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Equity Release guide discussion

edited 30 November -1 at 1:00AM in Over 50s Money Saving
159 replies 64.5K views
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  • Graeme2709Graeme2709 Forumite
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    tacpot12 said:
    bevjtaylor wrote: »
    im heartbroken I have just found out my parents had equity release on their house around 18 yrs ago borrowed 60K on checking a lastest statement now owe 118K dont know what to do? anyone got advice?

    Can you explain a bit more about why you are heartbroken? Why do you need to do anything?
    Well tacpot it is clear to me why she is heartbroken, because she feels her parents have been conned into paying far more interest than they expected to.  The advice I would give if they are still alive is to establish if this has been mis sold on the basis the costs were not made clear to thm, and try to find a way of paying off the Money as soon s possible, possibly by downsizing.

  • hb2hb2 Forumite
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    My OH and I are 70 and 62 respectively and live in a flat worth aprox 230000 (no mortgage). We are both retired with private pensions and have a buffer of savings. Our only child is 34, lives and works in London and would like to buy somewhere in the same area. However, this being London, they are struggling to afford anything they like (2 bed flats). It would seem sensible to help him now, rather than in (potentially) 30 years time when OH and I are both gone so we are thinking about Equity Release. Of course, we will take independent financial advice, but it would be helpful to hear about pros and cons meanwhile please.
    It's not difficult!
    'Wander' - to walk or move in a leisurely manner.
    'Wonder' - to feel curious.
  • Nick_LovellNick_Lovell Forumite
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    Graeme, in the example you use, you would have 'equity' in your car, as you could sell it and realise that money, so the same applies to your home.  As for huge interest repayments, again this is not accurate, rates are around 3% per annum as an average, and I have seen them as low as 2.45% last year. Equity Release is not a desperate measure, it is forming part of people's financial planning in retirement. I have dealt with many high net worth clients who use equity release, so they can access further funds to use as they see fit, rather than touch investments or SIPP's and also reduce inheritance tax. There are always the examples as you have described, but this shows a tripling situation, which does not happen in only extreme cases and in today's market, it takes around 20-22 years for the debt to double assuming no repayments are made. This should be forecasted against the potential gains on house prices, which all key facts illustrations will clearly show. Lifetime mortgages are not right for everyone, and they are a serious commitment that should never be entered into lightly. The advice given today is so heavily regulated, there can never be a stone left unturned in the advice process. Family members are documented on fact finds, and 'have you discussed this with them?' is asked of all clients and 'Are they supportive of this'? 
    Therefore, modern equity release is a far cry from 20 years ago, and it is frustrating that there are still many people who judge it as some sort of scam or con, and the lender is out to rob them of their home. For many clients it is a welcome funding route, that allows them to realise a lot of their aspirations. I have saved clients losing their homes, by remortgaging them out of interest only mortgages from the likes of Barclays and Santander who are now calling in the debt.  Thankfully, there is this type of funding for people in retirement, and it also allows them the ability to gift funds to get loved ones into their first homes, ,make home improvements or just better their retirement lifestyle. It was summed up by one client " I would rather give with warm hands, rather than cold'.
  • edited 9 July at 4:39PM
    Nick_LovellNick_Lovell Forumite
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    edited 9 July at 4:39PM
    hb2  - In your circumstance your borrowing amount will be based on the age of the youngest borrower - 62. If you were looking release to say £50k this could be at the higher rates in the market, due to the loan to value and age. However, you need to sit down and discuss with your son/daughter and they should be part of the advice process. Ultimately, the impact will be on them in the future as it will erode their inheritance. Your flat would to check the  number of years left on your lease as the longer the lease the better for accessing all the lender's options, as if it only had a short term to run it would need to be renewed ahead of equity release.  Ultimately it comes down to how much you need to release, and if any repayments were likely to be made. Also I would review in 5 years time and probably look to remortgage to a cheaper rate as you will potentially access a better rate as you get older. So the Pro is yes you can help your loved one get on the property market and they will enjoy the benefit of property ownership and increase in value over time. You can stay in your property for the rest of your lives and you maintain 100% ownership. The downside is due to age you will not get the lower rates and this translates into eroding equity over time, which will impact on him/her in the future, but as you say you may feel the benefit is better served now rather than in 30 years time.  It will also impact on how you pay for future care if you should need it. I always show my clients the projections right through to their 88th birthday, so you get complete transparency over the cost to the estate.
  • hb2hb2 Forumite
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    @Nick_Lovell That's helpful, thank you. We have been in this flat for 3 years (we hope we are fairly 'future proofed' here) and have more than 100 years remaining on the lease. We have share of freehold so the plan is for the shareholders to grant ourselves lease extensions at some stage. I take on-board your comments about interest rates and loss of equity. We hope that our son will be visiting us soon and plan to discuss the matter with him then - he could well feel that he wants to continue to make his way by his own efforts, rather than 'Bank of Mum and Dad'. . .
    It's not difficult!
    'Wander' - to walk or move in a leisurely manner.
    'Wonder' - to feel curious.
  • mairi1947mairi1947 Forumite
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    A friend's Mum died in June aged 79.  It was a shock to discover that she had taken out Equity Release in 2005.  A father and son company sold her ER of £30,000, they had the house valued at £160.000 and she was charged £5,000 setting up costs.  This debt has now been passed on to other companies and they requested that my friend send them all the keys to the house and they are going to instruct an estate agent to sell the house.  My friend is a single parent with 2  children who lives 100 miles away and is going through a very messy divorce and renting a property with no spare money.  The company told her that if there was any equity left in the house they would be in touch with her.  She has no other paper work so is not sure what she can do about this and cannot afford to instruct a solicitor.    Any advice would be appreciated.
  • Nick_LovellNick_Lovell Forumite
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    The set up costs of this is very high! Looks like she unfortunately had bad advice, the trouble is this was ahead of the 2008 Financial reforms that took place. With these cases there is often little redress. She needs to get the paperwork, it depends if she did a home reversion - then she would have given up ownership in part of the property. If it is a mortgage based equity release, then her mother would still be the legal owner and the estate is under the control of her children, depending on her Will of course. Nowadays, the estate instructs the estate agents and handles the sale, so be very careful in handing over keys, before she has sought some legal advice. I suggest she talks to the Citizens Advice to see what help they can offer. But the Will needs examining and the legal ownership of the property establishing, which can be found at Land Registry. 
  • natters76natters76 Forumite
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    MoneySaving Newbie
    Hi all. I’m hoping you can help me. 
    My mum and dad took out equity release approx 18 years ago, mum sadly died 3 years ago and the property is far too big for my dad to manage on his own. Is there a way for him to get out of the ER agreement? He does not require care, just somewhere he can manage. 
    I believe it may have been home reversion as the company are listed as the owners on the land registry.
     Any advice gratefully received as I was totally flummoxed by the documentation! 
  • Nick_LovellNick_Lovell Forumite
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    natters76 - the only way out is to sell the property - it really depends on how much the home reversion company owns as a %. These products are not great - they will have purchased a percentage of your parent's home for a devalued amount and now have rights over that amount as a percentage of the value now, your parent remains a beneficial owner. The positive element might be that the house value has increased to still provide a reasonable amount of equity to pass to your father. You need to contact the home reversion company and get the details of how much they own. Also to understand the process for you to market the property. However, if they sold 100% of it, then sadly your father is not entitled to anything as the home reversion company own the lot, but your father has the right of abode for the rest of his life. Hope this helps.
  • natters76natters76 Forumite
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    First Post
    MoneySaving Newbie
    Thank you Nick, that’s really helpful. I may be back for further advice.  
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