Releasing money from purchased property

Ivesy

I am VERY confused about this and ANY help would be most welcome! My parents have both reached retirement age and have paid off the mortgage on there house. Unfortunately money is a bit tight, they'd like to buy (amongst other things) a new car by using someone (in this case Norwich Union) to release money from the house they've bought. I've no idea how this works and wondered what the pitfalls (I'm a born cynic!) or advantages there are to this and what the best deals are. Sorry if I'm not making total sense but I'd hate them to rush into something like this without getting some unbiased advice first. Thanks

Bossyboots

This looks like a useful site http://www.laterlife.com/index.shtml?http://www.laterlife.com/laterlife-ifa-equity-release.htm.

The only family I know where they did this effectively lost the house because their dad died within the first year and he had signed a document meaning the equity release company took possession of 100% of the property immediately.

Rex_Mundi

Tell your parents to get INDEPENDANT advice on this before they make any decisions.

I've not long talked my mum out of signing for the equity release with Norwich Union. From my reading of the terms, she stood a good chance of losing the entire (£300k) house for £40k.

She took independant advice, and ended up going for an interest only morgage. This way she pays the interest for the duration of the loan, and we pay back the original amount out of the estate.

The financial advisor she took advice from told her that the Norwich Union were one of the worst companies to take these equity release schemes from. When I was looking around for advice for my mum. Every decent place recommended the first step was to get independant advice. This is crucial. Remember, the guy from Norwich Union is a salesman working for the company. He is interested in getting his commision, not offering your parents the best deal for them.

lisyloo

" I've no idea how this works and wondered what the pitfalls (I'm a born cynic!) or advantages there are to this and what the best deals are."

The advanatages are
1) They don't necessarily have to make any payments which means they can use money they have tied up without paying anything whilst alive.
2) Most schemes are guaranteed never to exceed the value of the house.

Disadvatages are
1) Usually quite expensive. If they live a long time, they could be paying interest for a very long time, so it will all add up. The car could end up costing the house which will reduce your inheritance.

"This way she pays the interest for the duration of the loan, and we pay back the original amount out of the estate."

Hi Rex - usually interest only mortgages have a term.
What happens if she lives a long time and the loan has to be repaid whilst she's alive?

Ivesy

Thanks for all the advice. When I visisited them yesterday (sat.) they'd allready gone ahead with it after seeking legal advice. I just hope it works out for them. Thanks again for your help!

garysletters

This is an equity release scheme (by the sounds of it). There are lots of companies doing them. Most, but not all, keep the properties in their companies, but some sell on! (i know because I'm in the process of buying a couple of properties this way).

You should NOT have to sign over 100% of the house, its up to you how much you "release".

You MUST be given financial advice first (this is a legal requirement- if you have not been given financial advice from Norwich Union, let me know and I'll tell you where to complain and get help. This is vital!)

Also, as said above, take INDEPENDENT financial advice.

I'll PM you to help with more help for your exact situation.

lisyloo

"You should NOT have to sign over 100% of the house, its up to you how much you "release"."

Gary - There are various types of schemes and I think you might be thinking of something different.

I can describe 2 but there might be variations.

The scheme I think we are talking about is like a reverse mortgage. You borrow a lump sum e.g. £10K for a car, then interest is applied.
This CAN get to the full value of the house (would probably take decades but is theoretically possible).

A second type is where you hand over x% of the property (I think this is what you are thinking of gary). The company give you a lump sum OR income in return for x%. X stays fixed in percentage terms, but of course rises (or falls) as house prices rise.

I'm sure there are further variations. But be careful. I'm not sure that you (gary) are talking about the same kind of scheme as the original poster.

garysletters

Sorry Lisa, it just sounded, along with the first few replies, that it was an equity release scheme that you sign up for, and sign over a portion of your house to the company for a sum of money.

i think the situation would need clarification from Ivesy.

I think the general advice is the same though.