Next Mis-selling scandal looms

Linton

bostonerimus wrote: »

If you have to use equity release to stay in the house then I think you are pretty desperate to stay somewhere you can't really afford. Having to use equity release is often a symptom of poor financial habits and planning.

What is wrong with living in a house at a standard of living you cannot sustainably afford for the limited time you have available to enjoy it?


Like all debt ER can be dangerous for those people who desperately need it and a useful financial tool for those who dont.

reeac

My son, who has been in banking for over 30 years, warned me about equity release several years ago because of the high costs involved. I would never have considered it anyway. I note , when I pick up my free copy of the DT from Waitrose every Wednesday , that it's really being plugged which confirms that it's a money spinner ..at least for those offering it.

reeac

Glen_Clark wrote: »

The Equity release people are buying property, but they don't know when they will get it, whether they will have to evict squatters, what state it will be in, how much it will be worth, and how long it will take to sell.
They can't assume house prices will keep rising. More and more voters are being priced out of the property market - may come a time when they force the vested interests to relax planning restrictions, increase property supply, and prices fall.
Can't blame them for wanting a big margin to cover all that risk.

Same arguments as used by BTL landlords when pleading poverty.

Linton

reeac wrote: »

My son, who has been in banking for over 30 years, warned me about equity release several years ago because of the high costs involved. I would never have considered it anyway. I note , when I pick up my free copy of the DT from Waitrose every Wednesday , that it's really being plugged which confirms that it's a money spinner ..at least for those offering it.

Perhaps he doesnt want you to spend the inheritance:)


Yes the costs are high but if you have no reason to leave a house to the kids (if any) you may want to have the option to use as much of your wealth as you can before you die.

bostonerimus

Linton wrote: »

What is wrong with living in a house at a standard of living you cannot sustainably afford for the limited time you have available to enjoy it?

I'm of a frugal nature and don't do things that I cannot sustain and I don't like debt even backed by home equity...I like to get interest, not pay it. I'm lucky that I don't need to borrow money and if someone wants to spend the equity in their home to live in it then that is their decision, but it's sometimes an ill informed decision. And it strikes me that they should have made less expensive provisions to support their retirement. The thing that I most dislike about ER is that it is expensive.

Linton

Look at ER this way. You buy a house that in principle could provide you with shelter in perpetuity. But you are only going to use it for a few decades. Seems a bit of a waste of money unless you have someone deserving to take it over after you no longer need it.

bowlhead99

capital0ne wrote: »

“When my husband died we started going through all of his papers and my daughter realised that we owe nearly half the value of our flat,” Mrs Rosenthal said. “We were horrified to see how much all the interest has mounted up.

What could be said to the person who has the debt is along the lines of: The amount you borrowed fifteen years ago was probably getting on for half the value of your flat, on an interest rate that doubles the amount owed every decade. Fortunately your flat (in a commuter town for London, zone 5 tube district) has probably trebled in value in that time, so rather than owing your entire flat, you still owe less than half of it.

Windows and carpets for a flat didn't cost £65k back in 2004 so you have been living the good life on borrowed money without paying it back, but fortunately the debt is still less than half the value of the home.

Equity release is where you are basically cashing in some of the value which is otherwise 'locked up' in your property so you can spend it on carpets or curtains or put food on the table or whatever you like. You can't be surprised if the loan isn't for free and results in you owing an amount of money reasonable chunk of the value of your home.

"When Mrs Rosenthal contacted Hodge Lifetime she was told that she could either pay off the whole loan or remain on a rate of 7.15pc. Until she contacted Telegraph Money she was unaware that she could move"

Selling the flat to pay off the high rate loan would seem a sensible thing to do, given she only needs accommodation for one person now. Its somewhat surprising that if the lender said to her 'you can pay off the whole loan' neither she or her daughter thought, 'yes I suppose I could just sell, move and pay off the whole loan like they say', and instead it needed the Telegraph's crack team of journalists to suggest it.

However, it won't be as nice a flat in the same town, so she might prefer to stay where she is. No prizes for guessing what the daughter will think she should do ("We want her to be around for another 10 to 15 years, but if she lives that long you’re just looking at how much more interest will be paid.") Or to paraphrase, "you don't need a 400k flat mum, move to somewhere cheaper so that there's something left for me, I don't want to have to work as hard for my money as you and dad did".

bostonerimus

Linton wrote: »

Look at ER this way. You buy a house that in principle could provide you with shelter in perpetuity. But you are only going to use it for a few decades. Seems a bit of a waste of money unless you have someone deserving to take it over after you no longer need it.

I look at it from the perspective that the ER company is the least deserving to get anything. Obviously people should be able to do whatever they want with their own money or equity, but it should be an educated decision. The example in The Telegraph might be of a poorly informed initial decision by the husband...it's obviously an example of poor communication between spouses.

Leaving an inheritance is something that many people might not be lucky enough to consider as they will need all of their savings to support retirement and in the days of old fashioned DB pensions most estate values would have been dominated by the value of the house. That might not be the case anymore. We tend to be cautious about DC pension drawdowns, but the probability is that quite a few people will end up with large balances when they die so estate planning is going to be a growing field. For those that want to leave money to heirs it's just another thing to plan.

thrifty_pete

I think stamp duty should also get some of the blame here. If the Daily Mail wasn't so neurotic we could have a fair capital gains tax system and then no stamp duty at all. Downsizing would be a no brainer, big houses released for families an all would be well. As it stands the cost of moving from a 3 bed semi to a bungalow is so high, that it is cheaper to stay put and simply not use the first floor! What a waste of the housing stock.

reeac

Given the state of the housing market we want our estate to be divided between our five grandchildren when we're gone so that they can get on that dreaded ladder. Our children are well off and the grandchildren all seem to be level headed so it ought to work out. At least it's satisfying for self and SWMBO who started with nothing apart from max. level maintenance grants for uni.(£218 pa., I seem to recall).