Equity Release Versus the Halifax Retirement Home Plan – And the Winner Is?

Confusion reigns at a time in life when stability, financial security & freedom to enjoy the fruits of one’s success should be evident. Yes, we are talking retirement, equity release & the increasingly popular Halifax Retirement Home Plan.

Here we discuss the options available to those already retired or the up & coming baby boomer generation, as they prepare to assess how they are to manage in today’s financial maelstrom.

For many, & usually it all boils down to lack of financial planning in earlier life; retirement is none of the aforementioned attributes associated with the longest holiday of your life.

We all go through life thinking retirement seems a distance over the horizon. From getting that first job, raising the children & moving up the ranks in the employment world, our lives move forward apace.

But the inevitable will reach us all one day & without foresight retirement could be the biggest challenge in your lifestyle thus far.

So how should we prepare & how do we invest in our futures to ensure a retirement of fulfilment?

The spoken word, ‘hope for the best, prepare for the worst’ must have a ring of truth when it comes to retirement planning. It’s a recipe on the menu that’s always put on the back burner & one on the ‘to-do’ list of things that can wait until tomorrow… YOU CAN’T.

Looking back at that first job is where the seeds should initially be sown. Whether it’s joining that company pension scheme or making your own provision, a pension should be the life jacket for your retirement.

The old adage of the earlier you start a pension the less you need to pay in later is gospel & with the tax advantages on offer they still represent one of the best ways to build a pot of gold for the future.

But there are other options now available which represent a safer alternative & more hands on approach such as real estate.

The buy to let market is currently undergoing transformation in the current economic climate, with rental incomes outstripping savers returns on bank & building society accounts. There is also the potential capital appreciation aspect of owning a property which has been a tried & tested route for many over the longer term.

Property is a tangible asset; you have control over how it looks, you can manipulate it & affect its value. The sole aim of these actions is to build asset value & thereby probably without hindsight, can build yourself a ‘retirement vehicle’.

So let’s see which vehicle will suit your requirements & enable you to navigate down the retirement highway…

Firstly, the question that needs to be asked is whether an income or capital lump sum is required? Given the fact that most tax free cash requirements are for capital, the options are then narrowed down to affordability in retirement.

The next important consideration is whether one can support the monthly payments of an interest only mortgage, or are finances so tight that no further monthly payments are required throughout retirement. The answer to this will filter us towards the ultimate decision; that is whether the solution is an interest only lifetime mortgage or a roll-up equity release scheme?

On the one hand you have an interest only mortgage, where monthly payments are required to be maintained for the rest of your life & results in a continuously stable & level balance during the remaining term.

This is in complete contrast to a roll-up equity release plan, which requires no monthly payments whatsoever, but allows the interest to compound & the balance of the mortgage to get larger.

Let’s have a look the features of each option further.

Roll-Up equity release scheme

· Classified as a Lifetime mortgage, hence no term is specified

· Schemes are regulated by the FSA & are also members of SHIP

· Equity release schemes start at age 55

· No income required for eligibility

· Maximum release is 55% of the property value (with ill-health)

· Credit history is not a major concern to equity release companies

· No monthly payments required

· Increasing balance as the interest is compounded monthly or annually

· Flexibility of drawdown schemes available to take regular cash releases with guaranteed reserve facilities. This ensures future cash availability with no further costs.

· Interest rates are fixed for life

· Reduced, or no inheritance left for the beneficiaries of the estate

· Executors have up to 12 months in which to repay the lender, usually by sale of the property

Halifax Retirement Home Plan

· Classified as a Lifetime mortgage, hence no term is specified

· Pensioner mortgage & regulated by the FSA

· Starting age is 65, however with enough pension income, over 55’s are acceptable

· Retirement income alone will determine how much that can be borrowed

· The maximum amount borrowed is capped at 75% of the property valuation

· Credit history is checked & any adverse record could result in a declined application

· Monthly payments must be maintained to avoid repossession

· Mortgage balance remains exactly the same throughout the plan term

· Further advance application required to borrow additional funds & will be credit assessed each time for affordability.

· Option of tracker & fixed rates available, initially for a maximum of 5 years. Therefore, no guarantee of the future costs of the monthly mortgage payments.

· Reduced inheritance, albeit a specific amount which the beneficiaries will know the extent

· Beneficiaries have 18 months in which to sell the property, after death or the mortgagors moving into long term care.

So the winner is?

There is no actual winner in this pensioner mortgage market.

Both schemes have the advantages & disadvantages depending upon one’s retirement finances.

However, if a good retirement & disposable income is available & future affordability secured, then certainly the Halifax Retirement Home Plan is justifiable for the applicants & more so for the beneficiaries. Nevertheless, it is vitally important that steps are also taken to protect each party to the interest only retirement mortgage in case one applicant dies as the survivor

Private Equity Funds in Renewable Energy

Introduction

There are two main purposes of this article. The first purpose is to discuss a private equity company involved in making investments in renewable energy sector. And the second aim of this article is to discuss the investment of other private equity houses on renewable energy sector. We will discuss this issue in accordance with Daniel Schafer’s article ‘Winds of Change’. The company selected to fulfill the purpose of this article is HgCapital. HgCapital is a private equity firm who is engaged in buying out of small, medium and large size companies all over Europe.

The firm makes investment in all sorts of industries but it has a specialized fund for renewable energy. It invests in five sectors: Industrials, Health care, TMT, Services and Renewable energy. The company was established in 1985 by the name of Mercury Private Equity. It is headquartered in London, United Kingdom. HgCapital has total assets of around $5.2 Billion. It has 80 Employees in its offices in Germany and United Kingdom.

Discussion

HgCapital was the first UK Private Equity fund that involved in investing in renewable energy sector. Today HgCapital is considered to be the largest renewable fund player in Europe in terms of the amount of capital it raised. It established its first renewable energy investment team in 2004 and made its first investment in 2006 after a thorough research of the sector. The Team initially invested in utility renewable project in Western Europe through technologies such as solar, hydro, and onshore wind. For that purpose the company uses ‘fund investment approach for infrastructures’. The company focuses on small hydro and wind projects which are independent of government support. In Scandinavia, the company has become the major owner and player of onshore wind farms.

The renewable energy market is the rapid and fastest growing segment in Europe. It is a potential investment opportunity for the investors. It requires considerable capital investment. Economies of scale and advancement in technology have increased the cost competitiveness of the sector. As a response to these market drivers the company has increased its focus on the use of efficient and effective technologies and the best possible resource sites. This results in lower cost to consumers. In order to establish strategic value and to lower the intrinsic cost the company has decided to invest in industrial scale.

The article by Daniel Schafer’s ‘Winds of Change’ emphasized on the growing interest of private equity funds investment in renewable energy sector. According to the author, Daniel, KKR and Blackstone like HgCapital have discovered a new investment opportunity. As mentioned earlier renewable energy is the fastest growing sector in Europe. Hence it provides attractive and potential investment opportunities for many of the private equity funds. There were overall 70 renewable energy investments by private equity funds in between 2004 and 2006. However the number increased to 170 Investment during 2008.

There has been a lot of activity during this year. KKR, which is a United States based private equity fund, made its first investment in the renewable sector. The very same day Axa Private Equity becomes the fourth largest wind farm operator in France. After a month, another UK based private equity firm by the name of Bridgepoint, invested a sum in wind farms of Spain. In August the same year, Blackstone, rival of KKR invested €2.5 billion for constructing Germany two offshore wind farms.

According to the author one major reason why the renewable sector is a hot spot for investment is because it is immune and least affected by economic cycles. Wind and solar energy does not bear the same demand risk as gas, coal and nuclear power. Even banks are willing to lend for making investments in renewable projects. Renewable energy has become the major power generation. Solar energy is in number second but still behind in terms of cost. In future the author believes that further investment will made for the supply chain of that sector.

Conclusion

The article discusses a private equity company involved in making investments in renewable energy sector. The company selected for this purpose is HgCapital. The firm makes investment in all sorts of industries but it has a specialized fund for renewable energy. It established its first renewable investment team in 2004 and made its first investment in 2006 after a thorough research of the sector.

The article also discusses Daniel Schafer’s article ‘Winds of Change’. The article is focused on the investment of private equity houses on renewable energy sector. The private equity houses discussed in this article are KKR, Black stone, Axa, and Bridgestone. Renewable energy is the fastest growing sector in Europe. Hence it provides attractive and potential investment opportunities for many of the private equity funds. According to author, one major reason why renewable energy sector is a hot spot for investment is because it is immune and least affected by economic cycles. Being the fastest growing sector in Europe it provides an attractive and potential investment opportunity to private equity fund managers and companies.

Schafer, Daniel (2011), “Private Equity: Winds of Change”, Financi