viable solution to their financial problems because of their desire to provide a legacy for their family. The Northern Rock Protected Equity Release Mortgage, however, offers homeowners aged 60 and over the option to release a lump sum with the added protection of ring-fencing between 10% and 50% of the sale value of their property so providing a potential legacy for their family.
Fixed interest rates are from 6.99% (7.6%APR) for customers releasing a smaller proportion of the equity in their home or from 7.19% (7.8% APR) for those wishing to maximise the amount of equity released. These rates are fixed for life.
With the Protected Equity Release Mortgage, no monthly repayments are required during the term of the loan. Interest is added to the loan on a monthly basis and rolled-up, being repaid from the final sale of the property.
However, if there is insufficient equity to repay the loan and accrued interest once the property is sold, any shortfall will be met by Northern Rock under its ‘Negative Equity Guarantee’. The Protected Equity portion of the eventual sale value of the property would belong to the borrowers estate, irrespective of the outstanding mortgage balance.
Anthony Mooney, Assistant Director, Northern Rock responsible for lifetime mortgages and a SHIP Director said:
“Our experience of those entering the lifetime mortgage market confirms that many retired homeowners are equity rich but cash poor. On average, customers are releasing around £50,000 as either a lump sum or monthly cash release, a sum that can dramatically improve their standard of living.
“The market has grown rapidly over recent years and we believe that it will continue to do so. Our Protected Equity Release Mortgage offers an added degree of protection that is not available from other lenders and helps move the lifetime mortgage market forward.
“With our strong focus on consumer protection and our commitment to product safety, we are confident that this product will prove popular amongst those wishing to release equity whilst protecting a proportion of their assets.”
Northern Rock, a leading provider of lifetime mortgages in the UK, is a member of Safe Home Income Plans (SHIP), the voluntary organisation which sets sales and product standards for the equity release industry. This new product meets all of the criteria set down in SHIP’s strict Code of Practice.
The Protected Equity Release Mortgage will be available direct to customers and also through most high street mortgage intermediaries and IFAs.
Regulation of lifetime mortgages by the FSA later this year may promote further growth in this market. It is estimated that around 20,000 people will use a lifetime mortgage to release some equity from their home this year. However, within the next ten years, the total market could be worth between £4 and £5 billion a year*, with up to 100,000 new customers accessing the market every year.
There are around 15 million homeowners aged 55 and over*, who may be more willing to consider a lifetime mortgage once the market is regulated. The additional safeguards provided by Northern Rock’s new product will give more people an added option to supplement their income and improve their lifestyle in retirement.
* This view is based on the Council of Mortgage Lenders data, their estimates that the equity release market could grow to £4 - £5 billion a year and the average amount of money released through mortgage related and reversion equity release products which has been sourced from Safe Home Income Plans.
