One of the casualties on the 2008 financial crash was the Newcastle based - Northern Rock bank. For the first time in over 180 years, we saw a run on a bank in the UK. After the calamity of the credit crunch and the resulting fallout thereof, we evidenced the collapse of Northern Rock. This meant the bank was eventually sold off in parts, with the profitable banking arm being acquired by Virgin Money. However, importantly the lifetime mortgage loan book was bought by J P Morgan who transferred administration of the lifetime mortgages to its subsidiary, Papilio UK Equity Release Mortgages Ltd.
What Did Papilio UK do with Northern Rock’s Old Equity Release Book?
Papilio UK, who are based in Ipswich, merely attend to the day to day administration of all the old Northern Rock Equity Release Plans. If you are an old Northern Rock lifetime mortgage borrower seeking additional loans or drawdown, you may not be aware but you will be out of luck. The reason being any Further Advances or Additional Borrowing are not available anymore via Papilio UK. Papilio will continue to administer the existing mortgages, but at rates of interest that are rarely competitive in the current equity release 2016 marketplace.
Information on Old Northern Rock Interest Rates
In the early days of Northern Rock equity release schemes interest rates were in excess of 8%. None of the old plans permitted any form of repayment schedule, hence they were all arranged on a roll-up basis which resulted in the compounding of interest. Therefore, homeowners with such old Papilio UK lifetime mortgage plans, should review their plan with some urgency. The reason for this is that equity release interest rates in 2016 are now below 5%, hence a 3% saving on a roll-up plan would represent a tremendous saving over the long term, and for the beneficiaries!
Do I Need to Consider Northern Rock’s Early Repayment Charges?
To consider swapping equity release schemes, all factors need to be assessed, one of which would be any possible early repayment charges. Therefore, the earlier Northern Rock plans around 2005, had a 5-year early repayment charging structure as follows:
Years 1-3 - 5%
Year 4 - 4%
Year 5 - 3%
5+ Years - NIL
By 2007, Northern Rock had adjusted the penalties and moved them over to a longer duration:
Years 1-5 - 5%
Years 5-10 - 4%
Years 10-15 - 3%
Years 15-20 - 2%
20+ Years - NIL
However, no penalty arose on sale of the property, death or moving into long term care on either option. This sale of property with no early repayment charge was unique in the industry at that time.
Nevertheless, once the passage of plans went from Northern Rock to Papilio UK upon their demise, if customers needed to borrow additional funds, then all the aforementioned early repayment charges would be waived upon remortgaging to a new equity release lender. This is great news for potential remortgaging onto a better interest rate, borrow additional funds & to benefit from a whole host of new features available in today’s lifetime mortgage schemes.
What’s Changed in the Equity Release Market Since Northern Rock’s Demise?
Since 2008, the lifetime mortgage market has continued to flourish and in 2015 alone lending in this specialist market topped £1.7 billion. The equity release market has come a very long way since the 1980’s and the increased demand for this type of lending has resulted in new entrants to the market such as Legal & General and the introduction of far more flexible plans.
Increased Flexibility
The lenders have responded to borrowers’ concerns about being locked into potential long term penalties by introducing clearly defined penalties as short as 5 years, a 3-year moratorium on early repayment penalties for joint borrowers following the first death or entry into long term care and, most significantly, the option to make annual penalty free reductions of up to 10% of the loan. This last option allows those borrowers concerned at the increasing debt but unable to afford monthly committed interest payments the means of funding reductions in the loan at their own discretion.
Higher Loan-To-Values
In addition to these more flexible terms, the lenders have also reviewed their maximum limits of borrowing and, depending upon age and medical history, it is possible to borrow up to 55% of the property value. So those borrowers previously trapped with Papilio because of the level of their mortgage now have a greater chance of switching to another cheaper and more flexible lender. Use our FREE Equity Release Calculator to ascertain your maximum release.
Lower Interest Rates
Finally, fixed interest rates in this market are historically low and, depending upon the level of borrowing against the property value. In 2016, it will be possible to secure a rate very close to, and in some cases below 4%. Imagine if you are a Papilio borrower on a fixed rate of 6.99% and you switch to a new lender at a rate of 4.99%. The savings after 10 years for a loan of £50,000 or £100,000 would be £16,276 and £32,552 respectively, an added inheritance for your children and beneficiaries. And the cost of switching to a new lender can often be reduced, and sometime completely removed, by the offers of free valuations and “cashbacks,” allied to Papilio’s current policy of waiving early repayment penalties.
Try our FREE Equity Release Switch Plans Calculator
To help with analysing whether it’s best advice to switch from any older equity release plan, Equity Release Supermarket now provide a unique Free Switch Plans Calculator tool. Therefore, any planholder of a former Northern Rock (Papilio UK) plan, or any other old equity release scheme can use our calculator to see the potential savings (if any) you can make. By providing your current mortgage details such as balance, interest rate & early repayment charge, the switch plans calculator will compare this to a new plan and how much the difference in interest charged over the longer term will be. Check our Free Switch Plans Calculator here.
How to Start the Papilio Equity Release Switching Process...
I would therefore urge those of you who have not yet made the switch to contact Papilio on 0333 014 4476, quoting your mortgage account number, to request a settlement statement and then contact Mark Gregory at Equity Release Supermarket to review your options. We are whole of market equity release advisers who have for many years advised our clients as to whether its in their best interest to switch equity release plans & if so the potential savings they can make.
Mark Gregory - CeMAP CeRER
Independent Equity Release Adviser
m: 07966 889597
e: [email protected]
