Equity releasing a property to retire

Lukeduke

Hi, I hope I have posted this in the correct section. My parents are at an age where they need to retire, but unfortunately they due to reasons not for here have no savings. They live in a property worth around £350K and upwards, but again due to reasons not for here they still have a big mortgage on the property of around £160K. although the sensible thing to do would be to downsize, they would dearly love to stay put as its a wonderful location and any monies left after selling their current property would not leave enough to buy a property anywhere near to the location they are in now. So they are looking at an equity release scheme, so that they can stay put for the rest of their time, mortgage free etc etc, Obviousley it leaves little or no legacy to pass on to me nor my sister, but we are both comfortable and would rather see them happy than struggle on and have to move to a smaller property in a less desirable area.

its early days but they have found a company that will pay the mortgage off, allow them to still own the property and live there as long as they want too, then in the future when they both have passed on, the company will claim their payment back plus interest out of the sale of the property.

Im no finance expert whatsoever, and they will take independant advice on my advice etc etc. They are having a meeting with this company soon and I will be there purely as an extra pair of ears and to ask any questions, BUT iid like to hear what you learned folks have to say about these schemes and how they work, and how they base the intrest rates etc etc.

The whole purpose of this is to keep my parents in the home and surroundings they love rather than making their "golden" years a misery, just so that they can leave my sister and I an inheritance.

I hope some of the above makes some sense and I appreciate any advice etc etc.

Thrugelmir

With a £160k of debt to service is equity release going to give them the retirement they are hoping for?

Lukeduke

As I understand it, and I may be wrong, but the Equity company pay their outstanding mortgage balance, Then my parents can live mortgage free in their house till they have both passed away, they still own the property, but at such a time the Equity company want their money back plus the intrest thats built up over the time. If there is any money left from the sale of the house at that time, then that will be ours. I realise its not a financial best option, but its the best solution, if it indeed rings true for my parents.......As I say we are not financially astute people and we will be taking independent advice to get an unbiased view....I do realise its basically a deferred mortgage etc etc.
But any advice on this sort of scheme is most welcome

p00hsticks

Lukeduke wrote: »

As I understand it, and I may be wrong, but the Equity company pay their outstanding mortgage balance, Then my parents can live mortgage free in their house till they have both passed away

How old are your parents and what is their health like (put crudely, how long do you think they are going to live ? )

Although I have not first hand experience of these sort of companies, on the figures you mention (a £350k house with a £160k mortgage, giving around £190k equity) , I'm strggling to see that it's going to be an attractive proposition for the company.

You are asking them to pay £160,000 up front and then wait possibly fifteen or twenty years or even longer to get any of it back. In the meantime interest charges are going to be stacking up (what sort of interest rate are they going to charge ?) and probably won't take that long to be more than the available equity. Unless they are confident that the house is going to be worth enough at the time of the second death to pay all this back then I can't imagine that they'd want to make such a deal....

mgdavid

so that plan keeps them in the current house for the remainder of their lives; but what will they live on?
You say they have no savings, do they have any investments or pensions?
you say they 'need' to retire, are they now at state pension age?
Are they both eligible for state pension?
Have they both requested an SP forecast?
Have they done a budget which establishes they can live comfortably in this house on the state pensions?
My concern would be that staying in the house and living in poverty is not what is desired.

zagfles

I presume the company will just pay off the mortgage, rather than giving them a lump sum as well?

£160k plus 20 years interest at 4% will be over £350k. And I'd imagine they'd want more than 4%. What would happen if one or both of them lived to point where the money owed to the equity release company was close to the equity in the house?

greenglide

... and who pays for the upkeep of the house, repairs etc?

If the cannot to service the mortgage then what will they live on?

What about an interest only mortgage paid off by the equity in the house?

PeacefulWaters

Google "equity release nightmare".

I'd guide them towards selling up, buying an affordable home for £150k and keeping a few thousand back for savings.

xylophone

http://www.equityreleasecouncil.com/member-directory/

Worth a browse before they do anything.

If you and your sister are "comfortable", do you have the means to make a loan to your parents which would enable them to pay off the mortgage?

It could be secured against the house, interest free ( but rolled up - or perhaps index linked )?

Lukeduke

These are great responses, and so many questions that need answering, My parents get a state pension, and have full time jobs at this time, the retirement plan is to maybe do 2 or three days a week to keep the bills paid, Its very early days yet, and NO figures have been obtained, its just an idea at this time, The company are apparentley sending an advisor to them to talk over the scheme, they may well say its not possible as you say. But you folks have put some very very vaild questions our way.

mgdavid

And of course, don't forget that these Equity Release companies are not founded out of charitable benevolence to our aged population, they exist to make profit for their directors and shareholders, lots of it!