Equity Release and the Life-Time Mortgage

FailedTeacher · 18 December 2017 at 2:05AM

Good Evening All!

If anyone wants any basic questions answered about releasing equity from their property or about the Life-Time Mortgages on offer on the market today, please let me know.

I work as a basic contact centre agent in a non-advisory role for a broker firm and can offer insight to how it works, the frequently answered questions, the benefits and the pitfalls.

Considering Financial Advice as a career and looking to use this website as a platform to build on my professional skills - but I also find this site very useful for my own needs

Ask Away! :j

suzannestaite · 4 January 2018 at 2:38PM

Hi, I wonder if you can help me, my father in law wants to release equity on his house to pay off our mortgage. My question is, what happens if he needs to go into a care home, would the fact he has gifted so much money to us (130K) effect his rights to any benefits to help pay for his care home needs and is he actually able to do this given that I believe the gifting allowance is 3K yearly?

Silvertabby · 4 January 2018 at 2:48PM

Hi, I wonder if you can help me, my father in law wants to release equity on his house to pay off our mortgage. My question is, what happens if he needs to go into a care home, would the fact he has gifted so much money to us (130K) effect his rights to any benefits to help pay for his care home needs and is he actually able to do this given that I believe the gifting allowance is 3K yearly? Posted by suzannestaite

Gifting allowance limit relates to IHT, not deprivation of capital.

If the worse come to the worse the Local Authority may expect you to meet his care home fees out of the £130K given to you.

P.S. If your user name is your real name you may wish to change it in the interests of anonymity!

dunstonh · 4 January 2018 at 3:29PM

My question is, what happens if he needs to go into a care home, would the fact he has gifted so much money to us (130K) effect his rights to any benefits to help pay for his care home needs

It depends on his current health. If it is known or expected that care will be needed and benefits claimed then it would be classed as deprivation of assets. If there is nothing to suggest that is the case, then he is free to gift what he likes without any comeback under deprivation of assets.

given that I believe the gifting allowance is 3K yearly?

Dont mix inheritance tax up with deprivation of assets. They are two different things.

Malthusian · 4 January 2018 at 3:49PM

suzannestaite wrote: »

Hi, I wonder if you can help me, my father in law wants to release equity on his house to pay off our mortgage.

This is likely to be a very expensive decision. People considering equity release often say they "don't care about inheritance" but using equity release to give money to your children is essentially an accelerated inheritance at a massive penalty. It will also restrict your dad's ability to move in the future if his needs change, e.g. he may reach a point where he doesn't want to go into care but does want to move to a bungalow or more accessible property.

If you are struggling to pay your mortgage then the first port of call is a) visit the Debt-Free Wannabe board, do a Statement of Affairs and try to reduce outgoings b) try to renegotiate with your lender. Equity release should be a last resort.

Others have covered the questions about deprivation of assets and the (irrelevant) £3k limit.

FailedTeacher · 4 January 2018 at 7:21PM

Thank you for your question

Much of what you have asked has been answered but I will give it a go also.

'People you give gifts to might have to pay Inheritance Tax, but only if you give away more than £325,000 and die within 7 years.' https://www.gov.uk/inheritance-tax

You don't need to worry so much about the gifting side of things but be aware you may have to pay tax if the worse should happen.

In regards to care, upon going to full-time care or unfortunately passes away, the lender would have first charge so they would need to be paid first and always will.

However, If there is a suspicion that the product has been taken as a way to avoid inheritance tax/paying for care etc - the estate may be chased and that may include money gifted - but if you've spent it, it can't be requested from you I don't believe. How I understand it is, if you bought a car that turned out to be stolen, you would have to return it. If you sold it on before realising, you couldn't be held accountable.

Someone has advised it can be costly, which it can (compound interest) but you can pay off the interest with some lenders, as you go along. You could consider using the mortgage payments that will have stopped to pay off some of the interest to allow for options in the future - it would stop what inheritance is available through the property from decreasing.

If he does want to move property, it can be allowed - if the lender is part of the Equity Release Council then it is a guarantee but under the Lenders criteria of acceptable properties and the value of the property must be able to cover the current balance and projected interest otherwise paying the short-fall may be required and that could even have a early repayment charge. If he owes 100k and has 10 years left on his expected life span at 5% interest, the balance would potentially grow to £162,889.46 so the property would need to be worth as much. That could actually help you see how quickly a debt can grow too.

One thing I'd want you to consider too is if you have any early repayment charges if you was to pay now. When is your mortgage due? Many customers wait until closer the time of the due date especially if they have a lower interest rate than what is achievable through ER.

I hope I answered your question but please let us know if there is anything else.

None of the above should be taken as financial advice.

Silvertabby · 5 January 2018 at 12:52PM

However, If there is a suspicion that the product has been taken as a way to avoid inheritance tax/paying for care etc - the estate may be chased and that may include money gifted - but if you've spent it, it can't be requested from you I don't believe.

Yes it can - the money will still be there, just in bricks and mortar.

How I understand it is, if you bought a car that turned out to be stolen, you would have to return it. If you sold it on before realising, you couldn't be held accountable.

Not the same thing at all !

FailedTeacher · 7 January 2018 at 1:09AM

Oh dear it appears I may be incorrect, can you explain what would be the appropriate answer?

I've done more digging online and the only suggestion I can see that local authorities can contest money or assets being given in a bid to avoid care fees and have it 'reversed' but this could prove difficult to prove and what realistically can be done if the money is spent?

What are they going to do, make the Op sell her house? Force her into a debt recovery plan?

I believe she would be protected from material distress or financial hardship as she would be a victim (unless she was proved to be involved). She may be expected to pay money back if the council could prove Equity Release was done to avoid paying care fees without any shadow of doubt but that would be under reasonable circumstances.

I don't think discussion would help the Op, if my information is to be wrong please provide an alternative answer.

Interesting side note:

My time working for a bank saw people mistakenly receive funds into their account, go and spend it anyway and not be perused for it like a debt, reasonable action was required to pay the money back by the receiver but not at the expense of going under hardship. Which baffles me as surely they knew it wasn't their money but there you go.

Equity Release and the Life-Time Mortgage

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