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Equity Release guide discussion

edited 30 November -1 at 1:00AM in Over 50s Money Saving
147 replies 60.6K views
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  • probat22probat22 Forumite
    1 posts
    First Post
    MoneySaving Newbie
    Hello Kate, I have a problem and I really hope you might be able to help. My brother is almost 66 and he is living in a house that is non standard construction. The house is a ‘Crane’ house built approx 1925 in Nottingham only. The area is the beautiful Wollaton Park area and the houses are much sought after, unproblematic and easy to sell. However, pre Covid 19, we looked at equity release and the non-standard build seemed to be a total no-no. We have not pursued it since but lending seems to be even more problematic post Covid. I am his only relative and I don’t expect/want any inheritance from him. It would be win-win for him and affect no-one else. He has a small pension and would not be eligible for benefits. Any ideas or help would be much appreciated. Btw, this problem affects many other people in the same situation in that area. Loved Martin’s Desert Island Discs, again btw, many thanks, Linda.
  • Nick_LovellNick_Lovell Forumite
    11 posts
    10 Posts First Anniversary Photogenic
    Hello Linda - non standard construction property is always challenging and lenders have some very strict and often pedantic rules regarding their lending criteria. Most non standard construction post 2000 is generally unacceptable - i.e. steel frames / timber frames / concrete block.  I would say if you have already explored the market and been declined on the property there is probably no options at this current time. Sorry I have not got a more positive response.
  • RichforthRichforth Forumite
    1 posts
    First Post
    MoneySaving Newbie

    I am afraid that most of the information out there about Equity Release is nonsense!! It is a safe and easy way to release money but it is surrounded by bad advice and ridiculous 'help' from those that should know better!! True, EQ can be expensive to set up but that is because the rules surrounding it demanding you take third rate advice are pointless!! Too many companies are getting rich offering these. Why can I mortgage my property or even sell it if I want to with little problem?? But, you will start by being asked about EQ as to whether your children know what you are doing!! From then on impertinence is the order of the day and all for NOTHING!!

    In 2000, I was working at NPI in the quotations programming area when ITV ran a programme about NPI's outrageously expensive % of home value option. I went through the quotations and realised there was a serious mistake. House price inflation was assumed to be 5% per year. But, try as I might I could get no-one high enough up to understand this mistake. In fact, the actuary in charge must have been the only person in SE England who had lost money on a house in the previous 5 years!! I approached ITV and told about what I had found out. And, yes, I also told NPI that I had!! A short-time after my contract finished there was an article in the Sunday Telegraph that proved that house price inflation since 1950 had in fact been 5%!! IN REAL TERMS!! ie 5% PLUS the rate of inflation of the same period. I took this to NPI and told it that I considered it should compensate the people who had these very unfair contracts. What happened I do not know but when I looked into an EQ 7 years later lo and behold NPI was not in the game. It allowed those working the actuarial section to take it over. And, I found their option was still expensive. The MOST expensive at that time!!

    So, the first thing is never take a % of value offer!! It should be noted that NPI had no problem finding backers for the % option - it used Abbey National - but had to fund the absolute value itself. That alone told me that Abbey knew even if NPI did not (want to)!!

    Finally advice. You are forced to pay for this by order of the FSA. When I approached it I was told that full consultation was done before the rules were created. Unfortunately, those consulted were all FROM WITHIN THE INDUSTRY. And therefore biased

    It is rubbish!! The main reason is that the adviser is NOT ALLOWED to mention house price inflation. So you will be quoted the compounding interest on the loan but only 1% house price inflation to balance that. I currently have 25% of my house mortgaged and provided that house price inflation is at least 1% I will break even, Over 1% and I still make money for my children!!

    Anybody who tells you to downsize should be questioned. I always intended to do that when I got to 60 but as interest rates dropped it became more and more wrong while house prices still carried on their stunning increase!! If I had downsized I would have paid off my mortgage and finished up in a £250,000 house. Instead I still have the home now worth £685,000 on which I owe £185,000!! And I have ALSO enjoyed travelling the world!!

    However, if the EQ is to be given to your children for houses and you are NOT claiming benefits then that is probably the answer!!

    Receiving benefits. My adviser could not help with this - AS HE DID NOT KNOW ANYTHING ABOUT IT - but said I was wrong with what I was suggesting!! Well take EQ and keep the money for later or pass it on to the family and you will immediately run up against the assets cap!! That's pretty clear!! So, in order to avoid that run up debt FIRST and then use the EQ to REPAY it!! That's allowable!! I accept not quite so easy now that credit cards are not being so generous. Though given how low interest rates are, I fail to see why!!

    Why should someone come round and almost TELL you to discuss the transaction with your children??

    Why should compound interest only be quoted on the loan interest but not on the home??

    If you have been caught by a % of property EQ, go back to the company that lent the money and press for a refund or else go to the appropriate watchdogs and press. It was a con in 2000 and if it still exits in 2020 they have had plenty of warning!!

    Finally advice!! If you need advice I would ask you to think about about why you need this loan in the first place!!







  • Alfreda23Alfreda23 Forumite
    2 posts
    First Post
    So our parents used equity release on £25k about 20+years ok.  Mum sadly died in March. We have discovered that the repayment will be approx 38.7% plus the equity release company owns 40% of the property as parents signed over freehold leaving parents 60% leaseholders which We were not aware of.
    We are now in the situation where asset management company 'sell' the property with us incurring 1% fees for their handling of this, plus costs for energy report, plus any repairs to be carried out at our expense, plus 1% of one third of estate agents fees.  
    We are not happy as our parents last wishes were that we would be financially sound.
    Is there anything we can do about this at all please or do we just have to 'suck it up'.
    Thanks for any advice you can give..
  • Nick_LovellNick_Lovell Forumite
    11 posts
    10 Posts First Anniversary Photogenic
    Sorry to hear this, your parents entered into a home reversion scheme, however, it sounds a tough one, which it probably was 20 years ago and not reflective of the schemes today. Normally a home reversion company will purchase the agreed percentage at a lower than market value, not charge any interest and then take their profit from the sale value at their percentage level today. It is rare for Home reversion to be used nowadays, and lifetime mortgages have predominantly taken their place. 
    The bottom line is that you do not have any redress on this, the transaction would have been undertaken through due legal process. You can obtain advice from the Equity Release Council, but if they are not members then there is little they can probably do to help.  I have never recommended a Home Reversion scheme and they are only valid in a few circumstances, and it is unfortunate but 20 years ago the market was not as heavily regulated as it is today and these older cases continue to give ER a bad name. It might be worth talking to a solicitor to cast their eyes over the contract and the details therein, I suggest using Equilaw who are experts in this field. Sorry I cannot be more positive but I find it disheartening to hear that these older versions of ER are still catching up with families.
  • Alfreda23Alfreda23 Forumite
    2 posts
    First Post
    Thank you for your comments.  I have spoken to be solicitor who advised that this happened a long time ago..i  will try Equilaw in the morning..obviously I don't think they will be much help..if I could get one family to not go down this route I will be happy!!
  • Nick_LovellNick_Lovell Forumite
    11 posts
    10 Posts First Anniversary Photogenic
    I wish you the best, modern ER is a world away from these older schemes, and can be an excellent tool in retirement but qualified advice and due diligence is required everytime.
  • Gerry56Gerry56 Forumite
    5 posts
    Second Anniversary First Post
    Nick Lovell - I've read your comments on here and just wanted to say thank you for your clarity.  I have been verbally torn apart on other sites for my positive views on ER and do understand the negatives, even of today's products.  I don't need to draw the equity from my property yet, and have an open mind on the 3 main options (ER, mortgage, or downsize) should the time come, but it is refreshing to read such reasoned and clearly understood information. 
  • Nick_LovellNick_Lovell Forumite
    11 posts
    10 Posts First Anniversary Photogenic
    Thank you Gerry for the comment, much appreciated, just happy to help and offer some guidance where I can.
  • Graeme2709Graeme2709 Forumite
    2 posts
    First Post
    MoneySaving Newbie
    Why do they say it releases cash tied up in your property? That is nonesense. If you borrow money to pay for a car and pay off the loan and own the car outright, would you say you have cash tied up in the car?   Equity  release should be described and seen for what it really is  -  is an interest only loan secured on property with huge interest repayments. It isn't right for anybody unless they like wasting money.   A former school friend's parents borrowed £22,000 for home improvements in their mid 60's and ended up having over £80,000 taken from the Estate when they passed away..  She was livid when the solicitor told her and said she would have let her parent's borrow the money interest free to pay back as and when they could have afforded it.  Equity release should be seen as a desperate measure and not encouraged as it is done in so many TV & online ads.
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