Equity release

[derrick]

Anyone had any experience with this, is it a good or bad idea.

 

[Rooster1]

A secured loan, or second charge is in my experience a better solution for homeowners

 

[PaulSB]

I would say for a single person, with/or no desire to leave money to family/friends, with less years ahead than perhaps one might wish for then it can do no harm. Enjoy the capital while one can.

In any other circumstance it requires very careful consideration and professional advice.

 

[kynikos]

Very much dependent on the terms - and they vary a lot. I have a good one:

• lender has no equity stake
• interest @ 1% over base rate
• flexible drawdown and repayment up to a predefined limit
• no fees
• no longer on sale, in case you were going to ask...

 

[Kingfisher101]

I would say for a single person, with/or no desire to leave money to family/friends, with less years ahead than perhaps one might wish for then it can do no harm. Enjoy the capital while one can.

In any other circumstance it requires very careful consideration and professional advice.

I would say this isnt always the case. If say the person needed a care home at some point then it could affect their choices and good luck with getting the council to pay nowadays...
I think its very bad news and I'd go for a loan/ saving up and doing without first.

 

[PaulSB]

I would say this isnt always the case. If say the person needed a care home at some point then it could affect their choices and good luck with getting the council to pay nowadays...
I think its very bad news and I'd go for a loan/ saving up and doing without first.

Agreed, I hadn't thought of this scenario.

 

[Deleted member 26715]

I have no experience in them, but my initial reaction to them is snake oil, but given the correct set of circumstances I can see why they would be attractive to somebody, it may also be an attitude/view of life. I would like to think that once we're gone we will be able to leave our kids something to ease their lives a bit with the sale of the house. But if you don't have children or somebody you want to specifically leave the money to then I think spending it before you go is a great idea. As it is if either or both of us end up in a home the kids can kiss goodbye to any funds anyway.

 

[IanSmithCSE]

Good morning,

Given the proviso that the term covers a huge range of products and individual requirements are so diverse, I expect Equity Release to be the next big Financial Services scandal (edit to include the letter c) in say 10-15 years time.

In the 1980s interest only mortgages and stock market investments to pay the mortgage off (endowment mortgages) were "The Future". Many warned that they were not a suitable mainstream product because of the risk that the investment wouldn't pay off the mortgage and when it didn't "the industry" basically tried to say tuff luck and many people were left taking on further loans.

“There is a big difference between real mis-selling and compliant advice, where performance has not met the return assumptions."

2005 - Mark Chilton, chief executive of Purely Mortgages

Equity Release contains a similar although reversed assumption, that is, interest rates will stay low.

Bank Of England base rates are available here https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp and note the long periods with interest rates in the 10%-15% range.

If you have forgotten your school maths https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php is an investment calculator but investment and debt on an interest only loan are effectively the same thing

£30k over 10 years at 5% becomes a £50k debt
£30k over 10 years at 12% becomes a £99k debt

Given that interest rates do vary over time
£30k over 10 years with the first 2 years at 12% and the last 8 at 5% becomes a £56k debt
£30k over 10 years with the first 4 years at 12% and the last 6 at 5% becomes a £65k debt

If you were to start off with a property valued at £100k then this could easily leave surprisingly little left. I know that in general property prices have risen over time, but there have always been short term drops and much of this inflation has been funded by lenders increasing loan to income ratios.

So it is not at all unreasonable to suggest that this ratio is as high as it can go, even more so in a period of price drops, meaning that the £100k property could easily have dropped to £85 at the time of a forced sale. You won't be able to say, don't sell now wait a few years.

Another issue is that the contract is almost certainly going to be impossible to understand and as many providers are using borrowed money to pay you some are going to go out of business. How these take overs or insolvencies CAN be handled is going to be pretty much unknown.

The fact that the courts forced Equitable Life out of business suggest that the "until you die or move out" clauses are probably unbreakable, but what else is not? Would a regulator step in and say that the new provider can implement a new interest rate policy?


Bye

Ian

 

[Gwylan]

Thank you.

Its a scam or dodgy at least.
Agree with your point about the stock market deals and endowment linked things.

Those offering the equity release product tend to be paper hangers.

 

[alicat]

No, I don't have any experience I'm pleased to say. They might help someone who has already sold off the rest of the family silver and can't downside any more/move to a cheaper area but the prospect of a debt that isn't being paid off with compound interest on it makes me shudder.

 

[Saluki]

I would say this isnt always the case. If say the person needed a care home at some point then it could affect their choices and good luck with getting the council to pay nowadays...
I think its very bad news and I'd go for a loan/ saving up and doing without first.

Many equity release companies, I worked for one for a short while but did not like what I did for a living so left, have the clause that ER is repayable when either the customer/borrower dies or enters full time care.

I remember thinking that, as my Aunt has such a repayment clause, that as her loan balance is in the high £180k area now, with a 5.5% loan that she had 20 years ago, that should she need a care home, that she would be in real bother with paying for it. I can’t see my cousin, now a 60 year old man who lives at home still and more than a bit of a bully, caring for my aunt. I can envisage him totally losing his temper over how much would be left if the ER company wanted repayment then. He’s going to be shocked enough should she die whilst living in that house. Aunt is still in good health for a lady in her mid 80s, and I suspect that when she dies or goes into a full time care place, that the cousin will ’inherit’ about four pence ha’penny.

I considered that, as a single pringle, that it could work for me, down the line as I have no descendants and any money that I leave will go to the local dog’s home, however, should I need care? Well that has given much pause for thought. On balance, having worked in the industry, I wouldn’t do it.

 

[Kingfisher101]

Many equity release companies, I worked for one for a short while but did not like what I did for a living so left, have the clause that ER is repayable when either the customer/borrower dies or enters full time care.

I remember thinking that, as my Aunt has such a repayment clause, that as her loan balance is in the high £180k area now, with a 5.5% loan that she had 20 years ago, that should she need a care home, that she would be in real bother with paying for it. I can’t see my cousin, now a 60 year old man who lives at home still and more than a bit of a bully, caring for my aunt. I can envisage him totally losing his temper over how much would be left if the ER company wanted repayment then. He’s going to be shocked enough should she die whilst living in that house. Aunt is still in good health for a lady in her mid 80s, and I suspect that when she dies or goes into a full time care place, that the cousin will ’inherit’ about four pence ha’penny.

I considered that, as a single pringle, that it could work for me, down the line as I have no descendants and any money that I leave will go to the local dog’s home, however, should I need care? Well that has given much pause for thought. On balance, having worked in the industry, I wouldn’t do it.

I wouldnt want to either, go in a care home, but sometimes theres no much choice in the matter. If someone for example gets very bad with Alzheimers,they cant always be looked after at home.

 

[Beebo]

I used to work for an equity release company in the late 90s. It was the Wild West in those days. I was a lowly filing clerk but the behaviour of some of the salesmen was appalling. I would hope the practices are better now.
What do you want the money for?
Do you fully understand the product being sold and the implications going forward.
Do your heirs know about this?
Is there any other way of realising capital other than giving away a percentage of your home on a compound interest basis?

 

[Deleted member 26715]

the behaviour of some of the salesmen was appalling. I would hope the practices are better now.

I suspect that somethings never change

 

[derrick]

Down size seems to be the better option then.