Equity release for retired parents

illuminate · 5 July 2005 at 12:37PM

(If Admin feel this is in the wrong forum please feel free to move it.)

My parents are presently sat on a fortune but struggling to enjoy their retirement.

My sister and myself have convinced them, that we are both sorted and settled and we would want THEM to enjoy their money rather than struggle along and let us inherit.

My Dad is no financial wizz, but is pretty good with figures and presently trying to do various calcs to work out the cost from the various interest rates being quoted for an interest only mortgage/equity release scheme.

Could anybody here help with a resource for these sort of calcs. I know the lenders are obliged to provide this, but he (and if I'm honest me also) would feel far more confident if he had his own facts prepared before they both get in front of some bonus chasing sales rep.

I have recommended an IFA I have used previously with great success, but after reading all the horror stories in the press he is equally suspicious of anybody he invites into their home for any sort of financial advice.

He is determined to do his own research, at least initially and I would like to be able to point him in the right diredction.

lisyloo · 5 July 2005 at 12:45PM

Try the age concern website.
They have loads of information about this.

However I can tell you for free that the cheapest way of freeing up equity is to move to a smaller property (or one in a cheaper area).
This has the advantage of having very low costs assocaited with it compared with any scheme they are taking out and no ties (by ties I mean if someone else has an interest in the house they will want it decorated regularly etc.)

If they want to stay in their current home then they should be prepared to pay through the nose for the priviliege because these schemes don't come cheap.

margaretclare · 5 July 2005 at 5:44PM

Hi

Your Dad's best bet would be to look at the SHIP website (safe home equity plans) as a starting-point. https://www.ship-ltd.org

We released 25% of the valuation of our property 2 yrs ago now. Downsizing is a preferred option, but wasn't our choice - there's not much you can downsize to from a 2-bed bungalow! We wanted to pay off the original mortgage, which we'd have been paying until we're 83. We did this, and we freed-up the £250 a month that was going to the mortgage. The interest at present on £35,000 is 7.05% and it rolls-up during our lifetime. Interest rate is variable - Bank of England rate plus 2.30% but is guaranteed not to rise above 7.99%. At present it's 7.05%.

We didn't 'pay through the nose'. Obviously it's like any other remortgage - there are valuation fees, conveyancing fees etc to pay, and we took the opportunity to get the title put into joint names - previously my name only.

It's possible to get fixed-rate or flexible - depends what is most favourable at the time. I'd recommend the IFA who helped us to get a better deal - he's ian.osang@ntlworld.com

Best wishes

Aunty Margaret

DrFeelgood · 5 July 2005 at 5:45PM

that a better way to do this would be to get a new mortgage against their property for 'home improvements'. If they borrowed against this it would also take down the value of their home for inheritence tax purposes. If they borrow more than they want to spend they can use the excess to pay back the loan for over the next 3/4 years. At the end of this time they could choose to do this proccess again. If the home has risen in value it could be an efficient way getting money out of the property without having to resort to a rip off equity release.

They should go to their bank and ask (as I intend to do next week).
I don't know if this is possible but I am currently investigating this for my mother.

I would appreciate some input from anyone who might have advice on whether this is a good solution.

Debt_Free_Chick · 5 July 2005 at 6:39PM

DrFeelgood wrote:

that a better way to do this would be to get a new mortgage against their property for 'home improvements'.

Sorry if I misunderstand, but you're not suggesting that one lies on a mortgage application form are you? e.g. "pretend" the money's for home improvements, but simply spend it?

EdInvestor · 5 July 2005 at 7:12PM

Home reversion - where you sell a portion of the home - is another way to raise cash, and is now scheduled to be regulated.It is likely to be cheaper than equity release. Again, go through SHIP members.

Trading down to a cheaper home is undoubtedly a cheaper and better plan if it is possible.

How encouraging to see that your Dad is keen to get a grip on the financial facts

DrFeelgood · 5 July 2005 at 8:13PM

No, I just meant that it would come under the same situation as home improvements. Sorry, if it wasn't clear.

I just found out that NAT WEST won't do this kind of deal even though the advisor said that it was clearly a no brainer as the mortgage would be seccured against the property. I am not sure if this idea will stack up in reality but would love to see what other option are out there apart from equity release.

margaretclare · 6 July 2005 at 9:22AM

Dr Feelgood

Would you mind telling me why you're so sure that equity release is a rip-off?

At present the interest is rolling-up at a rate we're aware of, to be paid off from sale of the property after our demise. We won't be here to worry about the ultimate paying-off. As I said, we could have gone on paying the original mortgage until we're 83, as it is we have that amount freed-up every month. Any mortgage is secured against the property, there will be conveyancing and survey charges. We didn't specially need the income and we didn't want to move - downsizing from a 2-bedroom bungalow in the Thames gateway to maybe an ex-mining village in the Midlands was not an attractive option.

But using your idea, we could remortgage, pay off the 'lifetime mortgage' which stands at present just over £36K, and take on another mortgage for £36K worth of home improvements? Well, they'd have to be extensive home improvements for that price, wouldn't they?

Aunty Margaret

EdInvestor · 6 July 2005 at 11:12AM

The main disadvantage with equity release (compared with trading down) is the higher interest rate compared with an ordinary mortgage. If the parents live a long time the mortgage can compound up to most of the value of the home. Most people I know however feel ( like the OP) that it's more important to make sure their elderly parents can obtain an adequate income for a comfortable life than to worry about the possible effect on their future inheritance.

margaretclare · 6 July 2005 at 12:02PM

Yes, the interest rate at present is 7.05% (variable but guaranteed never to rise above 7.99%). We were given an illustration of how this may roll-up over 5, 10 or 15 years. However we still have 75% of the equity at valuation, approx £100K. I would doubt that the interest being charged on £35K is going to reach £100K in the foreseeable future, wouldn't you agree?

As I've said, you can't trade down much from a 2-bedroom bungalow. Some flats being marketed locally for retired people are a heck of a lot MORE expensive - we couldn't have bought one for £135K and we didn't like them - we looked at the McCarthy & Stone ones newly-built. A 2-bed Mc&S apartment costs nearly a quarter of a million when you consider the annual service costs as well as purchase price! And for those, we felt strongly, you are buying into a 'retired lifestyle' rather than just buying a place to live. We like it where we live now, we enjoy having younger people around us. There's also the possibility that property prices may rise around here. A new railway station is planned to be built within the next 2 or 3 years to serve the airport and this will be within walking distance of us. There'll be a very fast ride into central London, the airport will be one of the 'feeder' airports to London and also a link to continental Europe. So people around here are saying property prices around here will rise.

We have the advantage of having quite a large back garden (1930s bungalow) and if we really wanted to we could have a room built in the loft space. 2 doors down a man has 2 bedrooms up there! So we COULD do home improvements...if we really wanted to.

There is, of course, another possibility - I could pay off the interest each year and that would avoid it rolling-up. At present I'm saving nearly £200 a month - like I said, we have enough to live on without needing more income, only we didn't like the thought of paying the mortgage until we're 83.

Margaret Clare

DrFeelgood · 6 July 2005 at 12:16PM

Hi Aunty Margaret,

I am not an expert and still tryting to get a handle on what the possibilities are so when I use "rip off" I am jsut repeating what I have heard said and wait to get more information in place. You seem to be very clued up and thinking clearly about your personal circumstances. I am really not the person to get advice from.

Good luck.

Equity release for retired parents

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