The Equity Release Conundrum
Posted: Thu Mar 05, 2020 2:42 pm
Many will have noticed the recent shenanagins with equity release clauses and their varied interpretations , summarised nicely here: https://debtcamel.co.uk/iva-equity-release/
Basically, the old 2014 and, before it the 2010 Protocol versions, had, embedded in the Standard Terms & Conditions, an example of the historically accepted calculation for equity release. The 2016 version refers to this example but, for reasons unknown, does not actually contain such a beast and, so, is open to this new re-interpretation.
The older versions used to base the clauses on 85% market value, then taking off outstanding secured lending. The new version is being interpreted as taking market value less outstanding secured lending, giving the equity and then taking 85% of this figure .... which is somewhat higher than the old method and captures more people in the release clauses, causing many to either have to release equity or extend the IVA where they would not have had to do so previously.
Because of the clumsy way the release clauses have been written, it is possible to re-interpret them in this way and be fairly fireproof, in a legal, if not moral, sense, and so, be stuck with it.
Therefore it is essential, when looking into entering an IVA, if you are a property owner, that you ascertain from your prospective provider exactly what version of terms & conditions they use -- Just because the versions have been updated doesn't mean the latest is always used -- some providers like to stick to the versions they are happy with, and, of course some do not use Protocol, but other standards, like R3. I would also, regardless of the answer, push to get an example of the intended calculations, in writing, or referred to specifically in the proposal, to avoid any nasty surprises.
NEVER be fobbed off with a glib, "Oh, that isn't going to be looked at for another four and a half years, you don't need to worry about that yet".
Currently I am aware that Aperture, CreditFix and, now, Payplan are being inventive with the clauses and would be interested to hear of others.
Basically, the old 2014 and, before it the 2010 Protocol versions, had, embedded in the Standard Terms & Conditions, an example of the historically accepted calculation for equity release. The 2016 version refers to this example but, for reasons unknown, does not actually contain such a beast and, so, is open to this new re-interpretation.
The older versions used to base the clauses on 85% market value, then taking off outstanding secured lending. The new version is being interpreted as taking market value less outstanding secured lending, giving the equity and then taking 85% of this figure .... which is somewhat higher than the old method and captures more people in the release clauses, causing many to either have to release equity or extend the IVA where they would not have had to do so previously.
Because of the clumsy way the release clauses have been written, it is possible to re-interpret them in this way and be fairly fireproof, in a legal, if not moral, sense, and so, be stuck with it.
Therefore it is essential, when looking into entering an IVA, if you are a property owner, that you ascertain from your prospective provider exactly what version of terms & conditions they use -- Just because the versions have been updated doesn't mean the latest is always used -- some providers like to stick to the versions they are happy with, and, of course some do not use Protocol, but other standards, like R3. I would also, regardless of the answer, push to get an example of the intended calculations, in writing, or referred to specifically in the proposal, to avoid any nasty surprises.
NEVER be fobbed off with a glib, "Oh, that isn't going to be looked at for another four and a half years, you don't need to worry about that yet".
Currently I am aware that Aperture, CreditFix and, now, Payplan are being inventive with the clauses and would be interested to hear of others.