equity release - basic question!

holly_hobby

Rafter wrote: »

Mick,

I wonder if there is a smarter solution which is to give the house to your daughter now and get her to take out a £20,000 mortgage (she may have to take a £25,000 mortgage as this is the minimum for many lenders) to clear your debts and reduce your outgoings.

The repayment on this mortgage would be around £100 per month which you could give her from the £500 per month you are saving.

The interest rate on a 5 year fixed rate standard mortgage is likely to be a lot lower than an equity release mortgage.

The risk for you is that she cannot keep up repayments, but that seems unlikely given the sums involved.

Things could get complicated if one of you needs care at some point in the future as the house may still be treated as yours if you havn't been paying a commercial rent on it to your daughter.

You would all seem to be better off though. Your debts are cleared and you have more income. Your daughter preserves more of her inheritance because you aren't paying a high rate on an equity release loan.

Worth getting some (paid for) advice from an independent advisor - you may even be able to structure it to ensure you house doesn't get sold to pay care bills.

Good luck

R.

Regulated BTL mge (regulated means the mge is treated as a 2nd home mge - and based on earned rather than rental income), would be reqd by Daughter (or dependants mge if she can find a still participating lender) .... BUT the issue is the parents are to remain resident in the dwelling post completion, which causes possesionary issues for the lender, and will rule out a mge as its tantamount to a sale and rent back agreement - all excluded by lenders.

Possibly post TOE the D effecting a personal loan may be the answer ?

Property upon TOE is taken out of parents estate, albeit its tech classed as a gift with reservation. However, given the discussions re low income/savings, this shouldn't cause any PET IHT issues, which would only be relevant if their net estate on death exceeds nil rate IHT threshold, of (currently) 325k pp or 650k if full spousal tsf effected on 2nd death.

D will be liable to CGT on any gain realised on later disposal of the property.

SDLT is based on the consideration (ie 20/25k in this case), so below nil rate threshold (125k) and no liability.

Deprevation of assets - yes if parents sell for below market value, and they or their reps later seek any MT benefits or state assisted long term care assistance, DOA may well be cited. This will suceed if it is reasonable to assume that the individual(s) knew they may have a later requirement for this assistance at the time of transaction.

Hope this helps

Holly

iolanthe07

The owner/their estate does not forgo entire property ownership, as stated in an earlier post on this thread,

I assume you are referring to my post, no 6. I apologise for exaggerating; my parents-in-law only lost 95% of their home. They are left with a measly 5%, but they cannot move because the bank insists that if they do, it has to be to a property of equal value; which is out of the question considering the huge costs associated with house sales and purchases. Effectively, they cannot downsize. I repeat what I wrote before: do take great care with these schemes - they are designed for the bank, not for you.

holly_hobby

iolanthe07 wrote: »

The owner/their estate does not forgo entire property ownership, as stated in an earlier post on this thread,

I assume you are referring to my post, no 6. I apologise for exaggerating; my parents-in-law only lost 95% of their home. They are left with a measly 5%, but they cannot move because the bank insists that if they do, it has to be to a property of equal value; which is out of the question considering the huge costs associated with house sales and purchases. Effectively, they cannot downsize. I repeat what I wrote before: do take great care with these schemes - they are designed for the bank, not for you.

I wasn't actually - it was someone else's post.

They signed 95% of the value over to the bank ?

Have they had the contractual terms reviewed to ensure the terms being applied are detailed within the t&cs provided at outset, and under which they entered into the contractual arrangement ?

Holly

iolanthe07

holly_hobby wrote: »

I wasn't actually - it was someone else's post.

They signed 95% of the value over to the bank ?

Have they had the contractual terms reviewed to ensure the terms being applied are detailed within the t&cs provided at outset, and under which they entered into the contractual arrangement ?

Holly

My father-in-law is an extemely stubborn and foolish man and has made lots of serious errors in money management over the years. He didn't discuss this reversion scheme with anyone when he took it out in 1997, and they weren't properly regulated then AFAIK. We recently had a solicitor look at what he signed, and although it was a very bad deal, it was lawful. The solicitor said that as my father-in-law was of sound mind at the time we don't have a case. So, everyone, beware of these reversion schemes.

bigadaj

iolanthe07 wrote: »

My father-in-law is an extemely stubborn and foolish man and has made lots of serious errors in money management over the years. He didn't discuss this reversion scheme with anyone when he took it out in 1997, and they weren't properly regulated then AFAIK. We recently had a solicitor look at what he signed, and although it was a very bad deal, it was lawful. The solicitor said that as my father-in-law was of sound mind at the time we don't have a case. So, everyone, beware of these reversion schemes.

Might be legally sound but sounds as though it may not morally have been.

If no recourse in law is it worth going to the court if public opinion? If its a major lender they could be shamed into agreeing a better deal by media exposure.

holly_hobby

I am sincerely and truly sorry for your FILs situation.

Indeed speaking about moral issues surronding the schemes, there was not too long ago an attempted class action on (the as was) Shared Appreciation Mortgages or SAMs (which are the fore runner for the current Home Reversion Schemes).

The class action did not succeed and pursued, at it was considered that this action had little chance of success at judicial level, given that no contractual terms had been broken & individuals were aware of the terms from outset.

As essentially, if the contract was correctly and lawfully executed, and the mortgagor did not have any known cognative imparement at the point of sale - you pays your money and takes your chances I'm afraid. As on the flip side of such arrangements, if the backside had fell out the market, and the capital loan at redemption actually exceeded the banks % share, then the mortgagor/their estate would have been quite happy I suspect, and not of the mind to willinginly pay more, because "morally" it was the right thing to do (assuming the provider had a no neg equity gte as all SHIP (now Eq Release Council) members provide).

Lifetime mge arrangements of today are not the devil incarnate and they are suitable for SOME individuals - BUT - it very much depends upon the reason for the ER situ, if ALL other alternatives have been explored and how any EQ exercise will impact on any MT benefits (and any requirement to leave a bequest from property proceeds to others).

That's why its imperative that anyone considering such an arrangement, discusses this both with their family/beneficiaries and a qualified and regulated ER/Long Term Care adviser - rather than just go it alone, confident that you know what you are doing, and have both read and UNDERSTOOD all the contractual terms you are about to enter into (inc the quite weightly ERCs pre death/LTC entry).

Hope this helps

Holly

iolanthe07

What does/did your MIL think, or did FIL not consult her either?

He didn't consult anyone. The first she heard about it was years later when she wanted to move. It caused a great strain on their marriage (not fatal, though - 67th anniversary yesterday!)

iolanthe07

I assume the house was all in his name, not shared, otherwise he wouldn't have been able to do this?

Yes, the house was in his name. Attitudes were very different when they got married in 1946. The man was the boss and the little woman was not encouraged to bother her silly little head over things like that.

iolanthe07

Opinions may different on whether it was the male or the female who turned out to have the 'silly little head'.

Well, quite!

iris

margaretclare wrote: »

Thankfully, things are different now. My first husband and I bought our first home together in 1962. There was no question then of my 'not bothering my silly little head' and it was in joint names from the word 'go'.

Opinions may different on whether it was the male or the female who turned out to have the 'silly little head'.

It's been a long time ago now, but if I remember correctly when my husband and I bought our first home together in 1963, as I was only 18 I was not allowed to have my name on the mortgage/deeds (you needed to be 21). However, when we moved 5 years later this all changed.