Going through a divorce is never easy, and if you share a home together, untangling your finances and deciding who – if anyone – should remain in the marital home can be difficult. For some divorcees and separating couples over 55, equity release is considered a reasonable compromise, as it enables both parties to access some of the equity tied up in the value of the property to fund their future living arrangements.
The situation
Our clients Emily, a 63-year-old retired English teacher from Kent and her husband Richard 68, had decided to go their separate ways and had filed for divorce.
After 40 years of marriage, Emily and Richard had mutually decided to divorce and were looking for the best way to move forward. They had two grandchildren, whom Emily looks after regularly so her daughter can work and save on childcare.
Richard had agreed that Emily could remain in the family home. His pension was enough for him to live a comfortable day-to-day life, but he needed some additional money to cover the immediate costs of the divorce and move out.
Emily was receiving a moderate pension but had no savings or investments. Our client was worried she wouldn’t have enough income until she got her share of the divorce settlement.
After consulting with a mortgage adviser they trusted, they were recommended to 55Plus, following excellent feedback from a previous client.
Emily wanted to stay in the family home so her grandchildren can continue to stay over, to have enough money to pay for divorce proceedings and for Richard to have enough money to move out and afford his own place.
How 55Plus helped
Our team of expert later life specialists quickly explored which financial options were available to our clients, to help them support Emily to remain in the family home and provide enough money for Richard to move out comfortably. Their home in Maidstone, which they owned outright, was worth £400,000. They had both considered downsizing but wanted to avoid doubling their moving costs and causing any emotional stress by selling the family home.
At 55Plus, we always put the best interests of our clients first. As the money was being used for separation, our expert adviser spoke independently with each client, to ensure that they were not being coerced and were satisfied that equity release was the right choice for their needs.
Once we had confidence that it was in their best interests, we held a meeting with Emily and Richard to explain clearly and accessibly what equity release is and how it can help, and the second, to go through the Lifetime Mortgage illustration with them for their application. If we do not think equity release is suitable, we always say so. To help him with the situation, our clients agreed to release a lump sum of £100,000 from their £400,000 property to facilitate the divorce, using a Lifetime Mortgage.
As the Loan-To-Value of their property was only around 25% the interest rate available on their Lifetime Mortgage was much more favourable than if they had chosen to release a higher amount. Additionally, as they did not have a significant pension pot or disposable monthly income, they had the option to add any interest to the final debt. A Lifetime Mortgage allowed them to do this. As the rate is fixed for life, they would know how much was owed at any given time. As always though, if we feel that clients can afford to pay the interest then of course this is encouraged.
The outcome
After speaking with a solicitor and signing the necessary documentation, we applied for a Lifetime Mortgage on our clients’ behalf and they were successful with their application, receiving the fully requested sum of £100,000.
Furthermore, the interest rate on the equity released was fixed for life, with the flexibility to remortgage to lower rates in the future, if they become available (subject to a possible early repayment penalty and lending criteria at that time).
The entire application took no longer than six weeks from our clients’ first approach to the lump sum being released. The lifetime mortgage allowed Emily to unlock some of the equity from their property without having to sell it. This avoided paying additional moving costs and the upheaval of losing the family home.
It also helped to relieve the financial stress at an expensive and emotionally difficult time for both parties.
More importantly, it meant Emily could continue to care for her grandchildren and remain in the family home. Should she wish to move and downsize once they’ve grown up, she can take the lifetime mortgage with her, which was part of the terms and conditions of the lender. Richard could use the money to buy an apartment or use it as additional income to pay rent on a property.
In addition, should the clients’ financial situation change in the future then the situation needs to be reviewed, an important part of Equity Release planning.
