From Monday 8 April 2019 we’re making some ‘market leading’ changes to our Equity Release proposition.
- We’re making a significant range of changes to our lending criteria and the big-profile areas are to allow customers to let out a self-contained part of their property and to use their property and land to carry out a limited amount of personal commercial use.
- We’re introducing Downsizing Protection as standard to our product with some market leading features.
All changes apply to the Lifestyle Lump Sum Max and Lifestyle Flexible Option products, for customers on Edition 5 Terms and Conditions only.
As part of this release launching on 8 April 2019 we’re also:
- Implementing a simplified, single set of terms and conditions for both of our products (Edition 5).
- Refreshing the new business application form in response to your feedback and to make it easier for you to submit business, eliminate failure demand and facilitate a faster journey to offer.
- Simplifying the method for enhanced cases by integrating the health and lifestyle questionnaire into the flex tool (Personal Quote Summary).
- Re-branding the flex tool output sheet to a customer friendly name, ‘Personal Quote Summary’, to make it easier for you to explain the terms to your customers.
New lending criteria
An exhaustive review of the lending criteria has been undertaken drawing on our 20 years of experience in this area and the changes in the market over recent years, with the purpose of expanding the lending criteria to help you make recommendations on the widest range of properties available. We’ve taken the existing lending criteria and modernised it, by using the property experience of our qualified RICS surveyors, as well as advice from an external law firm. As part of this review we’ve also considered how customers want to and need to use their homes in later life and this has influenced two of the main changes being delivered.
The full list of changes can be found in the table below, followed by further detail on the two main changes:
| Lending Criteria | Detail of the change | Why are we changing? |
| Service Charges | The combined service charge and ground rent per annum must be 2% or less of the property value. | By having a cap, it allows us to predict our exposure to the total arrears we may be faced with should a customer default on their service charges. |
| Separated Borrowers | If the lifetime mortgage is being taken on the existing property & the other person is NOT living in the property and NOT on the title deeds = ACCEPT (no further evidence required). | Simplifies the process for separated borrowers for the majority of cases, as we do not require any further documentation in order to proceed. |
| Tenancy in Common | If one of the customers has died, we cannot accept an application for New Business or Additional Borrowing until the property title has been transferred placed into the surviving borrower’s sole name. N.B. this does not apply to releases from a cash reserve. | Ensures that the surviving borrower who is applying for additional borrowing is legally entitled to the monies to be secured on the property and that no other party has any interest which could undermine the further loan. |
| Lease Extension | Before an application will be considered, we must see documentary evidence that the landlord has agreed to extend the lease and the terms of that agreement | This is a complex and lengthy process and we want to ensure that the customer is fully aware of the costs and terms of the lease extension before entering into the lifetime mortgage process. |
| Purchase Freehold | Before an application will be considered, we must see documentary evidence that the landlord has agreed to sell the freehold and the terms of that sale | This is a complex and lengthy process and we want to ensure that the customer is fully aware of the costs and terms of the freehold purchase before entering into the lifetime mortgage process. |
| Single Skin/Half-brick thick walls | Where the single skin comprises up to 20% of the surface area of the external walls, this is acceptable provided there are no adverse structural issues related to the single skin | These areas are all related to property construction and the changes have been implemented to protect both Aviva, our funders and the customer. By only accepting properties that are in a sound structural condition, we can ensure they are safe for the customer to live in and can be sold to repay the loan at the end of the term. |
| Properties that contain asbestos | Acceptable subject to valuer comments | |
| Asbestos composite roof tiles | ACCEPTABLE: Post-1945 tiles – Subject to valuer comments NOT ACCEPTABLE: Pre-1945 tiles | |
| Externally applied insulation | Externally applied insulation to the roof or walls after construction may be acceptable | |
| Building Regulations | Will not be required in all scenarios. Specific outcomes apply dependent on: ~ whether the lifetime mortgage is on the existing property or a new property ~ whether the works appear to have been done in the last 5 years ~ whether the valuer believes the works to have been done in accordance with Building Regulations ~ whether the valuer has indicated any adverse structural issues | |
| Timber framed properties | ACCEPTABLE ~ Built prior to 1920 (subject to valuer’s comments) ~ Built post-1965 provided they have an external skin of at least 50% masonry construction NOT ACCEPTABLE ~ Built 1920 – 1965 ~ Any age property where cavity wall insulation has been retrospectively applied | |
| Eco Houses/Modern Methods of Construction | May be acceptable and will be dependent on the warranty and input from the valuer and underwriting knowledge e.g. is there a demand for this type of property in the area | New forms of construction are being developed and used in residential housing in the UK, so by expanding our lending criteria we’re enabling more customers to benefit from a lifetime mortgage. |
| Stored Goods | ~ Low level of storage = Acceptable ~ Medium level of storage = Once goods are cleared, a reinspection by the valuer will be required ~ High level of storage = Decline | To protect our property portfolio, but also to enable more customers to benefit, provided they are prepared to allow a full inspection. |
| Acres of Land | We’ll consider properties with over 50 acres of land | Allows all types of property to be considered. |
| Private water supply | Acceptable provided there is a regular testing and maintenance programme in place. | Ensures a healthy supply of drinking water for our customer, but also means the property is more saleable at the end of the loan. |
The high-profile changes within the lending criteria are that Aviva will now consider lending to customers who:
- Have a self-contained part of their property e.g. annexe or cottage in their grounds, or possibly a basement or top floor flat, provided this space represents less than 50% of the total property to be secured and is either unoccupied, occupied under a suitable tenancy agreement or occupied under a holiday let (provided the holiday let does not extend beyond 30 days).
- A question will be asked on the application form and the valuer will inform us of details of the self-contained part and if there are occupants.
- Our solicitor will check the tenancy agreement at the outset to ensure it meets our requirements.
- Existing tenants will need to enter into a new tenancy agreement on agreed terms and will also be required to sign an occupancy deed witnessed by an independent solicitor.
- Use their property to carry out a limited amount of personal commercial use, provided this is for their benefit and the space used for the business does not extend beyond 50% of the total property to be secured.
- A question will be asked on the application form and the valuer will also inform us of the commercial use taking place and the extent of this, in order that we can ensure the commercial use meets our lending criteria.
- Use their land to carry out a limited amount of personal commercial use or allow temporary occupation of their land to a third party under a standard grazing licence provided this area does not extend beyond 50% of the total property to be secured.
- Our solicitor will check any agreements in place with third parties to ensure these are set up to be extinguished on or before the loan becomes repayable.
Helping our customers by providing better customer outcomes
These changes mean that customers currently using their home to earn some extra income will be able to benefit from a lifetime mortgage to further enhance their lifestyle and/or assist them in obtaining financial security in later life.
Making it easier to do business with us
These changes will allow you to market to customers living in larger properties with annexes and land and who currently wouldn’t be able to have a lifetime mortgage. This will help you to grow your business and the market as the product will be available to an even wider group of customers with different circumstances.
Being one of the ‘Best in the market’
No other UK lenders allow customers to use their home or land for personal business use and only a very limited number allow customers to let out a self-contained part of their property on a tenancy agreement.
* this statement is based on a review of published lending criteria.
Full details are contained in the ‘Terms and Conditions of the Aviva lifetime mortgage – Edition 5’ (PF011433), the ‘Lifetime mortgage lending criteria’ (PF011331) and a lending criteria infographic (PF011386). There is also a lending criteria guide for customer use (PF011387).
