Equity Release

pleaseme

lostkey l will make sure that I’m not tied in to a product for the reasons you stated, even the utility companies that have lock-in clauses have a way of getting out of them even if you have to pay.  I think the interest rates now are very low and l will be amazed if they drop further Thanks for your input. 

Onlooker2

This is not the time to to risk long term financial commitments .The financial industries themselves dont know the outcome of the difficulties that will have just  affected every householder in the UK.Look at Lifetime Mortgages in these columns,there are opinions regarding your options.Consider

AnotherJoe

Have you looked at taking out longer term (say 3-6 month) rental deals.  Yiull get very good rates, the ability to move around if you want, eg next time try a different area, no hassle, no,legal fees, no,lock in. 

Once you consider how much it actually costs you to buy (and then resell) and maintain a place with all the ongoing costs and taxes and so in, you may well find that you could get away witha much smaller ER (if you don't have the money to afford saya 6 month rental) or no ER. 

dunstonh

In essence in 2014 my broker moved me from a plan with no lock-in to one that has. Consequently I am now locked out from rates that are available to new borrowers. Neither the broker, nor Aviva, have shown any sympathy.

What do you call sympathy?   Is it a cup of tea and a hug or are you trying some compensation angle?

lostkey

In 2014 I told my broker I did not want to move to a plan where I was locked-in without the chance for early repayment. I was told that the Aviva plan had a £10000 penalty linked to the gilt yield which, as rates had already fallen substantially, was unlikely to be an issue. The effect of gilt rates falling by 80% or the possibility of loans becoming available at 50% less was never considered.

Remember I was previously with a plan that had no lock-in. I’m certainly not happy at the advice I was given because I’m now prevented from accessing current loan rates which are more than 50% less than I’m paying. Actually I don’t want to repay my loan so an ERC should not be levied in any case (but it would be of course!)  And if companies tell me that the ERC is there to compensate them for the money they lose I say they can now raise money to repay their borrowings at far less cost than they  ever envisaged in 2014. But I can’t get cheaper money because my policy has a 25% ERC. So with the sea change in the financial markets ER companies have had a bonanza and the consumer has suffered.

You ask what I want? It is a fair deal. 

acardus10

Unfortunately Lostkey, since the Brexit referendum, the gilt rates have dropped significantly which has been good news for new equity release customers but far from ideal for existing plan holders with gilt based early repayment charges. 
As you have said, there is a big difference between your current interest rate and the rates available today as the lowest interest rates are around 2.45%. Your balance on your current plan will double every 14/15 years whereas today's lowest rates will double every 29/30 years.

Based on the figures you have given, I have calculated your current Lifetime Mortgage balance to be around £57,000 based on the early repayment figure you have provided. Therefore, it will cost you £67,000 overall to redeem. As crazy as it may seem, it may be cost effective to swap your equity release plan over and pay the early repayment charge due to the big difference in interest rates, but this is very much dependent on your current age, health and property information.

pleaseme

acardus10 you explain that very well. It’s a big decision to make and l will look into it further l did initially speak to an equity release agent just to see if l qualify which l did but didn’t take it any further because brexit was looming and l didn’t know what would happen with regards to me buying a property in Spain and in fact l still don’t. I stay in Spain for three months every year and this year l have been here seven months as l am caught up in lockdown but due back to the U.K. at the beginning of July.  So will my interest double every 29/30 years l was thinking of borrowing £70,000 on my property worth £250,000, my partner is 66 and I’m 69 so he is the youngest and it will be his age taken into account.  Lostkey could you take out another equity release policy with a different company to pay off the initial loan or can’t you do that either. 

lostkey

Companies claimed that  the 25% penalty was necessary to safeguard them against losses they incurred through early terminations. Why the penalty had to be set at such a high rate has never been satisfactorily explained. And there are good reasons now to suggest that that rate is excessive.

In 2014 gilt rates were six times greater than they are now. Today, if companies have to raise money in the market because a customer has paid off his loan earlier than expected, they can do it for a fraction of the cost they would have incurred if the customer had terminated in 2014. Yet the penalty for the customer stays the same as the rate set in 2014.

Worse than this, they early repayment penalty is still invoked even if the customer wants to keep the loan (ie not to repay it) but to gain access to today’s rates and thereby be treated the same as today’s customers.

And worse still, the penalty stays at 25% of the loan no matter how long the plan has run. How can a company experience the same loss from a repayment in year 15 compared to a repayment in year 1?

Over the past six years the cost of money has fallen far more than anyone expected. Through their locked-in customers ER companies have made more profit than they could  possibly have foreseen. When they offer new customers plans at 50% less and,  by the continued imposition of excessively high penalties, deny these to their “old” customers its time the Competition and Markets Authority stepped in.

Whispers2Myself

pleaseme said:

I’m thinking of taking out equity release does anybody have any advice or bad experiences they can share please 

Yes - absolutely.  My advice is contact an Independent Equity Release Adviser registered with The Equity Release Council.  You wouldn't ask a forum for advice on how to treat an illness (unless perhaps it was populated by certified Doctors in the appropriate specialist field), so don't ask the man down the pub, your neighbour over the fence, or a forum where you have no verification of who anyone is or there level of expertise on something as nuanced as equity release.  

You must discuss your personal situation and receive personalised advice.  That cannot be answered by your question.