New survey reveals sales driven by desire for home improvement
Consumers could save thousands by seeking out a product that allows flexible drawdowns
Saga has today revealed that consumers could be saving tens of thousands of pounds on their lifetime mortgages by choosing a plan that allows flexible drawdowns. The charging structures of some schemes encourage customers to release large sums from the equity in their home that they don't actually need, costing them thousands in unnecessary interest*.
Many schemes encourage customers to take out the maximum amount possible for their age by charging customers if they return for further money at a later stage. Saga, by contrast, actively encourages people to take only what they require and doesn't charge customers for further advances when the need arises. The savings that can be made by using flexible drawdowns varies in each case but can run into thousands over the lifetime of the mortgage. The attached example shows a saving of £10,624.
According to figures from the Council of Mortgage Lenders, there was a 10% increase on the amount borrowed through Equity Release in 2004**. Key reasons for considering releasing equity locked up in the home are the desire for a better quality of life through home improvements and to help family by paying off debts; providing money for a deposit for a house; and helping fund grandchildren's education.
Andrew Goodsell, Chief Executive of Saga commented: "Anyone considering a flexible drawdown product should make sure they fully understand the product and the implications of withdrawing more equity from their property than they need."
Wanting to remain in a property that is a home with good memories; close to friends and family; and, not wanting to alter their quality of life - are also cited in Saga's research as reasons why people reject moving to a cheaper property.
Notes to editors: Saga research conducted amongst 50 Saga Equity Release customers in March 2004
*Example of how customers could benefit from the flexible drawdown facility offered by Saga's plan:
Mr Brown is 83 and his wife is 75. Their house is valued at £250,000. The maximum they can borrow, based on the youngest borrower's age is £82,500. However, they do not need this much all at once. They decide to borrow 30,000 straight away, and then withdraw another 5,000 every two years after that. Mr Brown dies after 7 years, and Mrs Brown lives for a further 3 years, at which point the house is sold, 10 years after the original loan.
To access £30,000 today will cost Mr & Mrs Brown £495 for the arrangement fee, plus the client's own solicitors fees. Their valuation cost is refunded in full (up to 280). However, the Browns also access £5,000 after 2 years, and again at 4 years, 6 years and 8 years after the original loan. So they will release a total sum of £50,000.
When the house is sold in 10 years time, the added interest means that a final payment of £86,325.59 plus the £100 administration charge will be payable. Had the £50,000 been withdrawn in full, at the start of the plan, a total £96,949.74 would have been owed after 10 years (this assumes that all advances accrue interest at the current rate of 6.64%pa), a saving of £10,624.15. This demonstrates the advantage of taking equity from your home gradually, when you need it, rather than all at once.
**According to the Council of Mortgage Lenders, Britons borrowed 1.2bn through Equity Release in 2004, up 10% on 2003
For further press information please contact the Saga Press Office on: 01303 771529.