Interest Only & Equity Release Questions

Monty53

I have an outstanding mortgage of £253000 with nearly 14 years to go with C&G,paying interest only for the last 5 years @ 2.5%, property is valued at £450000
My original plan was to sell and move to smaller property but now circumstances have changed and I have to stay in this property.
I've had a brief telephone conversation with an IFA who said ( I think?) that I need to have 2/3rds equity in house compared to mortgage in order to qualify for Equity Release ( assume in 14 years max)
My questions are: Is that correct about Equity Release? Should I overpay on my interest only,if so how much? Or should I take up C&G offer of either fixed rate or repayment deal ... I don't want to repay on the full amount but understand I can have fixed rate for a portion of mortgage, how much should stay as interest only,how much say on fixed rate?

I hope I've made sense, any advice gratefully received as obviously I'm a total numpty with finance. :eek:

Senior_Paper_Monitor

How old are you, what do you earn ?


The response you have apparently had appears to make little sense - I do however have no doubt you need some serious professional advice at this point.

Monty53

Thanks for your reply ... I'm 57 and earn around £40000

You mean the response from the IFA? Well he was giving me free advice and I had the feeling he lost interest when he realised that I'm too old to remortgage.

Thrugelmir

What's your plan for repaying the capital owed?

Do you have savings or a pension to fund the mortgage potentially into your retirement years?

Higher interest rates may change the picture in the years to come. That and the unknown factors of what the lending market will look like in the years to come.

Monty53

I don't have a plan to repay capital as original plan was to sell and downsize! As I said before my situation has changed so I am where I am right now ... not good I know.
When I retire I will have five pensions.however not sure what will come first my retirement or mortgage term finishing.

C&G tell me that I will have to put property on market a year before term ends because they will want their money, that's why I need to repay as much as possible before I sell or ideally release equity to enable me to stay where I am.

Finding situation very stressful.

Thrugelmir

14 years is a long time yet. So much could still change. Paying down whatever you able while you are still working seems to be your only option at the current time. Then review your plans on a regular basis going forward. The one unknown you face that will impact you is interest rates. With a debt that size owing certainly not a comfortable exposure to have.

Monty53

Thank you so much for your reply!

Of course I understand about the unknown demon of interest rates but that is out of my control and I must deal with my situation as it is right now.

Before I commit myself to another C&G mortgage I really need to know what is best for me .... to over pay on my interest only or to get a fixed rate for a portion of my outstanding mortgage, both with a view to releasing equity when the time comes, that's why I also wanted to know how much equity I need to be able to do that.

Thrugelmir

You need to sit down with an adviser in the field. As there's so many variables to factor in and consider. No one can forecast what providers will be offering in 14 years time.

Monty53

Once I realised my new situation I had a conversation with C&G who, after telling me I would have to sell my house a year before the term ended also arranged for an advisor to call me back the following day, this didn't happen despite me ringing again.
As I bank with Lloyds I filled in the online form to make an appointment in branch, I indicated the days and times I was available, I haven't heard anything.
I rang a local independant IFA ( first hour free) I specifically asked the girl who answered the phone if I could have a face to face meeting ( I would obviously pay) however the guy phoned me back and the result was the fruitless conversation I've posted above ... so I now feel I'm floundering.
It's not nice being told I'm too old to be of any real financial interest, I'm healthy and have a very good job ...C&G have happily taken my money for decades and now seem equally as happy to ignore me, the other irony is being constantly told to keep up mortgage payments, always get professional advice ... I'm now in a position to seriously increase my monthly payments to secure my future yet getting the right advice is proving far from easy.

Senior_Paper_Monitor

Go to a mortgage specialist rather than an IFA - this sorts doable over a long medium term plan.


The immediate problem you have is that you have borrowing over 6 times your income - so you may be stuck with your current lender at least for a few years. This does not necessarily stop rate changes (a new deal) nor capital reductions providing an opportunity to remortgage elsewhere in a few years. You just need a plan.

Let_Us_See

I am seeing more and more of these situations, and there is no easy solution to your current problem, as there are so many factors involved. Pointing out your current mortgage balance is 6.3 x income, with no apparent repayment vehicle, and the hope a lifetime mortgage/equity release will come to the rescue is not a strong position, neither is it hopeless.

Unless it is a term of the mortgage offer, it is unlikely C & G can force you to market your property with a year remaining on the term, however they will expect the mortgage to be fully redeemed at the end of the term, and therefore one year is hardly going to make a difference to your predicament. You need to take long term action NOW.

A quick check showed (ignoring interest only payable schemes) you should be able to borrow around £167,000 (aged 71) with a lifetime mortgage based on a property valued at £450,000 - or a ball park figure of 37%. However, this makes no allowances for property price fluctuations, and in 14 years time your possible borrowing could be higher or lower. Historical evidence points to an increase in house prices which could make your position more tenable.

You do not state if you are employed or self-employed, but if employed your anticipated retirement age of 71 years could be a serious problem. Which brings me to the following:-

1. Arrange for an adviser to review your 5 pensions and obtain a realistic indication of expected pension income (how much and when), and lump sum availability taking into account this year's proposed pension changes.
2. By all means maintain a dialogue with C & G, but also remember their advise might be geared to their, and not your benefit.
3. Draw up a realistic budget, and after checking your capital overpayment entitlement without incurring a redemption penalty, start making overpayments ASAP.
4. Why can't you downsize?
5. Do you think you can physically and mentally continue working until 71 years of age, or if employed, will your employer let you?

There is definitely light at the end of the tunnel!