Equity Release

LarryR

I guess the other thing I was wondering was whether this could also provide an investment opportunity for the daughters? Isn't that how it works with Equity Release companies? They 'buy' the property off the owner at a reduced rate, providing the owner with the much needed cash and allowing them to live in the property rent-free until they die.

The risks are that the period the tenant lives there is a long time, and during that period the property market crashes, and the investor (Equity Release company in this case) has had their money tied up for some considerable time. The reward, though, is that when the owner dies, they have the property and, and, assuming the property market hasn't crashed, are able to sell the flat at a favourable market value.

So, rather than using an Equity Release company to do this, naively I thought the daughters could.

TrickyDicky101

Is there some reason the daughters don't want to simply lend the money to their mother (taking a charge over the property)?


Is the intention to shield some of the value (ie the residue of £150k after daughters pay £250k) from depletion due to care costs?

davidmcn

LarryR wrote: »

I guess the other thing I was wondering was whether this could also provide an investment opportunity for the daughters? Isn't that how it works with Equity Release companies? They 'buy' the property off the owner at a reduced rate

Typically (as far as I'm aware) they don't - they take a charge over the property in the same way as a normal mortgage, but with the interest accruing.

TrickyDicky101

davidmcn wrote: »

Typically (as far as I'm aware) they don't - they take a charge over the property in the same way as a normal mortgage, but with the interest accruing.

The OP is talking about a reversion scheme where title passes to the equity release provider but the vendors retain a life interest in the property (until they die or move into care or move property).

Annisele

LarryR wrote: »

I guess the other thing I was wondering was whether this could also provide an investment opportunity for the daughters? Isn't that how it works with Equity Release companies? They 'buy' the property off the owner at a reduced rate, providing the owner with the much needed cash and allowing them to live in the property rent-free until they die.

That is broadly how the reversion schemes work, yes. But the general idea of those is:
Elderly person benefits - they get to spend money they wouldn't otherwise have had.
Equity release company benefits - they (on average) get to make a profit on the deals.
Elderly persons's heirs lose out - they inherit less money than they otherwise would.

In the case your're talking about, presumably the daughters hope to inherit at some point anyway? So if the idea is to maximise the amount the daughters get in the end, their concerns will be quite different to those of an equity release company.

LarryR

Aha. Reading the description of a reversion scheme it does sound like the type of thing I was talking about. So the question is, can an individual fulfil the role that the equity release company play in a reversion scheme?

Annisele

LarryR wrote: »

So the question is, can an individual fulfil the role that the equity release company play in a reversion scheme?

Yes. But if those individuals would otherwise be benficiaries of the estate, it's not obvious why they'd want to. (There are some good reasons, but far fewer than if you'd be doing this as an entirely commericial arms length transaction).