Equity Release questions

stevesmithanon

My parents (age 75) have a property worth about £450K, an existing Equity Release arrangement with Northern Rock with £180K currently owing and so have £270 equity remaining.

They want to raise another £60K or so, but Northern Rock no longer have any deals.

1. Can you have 2 separate equity release deals on the same house?

2. Are they too old to get another equity release scheme?

3. Is there enough equity in the property to raise another £60K by equity release?

4. Is it better to have a second charge on the property or redo the whole deal under one brand new equity release scheme?

Thanks,

Steve

Let_Us_See

My parents (age 75) have a property worth about £450K, an existing Equity Release arrangement with Northern Rock with £180K currently owing and so have £270 equity remaining.

They want to raise another £60K or so, but Northern Rock no longer have any deals.

1. Can you have 2 separate equity release deals on the same house?
In theory yes, but not with different lenders. Due to NR's decision to stop lending you would need to re-mortgage to another provider.

2. Are they too old to get another equity release scheme?
No. Age is not a barrier - although you can be too young.

3. Is there enough equity in the property to raise another £60K by equity release? Unfortunately, your parent's age and not the existing equity is the deciding factor. Basically, the percentage amount of borrowing to property value is age related. The older your parents the higher percentage they maybe able to borrow. At 75 years I believe they are currently at the top of their borrowing and I do not believe you will achieve an additional £60k.

margaretclare

Let_Us_See wrote: »

My parents (age 75) have a property worth about £450K, an existing Equity Release arrangement with Northern Rock with £180K currently owing and so have £270 equity remaining.

They want to raise another £60K or so, but Northern Rock no longer have any deals.

1. Can you have 2 separate equity release deals on the same house?
In theory yes, but not with different lenders. Due to NR's decision to stop lending you would need to re-mortgage to another provider.

2. Are they too old to get another equity release scheme?
No. Age is not a barrier - although you can be too young.

3. Is there enough equity in the property to raise another £60K by equity release? Unfortunately, your parent's age and not the existing equity is the deciding factor. Basically, the percentage amount of borrowing to property value is age related. The older your parents the higher percentage they maybe able to borrow. At 75 years I believe they are currently at the top of their borrowing and I do not believe you will achieve an additional £60k.

But they will be able to do so when they become older, is that what you're saying? They are only at the top of their borrowing at age 75 - at age 80 for example, they will no longer be at the top of their borrowing?

FraudBuster

This is a Guide from the FSA:

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

Let_Us_See

Correct. However, there is also the accumulated balance to consider. For example, for initial borrowing many providers work on a 1% increase per annum for borrowing, and at 60 years age may lend 20% of the value of property, or at 65 years age 25% of the property value etc. etc.

In theory in 5-years time another 5% of borrowing might be possible. However, if accumulated interest (remember no interest is paid on Lifetime mortgages) is charged at around 5 - 6% per annum, then this will effectively prevent any further borrowing (unless we again experience huge rises in property values) as the added interest and original capital borrowed will be higher than the additional annual 1% increase in borrowing facility.

stevesmithanon

So to raise the £60K, could they get an interest only mortgage as a second charge on the property?

Let_Us_See

Unlikely. How would they fund mortgage payments?

stevesmithanon

With their Pension.

Let_Us_See

No lender (or adviser) would consider it good practice to provide an interest only loan for clients aged 75 years. What is their annual pension income, excluding statutory old age pension?

stevesmithanon

Why would it be considered bad practice? Is it not about ability to pay?

Let_Us_See

Do you believe incurring an additional £60k borrowing aged 75 years is good practice?

Perhaps you can confirm income and why a new loan is required?

Also, second charge loan interest rates are very high.