Free up equity

jon001red

Hi all,

My wife and I are currently jointly earning about £35,000 per annum and are subsequently constantly flat broke and have a debt of around £7,000 which we are struggling to pay bit by bit. However we have equity of around £200,000 on our house. Could we use this equity to clear our debt and have a bit of a nestegg (moving house not really an option)? I have heard about Equity release but I am not sure about any pitfalls.

I would be grateful if anyone could give me some advice on our situation.

Many thanks in advance.

Jon

sourcrates

Hi Jon,

In the big scheme of things, a £7000 debt is not the end of the world, plus a 35k salary is a fair amount of money, what on earth do you spend it all on ?

You need to address the reasons why you are flat broke before you commit to anything else.

Your debt can't swallow up that much money.

System

Like sourcrates says I think you need to look at other ways of paying it off before you go down equity release route. Is your 7k on credit cards/loans could you get it on 0% .

Do a SOA and post on here , let's see what you are spending all your money on.

FatVonD

Equity release is a really bad idea, my Inlaws have done it, the debt doubles about every 8 years which doesn't matter too much to them but if you are still young it would be eating away at your equity for years.

redux

FatVonD wrote: »

Equity release is a really bad idea, my Inlaws have done it, the debt doubles about every 8 years which doesn't matter too much to them but if you are still young it would be eating away at your equity for years.

Surely they ought to be able to find a better interest rate than 9%

tallyhoh

my in laws took out an equity release plan. When I came to sell the house 10 years later they owed £70,000, the original loan was £10,000 as you pay interest on the interest.

Mojisola

jon001red wrote: »

My wife and I are currently jointly earning about £35,000 per annum and are subsequently constantly flat broke and have a debt of around £7,000 which we are struggling to pay bit by bit.

Lots of people live quite comfortably on lower incomes - put an SOA on here and let people suggest where you could cut back on expenditure so you can free up money to pay off your debts.

redux

tallyhoh wrote: »

my in laws took out an equity release plan. When I came to sell the house 10 years later they owed £70,000, the original loan was £10,000 as you pay interest on the interest.

That is high though - an annual interest rate of 21.5%

The one in the other post is 9%

There are much cheaper mortgages nowadays, but even so most advice here, as above, is not to consolidate and move unsecured debt on to the mortgage.

fatbelly

FatVonD wrote: »

Equity release is a really bad idea, my Inlaws have done it, the debt doubles about every 8 years which doesn't matter too much to them but if you are still young it would be eating away at your equity for years.

You wouldn't get equity release if you are young - the 'junior' partner for joint equity release needs to be aged 60 or above

It's not necessarily a bad move provided that you understand that there is a likelihood of there being nothing left of the property for you to give away in your will, and you're not going to change your mind about it.

However, I suspect the OP is considering remortgaging, which does have drawbacks in that you are moving debt from unsecured to secured, making it more likely to cause problems if you hit financial difficulties.

Spatton

Agree - equity release can get expensive fast as it works on the principle of compound interest. My MIL tried it recently and discovered you also need to have your property in what is considered by a designated estate agent to be in 'good or excellent' condition (i.e. the underwriters are going to be able to sell it on without too much trouble/ further investment). Her issue was a flat roof on part of the property. If your property isn't in top notch condition you need to be able to prove that you have quotes for repair work and a timeline to get it sorted before they will release funds. Unsurprisingly, it isn't quite as straightforward as the adverts would have you believe .... (such cynicism I know).

enthusiasticsaver

My advice would be that you set up a proper budget as £35k should be sufficient to live off. Equity release is a very bad idea and will be expensive in the long run and eat away at your equity. A £10k loan over time will increase significantly with nothing to show for it.

An soa and a spending diary is your first port of call so you can get suggestions on where to cut back. Get the £7k on to 0 % and make a proper plan to repay. Taking out debt to pay off debt never ever works.