Equity release - the long-term norm?

PlutoinCapricorn

I assume that many people without much in the way of savings are not home owners.

PlutoinCapricorn

"The powers that be do not believe we the people should have Private property, hence they are continually pushing equity release policies, so people will draw down their equity and personal wealth.
It needs to be resisted at all costs.
These totalitarians are after your perrsonal wealth and property, they want you dependent on the state, because then they have lifer and death control over you.
It is totalitarianism by stealth, Communism by enticement, enticing you to give up your personal property and wealth.
The Bankers and the state are like the man, enticing children into the back of his car with the offer of some sweeties or to see some puppies.
We, the people should be encouraging our elderly parents NOT to take out these equity release offers, and looking at ways that those that must raise cash can do so without running down their personal wealth."

http://blogs.telegraph.co.uk/finance/ianmcowie/100023399/whose-house-is-it-anyway-the-equity-release-empire-strikes-back/

The comments under the article are very amusing.

gadgetmind

Damian_the_Actuary wrote: »

the problem I'm trying to solve is for the people who aren't.

The way to solve the problem is through education coupled to a degree of compulsion.

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!

Using a capital asset as a source of income is fine, but that's not what equity release is. ER sells down some of the capital allowing it be spent but creates an income drain in the form of interest payments. Yes, those payments can be made by consuming more of the capital but this is VERY different to using capital to create an income stream.

If I knew that my timescale was short (five years?) and income now was vastly more important than retention of capital, then perhaps I'd consider it. However, presenting it as a part of routine retirement planning strikes me as being the kind of thing that the financial industry does to people rather than for people.

Linton

gadgetmind wrote: »

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

Why as a last resort? Why not as a sensible and safe part of one's retirement planning as in my example? I would say "as a last resort" is probably a bad reason as if it turns out not to generate enough cash you really are snookered.

PlutoinCapricorn

I have read in many places that it is a last resort, only for the desperate. Even Which says so:

http://www.theguardian.com/money/2008/sep/22/property.mortgages

gadgetmind

Linton wrote: »

Why not as a sensible and safe part of one's retirement planning as in my example?

Show me the numbers, and remember to model to a wide variety of different interest rates over the period of the loan. I'm not saying you're wrong, but it strikes me as being high risk.

margaretclare

I've been quoted in this thread as being 'perfectly happy' with my equity release. See # 8.

Well, yes, but only because of my particular circumstances.

(1) Existing mortgage which I didn't want to go on paying until we were 83
(2) Younger daughter's sudden unexpected death
(3) DH is absolutely adamant that he wants no inheritance at all from me.

We are guaranteed no negative equity and the right to live here as long as we want to. Very low Bank Rate for 10 years has meant that the interest hasn't rolled up anywhere near what we were told it might. Our 'lifetime mortgage' is pegged to the BR, thanks to the IFA who did it all for us. Others may not be so lucky.

Overall, I would not use this as a way of generating income or even a lump sum, in retirement.

kidmugsy

It seems rather odd to me, to declare that my house may be used as a financial asset by the beneficiaries of my will, but not by me while I am alive.

For example: if I found myself short of income, but inhabiting a house so valuable that my estate would be subject to Inheritance Tax, it would be advantageous on both counts to use an equity release mortgage. I'd be bonkers not to if the alternative - downsizing - meant moving away from friends.

gadgetmind

There are certainly circumstances when it's valid to use ER, but it being regarded as the norm, and even part of prudent planning, seems a trifle reckless to me.