Equity Release

pieropan

My wife and I are 56 with no dependants and fortunately own our house outright (£400k).We do not have close family, apart from 2ageing parents, and now want to enjoy early retirement after 35 years of working with some extra cash via Equity release.
Have read the extensive posts on Equity release and realise that you basically rack up a lot of interest but gain access to money at a time when you would not normally be able to (downsizing won't work for us) and at a time when you are still hopefully healthy enough to enjoy it.
We have some savings (£30k) and some moderate pension arrangements (£1k pcm payable) which kick in at 60.
Any views on whether or not this is the right way forward ,in principle, bearing in mind there are no legacy/family issues ?
Any advice would be appreciated
Pieropan

le_loup

You will only get a VERY small amount at your age (that's assuming anyone will take you on). You need to downsize to release funds.

margaretclare

You can't do it at your age. DH and I did it 9 years ago and one of us had to be at least 68 before we could release 25%. Even then, we did it purely to pay off an existing mortgage. I would never have contemplated it for any other reason - certainly not to release funds to enjoy life.

dunstonh

There are now a few providers that have gone into the 50s with their offering. However, choice will be more limited and waiting would be better unless it is a last resort.

xylophone

http://www.guardian.co.uk/money/2008/mar/02/debt.equities
might be worth a read.

jamesd

You seem to have trapped yourselves into having to downsize to increase your income, the sort of thing that someone neglecting pension contributions to overpay on a mortgage or buy an excessively costly property might do.

Potential income for each £100,000 released by downsizing is in the range of £4,000 to £6,000 per year using investments.

Sadly you've left yourselves with little choice if you want to increase your income in retirement. It'll be that or working longer, though a big increase in your pension savings rate could help substantially if you were to do it for ten years or so.

The easiest way to downsize can be not to downsize at all but to move to a cheaper part of the country where you can usually buy a property of the same size at lower cost than in say the London area.

While you write that downsizing is not an option, you have only unrealistic or other undesirable choices available, since you appear to lack the other resources that would allow you to retire early - the house seems to be the only one you have that is big enough in value to matter. The very limited potential good news is that if you are in a high cost area you could probably get a thoroughly decent place at half the price and generate £8,000 to £12,000 a year in ongoing income.

Your other choices appear to be:

1. Living on means tested benefits in an expensive house you can't afford to maintain properly.
2. Continuing to work well past state pension age to accumulate the money to get you a better income level.

You're stuck. There are no choices available that make sense that you will like.

Lois_and_CK

The minimum age for equity release is 55, but you won't get very much at such a young age - mainly because the equity release companies will take into account you've likely got a long life to live yet before they get their money back. The older you are, the more money you'll be able to release.

There are two types of equity release: home reversion and lifetime mortgage. A lifetime mortgage is an agreed loan against the value of the house with a set rate of interest. There are no monthly payments to make and the loan plus interest is paid back on death or when the owner moves into permanent care. Lifetime mortgages can be taken out with a no-negative equity guarantee, so should the final loan plus interest add up to more than the value of the house, then the inheritees have nothing extra to pay.

With home reversion schemes you sell a percentage of your property - up to 100% - and that percentage then belongs to the equity release company while the owner effectively becomes a tenant until they die or go into care.
With both types, you can take a lump sum in one go or several payments spread out. There are various calculators on the internet which will give you some figures - try Aviva for example.

You should also consider whether you're going to want that equity in the future to pay for potential care costs - really it should be a last resort, not part of your retirement plan. I'd look into maximising your savings now, cutting your budget, getting a lodger, etc. Try the old style and debt boards for some good advice on budgeting.

holly_hobby

Although generally the above post is correct, you are far too young at 56 to acquire a Home Reversion scheme.

But you would (just) qualify for a lifetime mge equity release (rolled up interest) arrangement (min age 55 yrs with majority of providers) - although at such a young age the initial drawdown will be relatively low.

As touched on, repayment of an ERLM is on death or entry into long term care (which ever is early, and on 2nd occurance if this is a joint arrangement).

Traditionally there are no monthly repayments made on such an arrangement, with interest rolled up - which effectively means that the free equity in your property will be eroded over time - however there is currently one provider whom has a facility for the mortgagor to make monthly interest payments (either wholly or partly) to effectively ring fence the debt, and protect free equity erosion (which are course would still be subject to property market movements).

Arrangements such as this are traditionally attractive to those individuals whom are asset rich but cash poor - or as in your case you have no beneficiaries that you wish to pass your estate to.

You need to be aware that they are also not designed to be exited early (ie pre death/LTC provision), as exit penalties can be hefty - so this must really be your forever home for it to be beneficial as a whole.

A no negative equity gte, may not be important to you if you have no beneficiaries, but if you want to explore such providers - the Equity Release Council (formely SHIP) - hold details of members who offer a no negative equity gte, and whom also adhere to a voluntary code of conduct - http://www.equityreleasecouncil.com/home/.

You should also of course obtain guidance from a suitably qualified Equity Release/Later Life adviser, as this a specalist area of advice - if you want to source advisers whom have been further and voluntary and independetly assessed (in addition to having the relevant professional qualifications), as to their proficiency in such a delicate area of advice - the Society Of Later Life Advisers (SOLLA), will give you a guide to suitable practioners in your area - http://www.societyoflaterlifeadvisers.co.uk/

Don't forget that any released equity will have an affect on any means tested social benefits you are in receipt of (or hope to claim for), and you should ensure that you and your adviser give due consideration to how this may impact on you. Updated wills, IHT consideration should also form part of their adivce/referral.

Any q's give a shout - but the above should be sufficient to get you started.

Hope this helps

Holly

Proxy

You certainly can do it at 55, however I wouldn't recommend it. You have plenty of savings to live off. Equity release may indeed suit you in the future, when you can release more money.

But be sure to explore other avenues also.

pieropan

Many thanks to all those who have responded.I guess the key issue is that there has been a huge explosion (year on year ) in the numbers of people releasing equity to help fund retirement and this is a trend that will imo continue.We have no estate beneficiaries so for us this is a key consideration.
Just wondered if there are any views about this from people who have already gone down the ER route, who are in their early stages of retirement and have no benficiaries ?
Pieropan

pieropan

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Holly
Your post is really helpful and you clearly know your subject !
Could you clarify approx what level of drawdown there would be at say 60 ?
rgds
Pieropan