Imaginative Alternatives to Equity Release.

colinashley

We're both in our early 60's and own our house outright. We have no children and no real desire to leave an inheritance to anyone else - except maybe some token charity bequests. We are both in good health and plan to stay fit and live to a ripe age (hopefully!). We enjoy a great lifestyle and have sufficient pensions and savings to enable us to maintain it for another 5 or 6 years. At this time we wish to use as much of the available equity in our house as we can to enable us to continue enjoying ourselves.
Like everyone else, we've considered Home reversion plans, Equity release schemes and Lifetime Mortgages. Maybe we're being greedy, but they all seem to offer very little in return for us signing our property away.
At the moment our best option seems to be downsizing, eventually followed by one of the above schemes. I can't help thinking that there must be more alternatives than this and we're looking for something more imaginative to consider. All suggestions welcomed!

Your_Hero

colinashley wrote: »

Like everyone else, we've considered Home reversion plans, Equity release schemes and Lifetime Mortgages. Maybe we're being greedy, but they all seem to offer very little in return for us signing our property away.

It is because of your relatively young ages which will mean that the term of the loan will be very long. Most lifetime mortgages offer a "no negative equity" guarantee so they have to price this in.

Home reversion plans are always going to offer significantly lower than market value because you pay no interest on the loan.

At the moment our best option seems to be downsizing, eventually followed by one of the above schemes.

Equity release schemes should be the last resort. So use your savings and investments first and downsize to release some capital, followed by equity release schemes if you still want more money. You should consider using a 'drawdown' version where you only take out what you need to reduce the amount borrowed and therefore the amount of interest payable.

I can't help thinking that there must be more alternatives than this and we're looking for something more imaginative to consider. All suggestions welcomed!

There isn't a lot of alternatives here since you wanted to 'use as much of the available equity in your house' to enjoy yourselves. This boils down to Lifetime mortgages or Home reversion plans. A normal residential mortgage is unlikely to be available.

This is an area you should seek professional advice and talk it through with your IFA. If you don't have an adviser, you can find one here www.unbiased.co.uk . Fee will vary and some may choose not advise in this area due to it being too high risk.

xylophone

It might be better to consider downsizing to a home that will be easy to maintain?

If you intend to travel, then a flat might be the answer- (no worries about overgrown garden etc).

jamesd

If still working you could use equity release to fund additional pension contributions, then use the pension lump sums to repay the borrowing. The tax gains can make this profitable.

Downsizing has the possible advantage of lowering spending due to lower bills. You can also do things like investing the downsizing pot in insulation, solar hot water and solar electricity generation that will be profitable over the time you are likely to live, asuming you are in normal good health.

If you wish to use more than that allows you can evaluate renting vs owning. It might be possible to rent for less than the ownership cost at some point, given that owning is likely to be priced at more than 10-15 years of rent. So when you reach that sort of life expectancy it might make some sense to speculate on dying before the cost of renting exceeds the money freed up by selling completely.

You may also want to consider the potential cost of care home fees later in life. It may well not be a good idea to spend so much of the capital that you can't fund say £30,000 a year for three years plus for each of you in case of this need.

kidmugsy

A request: would anyone reading here who has successfully downsized please give us some guidance to how much it cost them?

xylophone

it cost them?

In terms of?

Some acquaintances sold a large detached London house and moved to a ground floor flat near the coast in Suffolk - no (financial) specifics were vouchsafed but we gather that they were "quids in" - the flat was handily located for all amenities, within walking distance of the weekend home of one of their sons and they were easily able to afford the services of a couple to help out with the chores.

bristol_pilot

An alternative to downsizing as such is moving to a cheaper area. Many locations are at a premium due to proximity to centers of employment. You don't need to pay that premium if retired, so take advantage...this has the advantage over downsizing of not spending your retirement years living in some pokey little flat. Many cheaper rural areas have lovely countryside etc (just no jobs).

Think long and hard before selling up and moving into rented. This might make sense financially on paper, but there is no security of tenure - the LL can just turn up and give you one or two months notice to quit, hike the rent up, give you hassle.....not at all a viable option for retirees IMO unless desperate.

Linton

bristol_pilot wrote: »

An alternative to downsizing as such is moving to a cheaper area. Many locations are at a premium due to proximity to centers of employment. You don't need to pay that premium if retired, so take advantage...this has the advantage over downsizing of not spending your retirement years living in some pokey little flat. Many cheaper rural areas have lovely countryside etc (just no jobs).

That's what we did - our current house is larger, better built and more practical than our previous one but cost about 2/3rd of its selling price. And we are now living in a much less crowded part of the country.

kidmugsy

xylophone wrote: »

In terms of?

What it cost them in terms of ... costs. How much did they pay to get the old house ready for sale, how much for the lawyer and estate agent, how much for the lawyer, surveyor, and stamp duty to buy the new one, how much on decorating the new one, and on carpets and curtains, and the like? Even the cost of the removals men, sweeping the chimneys, getting the gas and electricity checked .....

Mojisola

kidmugsy wrote: »

What it cost them in terms of ... costs. How much did they pay to get the old house ready for sale, how much for the lawyer and estate agent, how much for the lawyer, surveyor, and stamp duty to buy the new one, how much on decorating the new one, and on carpets and curtains, and the like? Even the cost of the removals men, sweeping the chimneys, getting the gas and electricity checked .....

Aren't those costs going to be different in every case depending on many things - just the price of the old and new properties, for instance.

Linton

As well as the financial costs you need to consider the more personal ones. Perhaps you would be leaving an area where you have lived for many years and where you have many friends to somewhere far away where you know no-one. Or maybe you would have to move from a "nice" part of town to somewhere less prestigious. Perhaps you are used to shopping in a nearby Waitrose and the many little shops in the town centre. Grocery shopping in the sticks can be far more limited than in London and the Southeast.