Is equity release really so bad?

sortofwinning

Many thanks for all your replies. Yes, I realise things could be very different in 25 years' time, but your replies overall were what I was hoping for ie there's nothing too serious wrong with it other than watching out for scams, which I will do. I've 25 years to read up on it!

agarnett

I notice that Aviva offer something they call an Inheritance Guarantee as part of their Equity Release offer:

...we know how important is is for you to have the option to leave something for your loved ones, so we offer an inheritance protection guarantee that lets you safeguard a percentage of your homes value.

Guaranteed/protected/safeguarded against what? Does it repel all boarders or ... ?

I played with Aviva's calculator the other day and got some numbers which corresponded to a ~6% cash sum now which was less than £20,000 and an 88% inheritance guarantee.

How would such a thing be treated by the local authority in future years if the mortgagors or one of them had to go into care ?

jamesd

Equity release is a good thing when used sensibly. It can significantly increase the income available in drawdown even if net use is zero, by avoiding any need to draw on investment capital during downturns, drawing on an equity release facility instead.

It was made a bit worse with "no negative equity" guarantees, which increased the rates or reduced the amounts that could be lent, so lenders could cover their increased risk. This protects the rest of the estate that will be inherited but costs the deceased money during their lifetime.

jamesd

agarnett wrote: »

Guaranteed/protected/safeguarded against what? Does it repel all boarders or ... How would such a thing be treated by the local authority in future years if the mortgagors or one of them had to go into care ?

It repels no boarders except Aviva themselves. If the guarantee is needed the property is sold, then all but the guaranteed percentage of the sale price is paid to Aviva to repay the loan. Because the money is paid into the estate all creditors will take their amounts before any beneficiaries from the estate get anything. If there's a charge on the property any parties with a charge will of course get paid out of the sale proceeds ahead of other creditors and beneficiaries.

agarnett

I have been told that the Lifetime mortgages Aviva sells as this Equity Release thing are only life-long mortgages as long as the surviving mortgagor lives in the mortgaged home. At the moment the last mortgagor standing goes into residential care the mortgage has to stop in the same way it would stop upon last survivor death, and the property generally would be sold to satisfy Aviva's need for something between any inheritance guaranteed amount and the full value.

Sounds a bit wobbly ... sounds like Aviva may be using this product to gamble on people being more likely to go into care before they die than not.

Can anyone confirm?

mumps

I'm sure I read that people can get trapped in their family home as they can't sell their home and have enough money to buy something suitable. This was some time ago so newer regulations may have overcome this.

Personally I would rather downsize but my husband wouldn't so not sure what we will do when the time comes.

Mojisola

dunstonh wrote: »

In my experience people that think that they will downsize tend to not realise as much as they think. Either because they dont have scope to downsize as much as needed (i.e 3 bed to 2 bed) or that when they start looking at what downsizing actually means (small rooms etc) they dont want to do that. Also, they often forget the costs, such as estate agents and stamp duty etc as well as often the need to redecorate.

Add to this that you may have lived in your current home for many years and have friends and good neighbours close by.

One of the reasons my parents didn't downsize was because they had a strong social network in the surrounding area. Moving away to live among strangers just at the time of life when you start to need help with odd jobs and someone to notice if the curtains aren't pulled at the usual time of day, etc, can be a very bad idea.

jamesd

agarnett wrote: »

I have been told that the Lifetime mortgages Aviva sells as this Equity Release thing are only life-long mortgages as long as the surviving mortgagor lives in the mortgaged home. At the moment the last mortgagor standing goes into residential care the mortgage has to stop in the same way it would stop upon last survivor death, and the property generally would be sold to satisfy Aviva's need for something between any inheritance guaranteed amount and the full value.

Their FAQ says that you own your own home until you move into long term care. The FAQ doesn't say how long is long term. It would be quite unfortunate to be in hospital and recovery accommodation for a year due to a serious accident or illness and find that your home has been sold out from under you. I assume that the contract has some more details of how they define long term care.

Since they have a FAQ and a free phone number, why not call them to ask?

atush

Mojisola wrote: »

Add to this that you may have lived in your current home for many years and have friends and good neighbours close by.

One of the reasons my parents didn't downsize was because they had a strong social network in the surrounding area. Moving away to live among strangers just at the time of life when you start to need help with odd jobs and someone to notice if the curtains aren't pulled at the usual time of day, etc, can be a very bad idea.

Very good points

but I live rurally, and want to move closer to town when we are older. Want to be able to walk to things. Another reason is, many of our friends in larger houses out here have moved (one has moved to a place in FL near our house there). Others have downsized into smaller places closer. I dont want to look after 2 acres when I am away all winter?

2 people dont really need 2 acres. 5 bedrooms. 3.5 bathrooms and 3.5 receptions really. Just costs money to heat.

agarnett

jamesd wrote: »

Since they have a FAQ and a free phone number, why not call them to ask?

I did exactly that before my last post. I was not impressed. When my questions became usefully specific, they spouted the usual breathtaking nonsense about speaking to a financial advisor to ask them for an answer, and Aviva not being able to offer advice on how their own product worked