Taking equity?

Graham_Devon

This IS about the economy, and I'm looking for specific posters to answer, so mods please don't move!!

My parents are looking at taking equity. I am absolutely fine with this and the effect it has on me, though sister aint! However, worried about some scare stories I have heard from others about interest and the bank suddenly claiming more of the house as it devalues.

Can any of you tell me whether you think this is something worth doing. I would rather them spend their own money, but I don't want them caught out and I know very very little about it.

Would you reccomend your parents did it if they wanted to, or would you steer them away, and if so why?

(Is it true that if they released 20% for instance, and the house dropped in value, that 20% starts becoming 22%, 25% etc as the prices fall?? Just been told this.)

Ta chaps and chapetters.

Really2

Graham_Devon wrote: »

This IS about the economy, and I'm looking for specific posters to answer, so mods please don't move!!

My parents are looking at taking equity. I am absolutely fine with this and the effect it has on me, though sister aint! However, worried about some scare stories I have heard from others about interest and the bank suddenly claiming more of the house as it devalues.

Can any of you tell me whether you think this is something worth doing. I would rather them spend their own money, but I don't want them caught out and I know very very little about it.

Would you reccomend your parents did it if they wanted to, or would you steer them away, and if so why?

(Is it true that if they released 20% for instance, and the house dropped in value, that 20% starts becoming 22%, 25% etc as the prices fall?? Just been told this.)

Ta chaps and chapetters.

Is this like a rent back or mewing?

If it is a rent back they may as well sell and live off the proceeds.
That is what I have recomended my parents do.

Also tell your sister to stop being so greedy, it is their money not her's

Graham_Devon

Really2 wrote: »

Is this like a rent back or mewing?

If it is a rent back they may as well sell and live off the proceeds.
That is what I have recomended my parents do.

Also tell your sister to stop being so greedy, it is their money not her's

It wouldn't be selling and renting back, it would be taking a lump sum from the bricks.

I'm just not comfortable with it, as I know what banks are like and how they will sell you up !!!!!! creek!

What's in it for the banks is what I'm trying to get at. What hidden problems are there? I know the house would not be passed to us later on and the bank would pull the strings, but thats about it.

Really2

Graham_Devon wrote: »

What's in it for the banks is what I'm trying to get at. What hidden problems are there? I know the house would not be passed to us later on and the bank would pull the strings, but thats about it.

As far as I know it is badly regulated also what will they do when the money runs out?

Also if they are not renting back does that not mean the interest on the loan is eating the remaining equity away?

May as well cash out now or downsize. I think it is fairly widely recognized the house will be undervalued for the rent back purposes.

Their are a myriad of other options sale and rent back I would consider is a last option (which this basicaly is).

nearlynew

Have a look at this document graham.......

http://www.moneymadeclear.fsa.gov.uk/pdfs/equity_release.pdf

IveSeenTheLight

Taking equity out of the problem may help resolve some short term issues, however it simply means they will be paying more interest and over a longer period, therefore are potentially shifting the problem from short term to long term.

The answer to this is to try and economise to such that they can live within their means now which will help in the long term when they clear their mortgage and become rent / mortgage free.

Of course if their situation is really bad, an assessment as to whether it is better to sell and clear debts and then rent or risk long term issues will have to be made

Graham_Devon

They are mortgage free, simply do not want to live within their means. It's an ongoing argument, one I have now given up on. It's a bit like the sitcom keeping up appearences between my mum and aunty, both trying to impress everyone else. So they thinking of taking equity out of the house they are now moving to (mortgage free) when they get in.

I know it's screwed up, but go on too much and I could look like I'm protecting my equity, which I'm seriously not. Just wish they wouldnt keep spending their top whack.

Anyway, I think I got the answers, so I will delete my posts later, just incase they see my whinging

BlondeHeadOn

My parents did this, by taking out a 'Lifetime Mortagage' with Northern Rock, so I have experience! And very recent too.....

It worked for them. Basically they took out £30k about 10 years ago, and split it 3 ways so my brother and I received a third share. Then my Dad increased the lifetime mortage again after my mum died, so he could pay off some debts and basically have a good time! Fine by me, it was his money after all, and a good way of making his last years much more fun. The mortgage payments were just rolled up in the loan, so Dad didn't pay anything while he was alive.

Now my Dad has died as well (recently), so I have to sort out paying the money back (I am the executor). This is a pain in the current property market, as I have to sell his house to do that. However, once it is sold the loan can be paid off, and all's okay.

It's meant I have had to put the house on the market much more quickly than I might have done had there not been the lifetime mortgage to pay. Northern Rock are very keen to have their money back(!), so I was forced to clear out my Dad's house and de-clutter etc. before I was ready to - on the other hand, I might have let things slip for a long time otherwise, so maybe no bad thing. It's one thing to be aware of though - you don't get much of a breathing space before NR want to know how you are going to pay it back.

Other than that, I think this was a good deal for my dad, as he had some money to enjoy the remaining years of his life (and he did). Yes it reduces my inheritance by a lot, but so what - it was his house, his money, he had worked hard for things so he deserved to enjoy his final years. I would do the same thing when I get older, if the same sort of deals are around - fun time here I come!



Hope this helps!

baileysbattlebus

You must make sure that the contract doesn't allow reposession if the equity in the home goes bellow a certain figure. Also, that the contract doesn't make the homeowner or homeowners estate liable to legal action if the equity in the house goes negative.

There are schemes around like Prudentials that have a guaranteed equity - so that the estate doesn't have to pay if the equity becomes negative due to falling house prices etc.

I'm not a fan of equity release myself - but who knows what the future holds.

There are 2 sorts as far as I know

Home reversion plan - where you sell all or part of your property to a company - been some horror stories about these. Sometimes you have to sign title to the home over.

Lifetime mortgages - some of these come with equity guarantees - like the Prudential. Where the estate will not have to pay anything if the value of the property falls, leaving it in negative equity.

Your parents really need proper advice - it's not something to be entered into lightly -

Because you are quite young - I assumed your parents would be too. I think the mnimum age anyone will look at you for this type of thing is 55 - for the youngest person.

Graham_Devon

There would definately be financial advice, however, just nice to know what others think.

Would it be possible for myself to buy a share in the house? Thinking of tax implications etc?

They own the home, could I buy 10% for instance? That way, no interest, I'm making an investment, and I should get the stake back at the end of it (in a fairly morbid kind of way!), they get the money they would like to do a few things.

I really am clueless when it comes to this sort of stuff.

Really2

Graham_Devon wrote: »

There would definately be financial advice, however, just nice to know what others think.

Would it be possible for myself to buy a share in the house? Thinking of tax implications etc?

They own the home, could I buy 10% for instance? That way, no interest, I'm making an investment, and I should get the stake back at the end of it (in a fairly morbid kind of way!), they get the money they would like to do a few things.

I really am clueless when it comes to this sort of stuff.

Yes you could buy all of it if you like, just have to get the documentation done through a solicitor.

I would do it so say you pay 10% (Say £30K) you get back 10% or £30K which ever is the highest (that will cover you for any poential price falls).

It is the most sensible thing all round providing you have the spare cash.