"Having to stop work due to ill-health, changing one’s hours to care for an unwell or vulnerable family member and redundancy are just a few examples of scenarios happening more and more often in the current climate."
Welcome to the first of our later life lending case studies; in each one we’ll be working with one of our partners, equity release specialist MCB Financial Services, to explore a real-life client situation, and the solution agreed upon.
In this first case, we look at some clients whose best laid plans had suffered as a result of the all-too-common cause of life getting in the way! In this case, financial disruption had occurred because one of the clients had retired early due to ill health; although this case happened pre-Covid-19, unexpected financial changes have become more common than ever over the past twelve months. Having to stop work due to ill-health, changing one’s hours to care for an unwell or vulnerable family member and redundancy are just a few examples of scenarios happening more and more often in the current climate.
We also see the first instance of what will become a fairly regular theme in these case studies; the need to address a client’s perception of what equity release is, how it works and what it means to them. Those working in the later life lending market – both advising and lenders themselves – have taken enormous strides to deal with lingering misconceptions of equity release in today’s market, and we hope this work is starting to resonate more and more with consumers.
This case, which started as a standard mortgage enquiry, got underway when the client – a couple who we hadn’t dealt with previously - contacted us in a fairly anxious state, at a loss about how to proceed.
Several years before, the husband within the couple sadly became very ill with cancer and developed several other related conditions. As a result of his poor-health, he was forced to retire unexpectedly early. Crucially, an existing critical illness plan had been allowed to lapse during this period, and so any possible payment from this source, in conjunction with the loss of the husband’s income, resulted in a large default accruing on their existing residential mortgage over a 12-month period. The couple downsized to a smaller property, on which they paid off the mortgage immediately, but it needed fairly extensive renovations in order to accommodate the husband’s condition and ongoing care at home. A healthy pension pot for the husband and the wife continuing to work meant the couple’s income was healthy and would remain so in the future. However, they had used their savings following the husband’s diagnosis, and funds were needed in order to make the house suitable for their needs. The couple had one daughter, to whom they wanted to leave an inheritance.
The couple had first sought advice from an adviser at their bank who was unable to help, then a financial adviser who didn’t have equity release qualifications. He was unable to find a regular mortgage and didn’t make any other suggestions on how the couple could move forward.
When they became our client, regular residential mortgages were initially explored fully as an option, as this was their overriding preference. However, due to age (63 and 65) and credit history, no options were available from standard residential mortgage providers at the time, and anything that would become available within the timeframes needed would have been at very high rates due to the adverse history. Local authority grants for the required improvements were not available due to the good income levels for both the husband and wife.
Due to our adviser being qualified to advise upon, and experienced in, both standard mortgages and equity release, conversations were able to be had about solutions in both of these areas without the need for a referral. The clients had an extremely cautious view of equity release, believing it to be high cost and very restrictive but, by undertaking a detailed fact find process and gaining a full understanding of both the clients’ circumstances and objectives, we were able to assess and advise appropriately. Through expertise across all areas of the later life lending market, encompassing equity release and mainstream mortgages, as well as vast access to the lending options available, the adviser was able to educate the client and recommend an ideal solution that offered flexibility and comparatively low cost.
The solution decided upon was a lifetime mortgage with one of the newer lenders in the market. This offered product innovation in the shape of very competitive rates at the lower loan to values, along with flexibility by way of 10% overpayments per annum being allowed from day one. This allowed the clients to get comfortable with equity release as a solution as not only was the rate very competitive, especially compared to any residential mortgage that might become available to them once enough time had passed since the mortgage default had occurred, but it was fixed for life. It also provided the option to make regular contributions to the debt, even as far as fully repaying the debt in future should circumstances allow. Furthermore, due to equity release providers having minimal concern with credit history, it was available to them immediately.
When set against a genuine lack of options from regular mortgage providers, or those available being at a higher cost, due to the challenges in circumstance and criteria not fitting due to the adverse credit, this represented a good customer outcome. The client had the option to make regular or ad hoc payments on the arrangement and can ultimately repay the loan in full over a period of 12-13 years if they so desire. The client told us that the most attractive element of this solution was the flexibility, cushioning them, to a certain extent, from the fear of being derailed again by unexpected financial disruption.
This case study is a very typical example of where equity release can be utilised to find an appropriate solution, even when others have tried. The fact the clients had spoken to two different advisers before being presented the resolution above as an option demonstrates not only the importance of appropriate advice but also the need to have a holistic approach to assessing the circumstances and aspirations of customers in order to best service their needs and achieve good outcomes. If advisers are not qualified to give advice in this space, there are many excellent firms that they can partner with in order to ensure all avenues have been explored and every step has been taken to deliver the best, and most suitable solution, for their clients.