Many major life events revolve around property, whether it’s buying your first property, purchasing the first family home, or potentially moving to a smaller property in later life in order to make life that little bit more manageable.
Why might customers seek to downsize?
A lifetime mortgage does not restrict these inevitable life changes that could happen at any point. Over the years lifetime mortgages have evolved to become more flexible and more change friendly. The Equity Release Council, in their Spring Report, said "In the right circumstances, equity release is a flexible financial planning tool that can increase retirees’ options in later life." Downsizing protection is a perfect example of this. Furthermore, over 55s are actively thinking about downsizing as a direct result of the pandemic, with research suggesting that around 1.8m are considering adjusting their property situation. Of those, a quarter aimed to do so within the next 12 months, with 54% aiming to do so within the next two years.
The reasons for people wanting to downsize is endless, with recent research indicating the most prominent include reduced maintenance and upkeep, taking advantage of an empty nest, and having to pay reduced bills (the latter was a factor among 43% of respondents - vs 56% for reduced maintenance – suggesting factors surrounding downsizing are likely practical rather than financial). The same report also highlighted the age breakdown of those exploring downsizing as an option, with those aged 65-75 most likely to do immediately, those aged 55-64 were most likely to consider in the future.
Downsizing protection: an example of equity release’s continued flexibility
Downsizing protection is an excellent exemption offered by some lenders, which allows clients to pay their equity release back early when they move home, without incurring any early repayment charges. As the name suggests, it's often used when clients downsize and move to a new property that is lower in value.
For example on the Pure Retirement Classic and Sovereign product ranges, we offer downsizing protection as well as porting options - downsizing protection can work in different ways:
- If clients wish to downsize to a different property where it meets the lending criteria, they can do this - if they have to make a repayment to make the loan fit, then we would not charge any ERCs.
- If, however, clients wish to downsize to a different property within the first 5 years and it does not meet our lending criteria, then ERCs would be applicable.
With our downsizing protection, if the clients have held their account for at least 5 years and they decide to move to a property that doesn’t meet our lending criteria, we will waive the ERCs after this time. The main point to note is that the client must have the intention to port their lifetime mortgage for the ERCs to be waived.Click here to learn more about our product solutions.
The theme of flexibility and options runs through our products and this doesn’t stop here! Get in touch for more information on our flexible product features, giving the potential option of change to your client, no matter what he scenario.