Equity Release

margaretclare

pieropan wrote: »

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 beneficiaries ?
Pieropan

We too were not bothered about leaving a legacy behind. Since the death of my younger daughter almost 10 years ago now everything had changed. We didn't see the point in going on paying a mortgage to be paid off when we were 83.

The only advice I can give you is be careful of the interest rate. We heard all the doom-and-gloom stories about people being kicked out of their homes because of interest rolling-up...our interest rate is pegged to the Bank Rate, which has been historically low for a long time.

holly_hobby

The level of drawdown (based on age and property value) varies between providers - so I can't give you a definitive answer.

If you google equty release, threre are copious sites with both firms whom provide advice, to those such as Aviva (and others) whom provide the finance .

As I stated earlier, you must be absolutely sure that this is the best route for you - as the exit penalities can be staggering and the effect on means tested benefits may leave little to be gained (other than deprive the crown of your estate on 2nd death, if you don't bequeath to anyone) .....

ER at such a young age is unusual, and whilst a forum is great for general advice and guidance, you do need to sit down with a suitably qualified adviser, whom will evaluate your personal and financial circs to your requirements .... taking into account the factors I've already discussed.

The sites I have given you will assist, as well as the google suggestion ...


Hope this helps

Holly

ZacSpeed

According to a Telegraph article last year(?) typical compound interest on ER was 7% so the loan amount roughly doubled each 10 years.

e.g. 50k borrowed at age 60 = 100k at age 70, 200k at age 80 and 400k age 90.

Still interested?

Depending on your income requirements your dream could be achievable but ER is not the answer (for someone of your age).

pieropan

The compound interest argument is undeniable, but the alternative is to just leave the equity untapped and a significant estate to HMG.
That option is equally unappealing.

jamesd

With life expectancies increasing, an equity release provider will be planning on death well after age 90 because half of those aged 65 today are expected to live to an age of at least 88 years, if in normal health, using cohort life expectancy tables. So getting as much as £50,000 for a property worth £400,000 doesn't seem likely. Without getting quotes, something like half of that looks more likely.

£25,000 or even £50,000 of capital just won't provide an adequate basis for much ongoing income, the practical long term income levels from those are in the range from £1,000 (25,000 with 4% income level) to £3,000 a year (50,000 with 6% income level).

From those sorts of numbers, after state pension age you might be able to manage to get Pension Guarantee Credit. Pension Guarantee Credit is £217.90 a week for a couple, £11,330 a year.

Trying to match even that level will probably fail since you don't appear to be able to get sufficient equity release plus savings to last until state pension age for both of you. Temporarily ignoring the investment income you'd have perhaps £30,000 of savings plus say a very optimistic £50,000 from equity release for a total of £80,000. With ages 56 now and assumed state pension ages of 62 and 66, looking at 62 first, splitting the capital evenly each year for six years would get you to £13,300 a year but with no capital left for the later retirement. Dropping to £11,330 a year to match Pension Guarantee Credit takes:

four years of 11,330 until age 60
two years of 10,330 from age 60 to 62 with 1000 other pension income
four years of 4,743 from 62 to 66 with 1000 other pension and one full basic state pension of £107.45 a week, 5,587 a year

The total of those requirements is 4 * 11330 + 2 * 10330 + 4 * 4743 = 84,952

And that's more than even the optimistic £80,000 level with £50,000 of equity release. So it appears that with equity release you would barely be able to match the minimal income that a means tested benefit is expected to provide after adding some allowance for investment income.

If you're content to live a bit below means tested benefit level for the next ten years you might be able to manage that.

While you'll still need to see what you might be able to get from equity release it doesn't look like a practical plan to provide you with a half-decent income level. Most likely it'll fail to do that and leave you with no savings left after five to eight years or so even if you try to live on no more than means tested benefit spending levels.

You appear to lack the resources to stop working now, even with equity release, and definitely do if your income requirement to enjoy being retired is higher than means tested benefit levels.

holly_hobby

pieropan wrote: »

The compound interest argument is undeniable, but the alternative is to just leave the equity untapped and a significant estate to HMG.
That option is equally unappealing.

My own preferred suggestion from my understanding of your situ, would be to sell and release the entire free equity for enjoyment (use within feeder accounts/investment). Although I understand your current desire to remain within the property and avoid downsizing or renting (of course it should be considered that any ERLM, as disussed, will only give you access to a % of the free equity, albeit the % will increase over time and your advancing yrs - God willing ).

Holly

ZacSpeed

but there are alternatives to ER, off the top of my head...

- Downsize
- Sell and rent similar property
- Delay selling your house by getting an offset mortgage and drawing down against this to top up your pension (at a much lower interest rate) then downsize later (maybe when your state pensions kick in at 65).

It's not just the compound interest as they will almost certainly use a very low house valuation to calculate the max loan value.

IMHO it really isn't a good idea for someone with a life expectancy of 30+ years.

Cheers, Zac

xylophone

a significant estate to HMG.

Puzzled by this - if you have no heirs, would you not consider willing your estate to charity?

pieropan

Yes of course.I suppose the point I am still trying to make is that in spite of considerable evidence (previous poster graphically shows that ER is the economics of the madhouse) that essentially ER is not the most cost effective way to access cash, if you have no immediate family to take in to consideration at least you will get something out of your hard earned gains.
I wonder how others, particularly those who have already gone down this route in similar circs, feel about it?

jamesd

pieropan, an offset mortgage might be available for as much as or more than equity release. Not sure of a lender who has an offset mortgage and lends into retirement though, know First Direct do not lend into retirement. There are lenders who will lend on repayment terms at least until age 85 if there is sufficient income in retirement to support doing that. I have reservations about whether you have such income so also about whether you could get either type of mortgage unless you are currently still working.

The attraction of the non-equity release mortgages is in part their far lower interest rates.

But for all of the discussion of equity release, not downsizing and a desire to stop working, the approaches that appear to have a reasonable prospect of success are most strongly carrying on working longer or downsizing, with a chance of a standard mortgage instead of equity release one that might work better than equity release, maybe, if you could get one.

Moving to a cheaper part of the country to keep the same size property is the most realistic higher income option available if you do want to retire now and keep a place of the same size with a more decent income level. You probably could get a mortgage in association with that sort of move or with downsizing, but the bulk of the potential comes from investment income on perhaps £200,000 of freed up equity. That sort of amount of money would make a clearly viable long term plan.

Free up say £200,000 and you could probably sustain for life and taking an initial investment income from that without too great a long term capital drain of £12,000 is doable. After both of you are at state pension age you'd get at least £10,000 from the state pensions, likely more, plus that £1,000. So the problem is to get to that and more early and to boost it long term. Without running the calculation, if you freed up £200,000 I think you could get a steady income level of about £20,000 a year from now until death, reducing the capital by £6,000 a year initially, more in later years until the pensions start, but that slowing down over time as the other income starts up. If you have state pension statements for each of you I could refine the numbers a bit and perhaps find that you could take £21,000 to £22,000 or more a year from now until death.

So you do potentially have a very financially practical way to stop working now, if you can do what it takes. But what it takes is something that might be blocked by whatever blocks downsizing.