From RIOs to Equity Release: it's vital you listen to the right advice
The era of living longer has marked a rise in the number of over 55s who seek to release thousands of pounds in cash, which is tied up in their bricks and mortar, through later life lending.
In doing so those looking towards funding their retirements, or who want to offer support for their children and grandchildren, must ensure they listen to the professional advice that is offered to them.
Caroline Fletcher-Shaw, a Wilkin Chapman senior solicitor and property specialist, has noticed a recent upturn in the number of people taking Retirement Interest-only Mortgages (RIOs) in 2020 – possibly encouraged by the number of high street Building Societies now offering this form of cash release.
As with any mortgage application, after the necessary advice has been given by a reputable Financial Advisor, preferably in this instance one specialising in later life lending, the final step prior to draw down of the monies must include a face-to-face appointment with a solicitor. This ensures that the lenders fully understand the terms of any such offer – and the consequences of taking up the arrangement.
As a member of the Equity Release Council, Caroline and her colleagues at Wilkin Chapman have been heavily involved in the formal process of individuals unlocking cash in this way. With Equity Release, people borrow either a lump sum or steady stream of income using the value of their property to do so. It is repaid, usually upon death.
RIOs on the other hand, are a relatively new set of products designed to help older borrowers – allowing people to borrow against property and only pay back the interest, not the loan itself. That will usually be paid back upon death or a move into residential care.
They've been steadily increasing in popularity since 2018 when the Financial Conduct Authority (FCA) reclassified them as standard mortgages, which in turn opened the door for a wider range of lenders to offer them.
Since the start of the year Caroline has witnessed a flurry of referrals to her office and has taken the opportunity to remind those considering such cash release options to ensure they do heed all the advice and ensure the arrangement is right for each individual.
“As the professional legal adviser, it is not our position to offer advice on the type of arrangement that is right for the individual, that will have already been established by a financial adviser,” explained Caroline.
“What is our job, is to fully establish that the client has understood the full detail of the arrangement and the possible or likely consequences of it. For example, we must ensure they understand that their actions may well reduce the value of the estate they leave their beneficiaries.
“There is also a question of vulnerability, despite a large majority of older people being fit and healthy those above a certain age are officially classed as ‘vulnerable’ and as a result we must ensure that the clear understanding is there. Of course, these arrangements, be them Equity Release or ROIs are a very good option for many people, we are concerned to ensure that the consequences are gone through thoroughly,” added Caroline
