Equity releasing a property to retire

Proxy

mgdavid wrote: »

Please tell us which half...

It could take me all day, to be honest. Just a few below but i mostly shake my head at the lack of impartiality. ER will suit some people, it won't others. A balanced view wouldn't go amiss,

The first article (published 5 years ago) is probably the best of the lot - but does talk about poor advertising by Norwich Union (now Aviva) which is clearly not relevant for five years hence. It talks about banks and building societies lending products - in fact, i don't think any banks or building societies are in the market anymore.

The guardian comment article sites a 7% interest rate - sure, if your IFA is particularly bad at shopping around you might get this, but you can also get 5.4%. No different from saying Annuities are bad value by looking at the worst rate on the market. At least the first article used a more realistic 6%. That's not even to mention that they use APR and interest rate interchangeably at one point - the loan doesn't roll up by the APR!


Neither article bothers to mention drawdown products (around 67% of the market) which you can draw small amounts and see that they only roll up when they are taken - reducing the total liability. Of course, the OPs needs are for a lump sum, but other people would not be aware of this when reading. And yet both bother to mention reversion plans, which are down to about 0.5% of the market.

The third result is someone complaining about charges because their parents want to downsize. Misleading? At first glance, i would say yes - actually, they want to repay the mortgage and the downsizing is irrelevant. All members of the Equity Release Council will allow a loan to be ported to another property and no charges will be levied if some of the loan is required to be repaid (if it's a smaller property, for example). Reading this at first glance you might think that you have no other choice but to stay in the property you equity released but that isn't the case.

mgdavid

Proxy wrote: »

It could take me all day, to be honest. Just a few below but i mostly shake my head at the lack of impartiality. ER will suit some people, it won't others. A balanced view wouldn't go amiss,

The first article (published 5 years ago) is probably the best of the lot - but does talk about poor advertising by Norwich Union (now Aviva) which is clearly not relevant for five years hence. It talks about banks and building societies lending products - in fact, i don't think any banks or building societies are in the market anymore.

The guardian comment article sites a 7% interest rate - sure, if your IFA is particularly bad at shopping around you might get this, but you can also get 5.4%. No different from saying Annuities are bad value by looking at the worst rate on the market. At least the first article used a more realistic 6%. That's not even to mention that they use APR and interest rate interchangeably at one point - the loan doesn't roll up by the APR!


Neither article bothers to mention drawdown products (around 67% of the market) which you can draw small amounts and see that they only roll up when they are taken - reducing the total liability. Of course, the OPs needs are for a lump sum, but other people would not be aware of this when reading. And yet both bother to mention reversion plans, which are down to about 0.5% of the market.

The third result is someone complaining about charges because their parents want to downsize. Misleading? At first glance, i would say yes - actually, they want to repay the mortgage and the downsizing is irrelevant. All members of the Equity Release Council will allow a loan to be ported to another property and no charges will be levied if some of the loan is required to be repaid (if it's a smaller property, for example). Reading this at first glance you might think that you have no other choice but to stay in the property you equity released but that isn't the case.

thanks but I hardly see any of that as Scaremongering, just usual journos sloppy work.

Proxy

Either way. Advice, advice, advice.

margaretclare

gterr wrote: »

Most (if not all) of the equity release schemes now come with a guarantee that would mean that in this case the couple could remain in the house for as long as they lived (until second death) or until the last of them went into permanent care. At that stage the house would be sold, and if there was equity left in the house after the equity release mortgage had been paid off then this would go to their estate. If the couple lived long enough that there was negative equity in the house then that's hard luck on the equity release firm. However, the firm may well be expecting some rise in property values as the years go by, which would help offset the risk of negative equity.

Yes, this is how it works.

We did equity release in 2003 after our marriage and my daughter's death. Downsizing was not an option for us - there's not much you can downsize to from a 2-bed 1930s bungalow. We did it simply to pay off a £45K mortgage. We could have gone on paying a mortgage until we were 83, just in time to die and leave it all to someone else.

Due to the growth and development of our local airport therefore increased property prices, and the BoE rate remaining static for so long, it has worked out OK for us. Our rate is pegged to the BoE and we are happy with that. It could have been different!

Anyone interested in doing the like must first consider present age, likelihood of living longer, any other possible alternatives. In the case of this couple downsizing should definitely be the first consideration. Never mind all the sentiment and 'liking the area'. And the interest rate, and on what amount over what period of time. Talk of 'inheritance' doesn't come into it, or shouldn't.

So far equity release has worked out OK for us, but it's not to be taken in hand lightly, inadvisedly or wantonly, as the Prayer Book used to advise about marriage. Extensive research should be done, and by the people concerned, not their relatives.