Equity release - the long-term norm?

ermine

Damian_the_Actuary wrote: »

We remortgage our homes during our working lifetimes to access funds when we need them and I don't see any reason why we shouldn't use our homes as a source of income in retirement.

Presumably because you don't own the damn things if you've kept on remortgaging to spend money on fancy holidays in Sardinia and Tabitha and Tarquin's skool fees. Remortgaging extracts equity

Damian_the_Actuary wrote: »

Our homes are one of our most valuable assets, we spend a lifetime paying off the debt, to me it then makes perfect sense to then draw-down on the value in retirement using equity release products.

I don't understand why many more people aren't doing this.

Because they have been greedily pushing governments to carpetbomb home-owners with money, low interest rate policies, Help to Buy and whatnot. As these people get older they look guiltily at their own children/grandchildren who they have shafted with their greediness, and observe the only way they can atone for it is to pass on the house to their children so they aren't Generation Rent forever?

I also challenge the universal statement your home is you most valuable asset. Mine isn't my most valuable asset, and it's owned outright. If your house is your most valuable asset as you get to retirement age then you bought too much house. Or live in London

Damian_the_Actuary wrote: »

Can someone please help me understand and explain why this isn't appropriate for homeowners in retirement?

Because housing is a deeply religious topic for Britons and you'll prise their cherished bricks and mortar from their cold dead hands? All sorts of bizarre madness happens in connection with housing in Britain. It's just the way most of us are.

PlutoinCapricorn

Yes, large quantities of housing moving from private to corporate ownership is an alarming thought.

Linton

PlutoinCapricorn wrote: »

Yes, large quantities of housing moving from private to corporate ownership is an alarming thought.

Why? Presumably the mortgage companies will want to sell it off quickly just like repossessions. The number of houses coming on the market determines the price, the identity of the seller doesnt matter.

Damian_the_Actuary

No I don't work in ER. I'm an actuary currently working on a project to investigate how we can encourage people to save more for their retirement. The numbers suggest the vast majority wont be able to afford retirement unless they save more (very difficult in current consumption culture) so trying to look at alternative options.

Seems the industry has a bad reputation and agree there are some behavioral issues with wanting to provide for your kids and giving up your home. But the reality is they wont be kids when you die and this tradition will fall away and ER helps you keep your home not sell it and downsize.

Fundamentally I think the concept is sound and the industry will become more competitive over time as volumes increase driving down rates.

gadgetmind

Damian_the_Actuary wrote: »

People aren't saving enough to be able to maintain their lifestyles in retirement.

Some people aren't but others are. People who put some thought into things are generally in the latter category.

We remortgage our homes during our working lifetimes to access funds when we need them

Do we? I'm doing it currently to help daughter with a house purchase, but going from mortgage free to a 10% LTV is rather different to just using your home as a cash machine.

I don't see any reason why we shouldn't use our homes as a source of income in retirement.

I can see several, but let's hold that for now.

Our homes are one of our most valuable assets

I have twice as much in pensions and investments as in my house because I believe in holding diverse asset classes.

I know some people like to leave a legacy for their children but with life expectancy increasing, does your 60+ year old child really need/want your financial assistance when you pass way?

I hope not, but maybe they might have the same attitude to saving for old age as those doing equity "release" and still have huge debts at age 60.

Can someone please help me understand and explain why this isn't appropriate for homeowners in retirement?

As a last resort, under certain circumstances, it's fine. As an alternative to making sensible provision for your retirement, it stinks.

gadgetmind

Damian_the_Actuary wrote: »

Seems the industry has a bad reputation

Somewhere between loan sharks and drug dealers, and richly deserved IMO.

kidmugsy

Damian_the_Actuary wrote: »

Long-term care costs can be managed through insurance products.

I understood that, on the contrary, those firms that tried to make a living out of "care" insurance found that it couldn't be done. People, presumably, hope to freeload on the taxpayer. Or perhaps simply look upon the house as the insurance they need.

kidmugsy

ermine wrote: »

Because housing is a deeply religious topic for Britons

What with that and the NHS we are clearly a deeply religious people.

Damian_the_Actuary

gadgetmind - I agree some people are saving enough and that's great, the problem I'm trying to solve is for the people who aren't. It would obviously be better to plan and contribute to savings throughout your lifetime but most haven't and for many it is too late.

Can you please explain your several reasons for why you shouldn't use your home as a source of income in retirement if you've got insufficient savings as I still don't get it!

PlutoinCapricorn

Not everyone wants to maintain their lifestyles, and this site has a lot of advice on how to be thrifty. Have you read the Mean Queen's blog? She is a retired lady who lives very comfortably on her state pension.