Equity Release

misspriscilla

My husband is about to retire. Our income will be reduced to our conbined state pensions, plus government handouts. Does anyone have any advice on, or experience with, taking equity out of our property and, either living on it or investing it and living on the interest?

Debt_Free_Chick

I think some of the best advice you can get on this is from Age Concern. They exposed a lot of the old deals as scams or very bad financial deals. And they now have some very useful research on a number of different options, here http://www.ageconcern.org.uk/AgeConcern/information_794.htm

dunstonh

Equity release is also considered a high risk advice area. So be wary when looking at your options.

One thing to investigate first is that if you release equity in your property which in turn increases your personal savings/income, this will have a knock on effect with the benefits you receive. If you arent careful, you may kiss goodbye to a chunk of your equity only to find that you receive exactly the same income because you no longer qualify for any benefits.

margaretclare

Hi MissPriscilla

We did this in 2003.

The reason we did it was that we would still have had a mortgage until we're 83. We thought that the £250 a month to the mortgage provider could be put to better use.

At age 68 we were able to release 25% of the £140K valuation, which paid off the mortgage. The interest rolls-up in our lifetime, to be paid off when the second of us dies.

There are a lot of things to think about, and it's a very serious decision to make. You mention your 'combined state pensions and government hand-outs'. Have you both got a state pension in your own right or is your state pension reliant on your husband's? And when you say 'government hand-outs' do you mean pension credit? How much are you actually expecting to have? And have you worked out a budget for your incomings and outgoings based on that expected income? This should really be your starting-point.

I would recommend that you look on the SHIP website (safe home equity plans) https://www.ship-ltd.org . All reputable providers are now members of SHIP. You may not get such a good deal until you're a little older, and if you release equity too soon, the interest has longer to roll-up. With the expected fall in house values, you have to balance one against the other.

Finally, if you do release income, be careful that it doesn't affect the benefits you're able to claim. It doesn't affect us, because our combined pensions and annuities put our income way above pension credit level (we both have state pensions in our own right plus SERPS, plus annuities from former careers). But if you do get pension credit then it's useful for a whole host of other things. Council Tax Benefit, free home insulation to reduce heating bills, a lot of things like that.

HTH

Margaret

misspriscilla

Thank you all for your replies. Perhaps I didn't make myself very clear. We both receive, independently, state pensions. By handouts I meant the heating allowance and the council tax one year grant. We don't qualify for tax credits because we have savings above the miniumum. If we live on those savings they will be exhausted in about two years or less. We are both in our mid seventies, and capable of working, but for how long? I will investigate the web sites suggested in the replies. Thanks again

margaretclare

Hi MissPriscilla

So you're a bit similar to us.

What would be a good idea would be to work out a budget, assuming just the state pensions you both have, to cover all the essentials of life. Then see if you need extra money.

So you both have £82.05 a week from April (£164.10 in total). You also get the winter fuel allowance between you, £200 in total every November. Plus the extra £200 towards the council tax (this year only, we're told).

Have you got SERPS as well? Or any private pensions e.g. from previous work?

If you have savings, these should be in a cash ISA to avoid paying tax on the interest. From April we find we're going to be quite a bit better off because the tax allowances have gone up, so we'll be paying hardly any tax at all.

Do you still get the married people's tax allowance? We just squeezed into that when we got married in 2002 (you need to have been born before April 1935 - B was born in the December!) We split this allowance between us because we both receive annuity payments which are taxed (but see para above).

When we did the equity release we took the opportunity to get the title to the property put into joint names - previously it had been in mine alone. I wanted it this way, just to make sure we are completely equal in all respects, share everything (as we said at our wedding in church: 'all that I have I share with you).

HTH

Margaret

DebtEverest

I've just been looking into this for my mum. She is due to retire this year at the age of 63 and still has a mortgage outstanding. Things have been difficult since my dad dies two years ago and she will not be able to pay her current payments once she gives up work.

I'm really looking for some numbers to crunch - such as what interest rates are typical?
Do they vary according to how much equity you release etc?
Do they give a fair valuation of your house?


Sorry for all the questions in one go!

Thanks in advance

Pal

As this isn't really a pensions question I am moving this to the mortgages and endowments board where hopefully a few more people can help.

Pal

EdInvestor

Just to say that before considering equity release, trading down to a cheaper property should be strongly considered.It is almost always a much better way of raising cash/paying off a mortgage.

DebtEverest

Editor wrote:

Just to say that before considering equity release, trading down to a cheaper property should be strongly considered.It is almost always a much better way of raising cash/paying off a mortgage.

My mum is on her own and She had lived in the house for over 30 years and would not consider moving, we all grew up there.
She has me (and my siblings) close by and neighbours that look out for her etc etc.

I also know a couple that have downsized to be mortgage free at least 3 times, each time they have a bit of spending money to supplement their pensions, spend it frivously and then a year or two later are back where they started - though thats probably another issue!

In 5 years they have gone from a nice 4 bed house to a tiny 2 bed bungalow.....

margaretclare

Hi debteverest

I can understand your mum not wanting to move. We went down the equity release route a couple of years ago now, and we've been told many times that downsizing was the better option. However, we live in a 2-bedroom bungalow in south-east Essex - there's not much you can downsize to from that, and moving to a one-bedroom apartment or an ex-council house in a Midlands ex-mining village was not an attractive option! In addition, we have spent quite a lot of time, money, thought and effort into modernising this place and making it as convenient and easy-care as possible given advancing age. Often there are other factors, that people can't see, which make downsizing less attractive.

If I had still been on my own, though, the decisions might have been different. Your mum is on her own...is the house gonna be convenient and easy-care enough for her as she gets older? Any changes, including house moves, are IMHO best done in one's 60s rather than waiting until too late and saying 'I should have done it years ago'.

I sit down and look at all our finances on a regular basis, every 6 months or so, and we discuss all options. We rule nothing in and nothing out. We 'think the unthinkable'. I've even thought of selling up and moving to the Pas de Calais area in northern France, where house prices are half what they are here! We then sit and discuss what is acceptable to both of us - and he has the language problem.

If your mum thinks of going down this route then my advice to misspriscilla in an earlier post still holds good. The SHIP website should be her first port of call (safe home equity plans).

Best wishes

Aunty Margaret