A
Additional borrowing - A person applying to borrow more money from their lender. This depends on the type of lifetime mortgage they have and is referred to as a “Further Advance”. Advice fee - A broker may charge you a fee for the financial advice and support you receive through the equity release process. This can vary significantly.
APR (Annual percentage rate) - The annual rate charged for borrowing. Usually expressed as the actual yearly percentage.
Application fee - An upfront fee paid to process an application. As lenders, Pure does not charge an application fee, however, your broker will charge an advice fee.
Arrangement fee - An agreed fee that is paid upon completion of your equity release plan.
B
Beneficiary - A person or entity that would receive benefits or money from an individual.
Broker - Another term for an adviser or advice firm. The person who arranges your plan and gives you the relevant information.
C
CCJ - Stands for County Court Judgment and is a court order that can be issued against a borrower’s name if they failed to pay an outstanding debt.
Charge - An amount of money you will be charged for a service. An alternative way brokers may discuss fees with a person.
Compound Interest - This is interest that is added and paid on any interest accrued on a loan, as is usually the case with a lifetime mortgage. Also known as roll up interest.
Conditions (Special conditions) - The circumstances or factors which may affect a person’s eligibility to apply for a lifetime mortgage.
Consultation - The first meeting – over the telephone, face to face or video - with your equity release adviser. Usually this is free of charge. Your adviser will use this opportunity to find out more about you and your financial goals before offering financial advice. An opportunity to determine if indeed equity release is right for you.
Criteria - Each equity release product will usually have set its own criteria, a standard for which the property must meet, in order to be eligible to be considered. If your property is deemed to not fit criteria, this will be referred back to the financial adviser to find a suitable product.
D
Debt Management Plan - Also known as an DMP, is a plan a person makes with their creditors to pay off their debts at a rate that is affordable for that person. Equity release can be used as tool to pay off outstanding debts. It is best to discuss this upfront with your independent equity release adviser.
Deeds - A legal and written document that confirms the agreement made between a person and in this case a lifetime mortgage lender about a property.
Deed of consent - A legal document that a mortgage lender needs to be signed by a person occupying the property for which the lifetime mortgage is being provided.
Downsizing - The process of selling a home in order to move to a smaller property.
Drawdown plan - A lifetime mortgage with the option to release more money at a later date, after taking an initial lump sum. An alternative to taking one large lump sum.
E
Early repayment charge - Dependent on your provider or plan, you may be required to a pay an early repayment charge if you pay off all or some of your lifetime mortgage earlier than planned.
Enhanced plans - A type of lifetime mortgage with increased loan-to-values or preferential interest rates due to specific qualifying health conditions and lifestyle choices.
Equity - The market value of your property, minus any secured loan(s) or mortgage(s) outstanding on it. The remainder is the equity in your property. For example, if your property is valued at £200,000 and there is an outstanding mortgage on £30,000 on the property, the equity in the property is £170,000.
Estate - The collective term for all your assets or everything in your ownership when you pass away. This typically includes your home, finances (i.e savings) and possessions.
Estate charge - A charge payable by a person in a freehold property on a private estate to help fund services, repairs and maintenance on the communal areas.
Equity release - The financial product that allows homeowners over the age of 55 to borrow against some of the equity that has built up in their home over time. There are two main types of equity release available – a lifetime mortgage (which is the most popular) or a home reversion plan.
Equity Release Council - The equity release industry trade body that sets governance standards and a Code of Conduct that all members must follow. Pure Retirement is member and supporter of the Council. Their website address is https://www.equityreleasecouncil.com. F
Financial Conduct Authority (FCA) - The government watchdog that oversees and regulates the activity of financial services organisations within the UK. Learn about them via their website: https://www.fca.org.uk. Financial Ombudsman Service (FOS) - The organisation that settles disputes between the financial services businesses and their clients. It is free to use service and information can be found on their website - www.financial-ombudsman.org.uk. Freehold - A person with a ‘Freehold’ property has outright ownership of the property and the land on which it is built.
Further Advance - When a person applies to borrow more money from their current lender. This is typically at a different rate than the initial lifetime mortgage and may affect a person’s welfare benefits and tax position.
G
Gilt rate - Government bonds in the U.K. are known as gilts. The term gilt is often used informally to describe any bond that has a very low risk of default and a correspondingly low rate of return. They are named gilts because the original certificates issued by the British government had gilded edges. As they are government bonds, they are particularly sensitive to interest rate changes.
Ground rent - A fee charged on leasehold properties as a condition of the lease of the land a property is on. The cost of ground rent will vary across properties.
H
Home reversion plan - A now rare form of equity release. In which money is released by selling a part of your home or all of your home to provider in exchange for a cash lump sum. None of our plans currently contain this feature.
I
ID&AV - An abbreviation for ‘Identity & Address Verification’, a process used by lenders to ensure a person is indeed who they say they are and to protect consumers against fraud.
Inheritance protection - A feature that allows you to ring-fence a set percentage of your property's value as a guaranteed inheritance. Usually only available with some/certain lifetime mortgages.
Interest only mortgages - A type of mortgage where the customer only pays the interest on the capital borrowed – meaning that the debt does not reduce.
Interest rate - A rate telling a person how high the cost of borrowing currently is. This is dependent on a person’s individual situation. An independent equity release adviser can help you find the best rates for your situation.
Interim Charging Order - An escalation of a County Court Judgment (CCJ) that secures the debt a person owes against their home or other property they own. An interim charging order is made by a court officer without a hearing. When a creditor puts an interim charging order in place, a person can’t sell their home without the creditor being informed of this.
IVA - An acronym for ‘Individual Voluntary Arrangement’, which is an agreement between creditors and a person on paying all or part of a debt owed.
K
Key Facts Illustration (KFI) - A document in a set format, created and provided during the advice process, which illustrates the features and risks of prospective equity release plans. Usually given to customers to help them understand the products in more detail.
L
Leasehold - When the ownership of a property has a set duration, after which said ownership is returned to the landlord (known as the "freeholder"). Lease durations can usually be extended – usually at a cost.
Lender - A company that offers equity release plans. Often referred to as a provider.
Lifetime mortgage - Another term for equity release and a form of mortgage (a loan secured against your home), in which you retain full ownership of your property. It is designed to be repaid when the plan holder(s) pass away or move into long-term care.
LTV (Loan-to-value) - This figure, usually expressed as a percent, represents the size of the loan amount in comparison to the value of your property. For example a loan of £20,000 on a property worth £200,000 would be a 10% LTV.
Lump sum - A fixed amount of money released to the customer in a single up-front amount.
M
Means-tested benefits - Payments available to people where income and/or capital is demonstrated to be below government-specified limits.
N
No negative equity guarantee - A guarantee with all plans that meet the Equity Release Council standards - that you can never owe more than the value of your home. So effectively it is not possible to pass any debts from equity release to your beneficiaries.
O
Offer - A conditional proposal is presented by the lender to the lifetime mortgage applicant. This offer is legally binding, and it's crucial for the applicant to discuss it with their independent equity release adviser and their solicitor before making a final decision.
P
Porting - The act of moving your equity release plan from one property to another.
Power of Attorney (POA) - There are two types of POA – financial or health. A POA provides legal authority that allows a third party to manage either your financial affairs or health and wellbeing affairs - on your behalf - should you lose the capacity to do so.
Property Construction - The action of building a property. Lifetime mortgages are only offered to properties which are completed, however, are available for completed New Build properties.
Property Tenure - Tenure refers to how a piece of land is held by the owner. Properties usually fall within two types of tenures: Freehold and Leasehold.
Property Title - Refers to the person who owns the property. A solicitor is likely to check the title on the property.
Provider - Another name for the company which provides and finances the loan or equity release plan.
Q
Qualified equity release adviser - It is a legal requirement to have financial advice, from a suitably qualified person, before applying for an equity release plan.
R
Redemption Figure - A redemption figure refers to the amount of money left on a mortgage for a person to have fully paid it off.
Reinstatement - A process that can happen when bankrupt where a debt is reinstated or restored in its original terms.
Restriction - Refers to certain conditions or limitations imposed by the lender on the property or the borrower. These restrictions can vary depending on the lender and the specific equity release mortgage. For example, a property criteria may be in place and state that a minimum property value is required.
S
Secured Loan - A loan that is fixed or attached (secured) against something physical (i.e. a Car or Home) by the lender. Usually taken against an asset you own, that enables the lender to recover any outstanding debts if you cannot pay back the loan.
Service Charge - A fee relating to repairs, maintenance, improvements, insurance, or costs of management.
Solicitor - A legal professional qualified to give legal advice and support.
Special conditions - A set of actions a person needs to complete before a lifetime mortgage can complete. For example, a lender may ask a person to carry out a set of repairs which were recommended through the property valuation.
T
Tax-free - The money released from equity release is not usually taxed via either Income Tax or Capital Gains Tax. However, it may affect your tax position overall and it may be worth speaking to a specialist
U
Use of funds - What a person will use a loan gained from a lifetime mortgage on. The intended use of funds is part of the lifetime application. The loan-to-value ratio can be affected by the use of funds, so an independent equity release adviser will ask what a person will use their funds gained via a lifetime mortgage for.
V
Valuation - As part of the equity release process, the property must be valued by a surveyor. This ensures that it is fit to lend against, and it also confirms the market value of the property.
Voluntary repayments - A feature of some lifetime mortgages. Which typically allows you to repay between 10-40% of the original amount borrowed each year without penalty, or proof of income. Find out more about voluntary repayments here.