UK Property Market

Equity Release Scheme: About Lifetime Mortgages

Lifetime mortgages are also known as Roll Up Mortgages and are loans that use the home of the borrowers as security. Lenders will usually offer the homeowner a lump sum of cash or the ability to receive some amount of income on a monthly basis, or a combination of the two. The value of the property is what is used to determine what amounts are offered.

With these mortgages just like most other mortgages there is an interest charge on the loan. The difference lies in the fact that the customer will not need to pay it. What happens is that the interest is added to the principal or ‘rolled up’ as it is called. Thus a compounding interest is used.

Once the home is sold then both the interest and principal would have been repaid. Because the interest is compounded there is a possibility that over time it will be greater than what the property is worth. This situation does not concern the customer as there is a no negative equity guarantee that is attached to most lifetime mortgages. The lender accepts the risk should it arise.

The amount of money that can be borrowed for the home equity release is determined by the lender who will consider amongst other things the age of the applicant. It is normally given to persons over the age of 55 years.It is important that if you have any questions that you need answered, that you write them down and ask them of your lender prior to entering into a Lifetime mortgage.

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The rise and fall of the HIPS

The ‘Home Information Pack System’ (HIPS) was designed to limit the number of property sales falling thorough by ensuring that the seller provides a comprehensive packaging of information with regards to the property in question. The HIPS pack consisted of several documents, including an Energy Performance Certificate (EPC), standard searches, Home Condition Report and sustainability information.

The system had been introduced in late 2007 and was already gathering controversy, for example the cost of the HIP, between £300 and £600 was putting off property sellers, and that it was too much extra hassle, as people now had to gather extra documents to progress with a house sale.

The Conservatives had pledged to scrap HIPS, and sure enough when they came into power as a coalition with the Liberal Democrats, HIPS was scrapped on the 20^th May 2010. According to The Guardian, who reported on the scrappage of HIPS, the statistics were shocking. Within seven days of the scrappage, new property registrations increased by over a third. Stephen Armitage, of Winkworths in Sheffield, has already reported an increase of property registrations by 20% when HIPS were scrapped. “The properties coming on our books are more in the £100,000 to £150,000 range, probably homes belonging to people with less disposable income to put towards the house move. The market has been more challenging in the north, and paying £500 for a Hip would be a sizeable outlay when there is no certainty that they can sell.”

It seems that the cost of a HIP was the reason why sellers were put off selling their property in the first place. The Managing Director of Countrywide Robert Scarff said “Properties have been selling very quickly in London and the south, but sales boards have stuck around a it longer in the north. If you are in one of those parts of the country where the market has been slower, you would have thought ’There are already three properties up for sale in my road. Why part with £500 when I might not get it back for a while, if at all?”

Therefore the HIPS pack had actually made the housing market worse off instead of making it any better off by providing more information about the house. The statistics after the scrapping of the HIPS is shocking.

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