Short term equity release question

Robboseven

Does anybody know the position on releasing equity from our house for only approximately 18 months?  We own our house without a mortgage with a value of around £550k. we would like to release around £180k to help a family member buy her house due to divorce.  We would be able to pay this back in 18 months when we retire by taking our full 25% lump sum together with some savings.  Any help on either equity release or short term borrowing, interest only, would be appreciated.

MallyGirl

Is the family member going to be able to pay you back, making up for the reduced income you will have in retirement?

Robboseven

Our income will be adequate anyway but yes it will be repaid once she goes back to full time employment. If not we will own two thirds of her house and it would become part of our estate.

MinuteNoodles

Robboseven said:

Does anybody know the position on releasing equity from our house for only approximately 18 months?  We own our house without a mortgage with a value of around £550k. we would like to release around £180k to help a family member buy her house due to divorce.  We would be able to pay this back in 18 months when we retire by taking our full 25% lump sum together with some savings.  Any help on either equity release or short term borrowing, interest only, would be appreciated.

You could get a mortgage but get a fixed one for a 2 year period then after 18 months when you have some money make a 10% overpayment of the balance and then just repay the outstanding amount after the fix ends. That way you get a low rate and don't get stung by early repayment penalty charges.

In regards to the money. Lending to family often tends to not end up working out well, the general concensus being to treat the money as a gift with the hope of it being repaid. You need to get a solicitor involved and draft up a rock solid contract between both parties stating that it's a loan. The problem you do have though is you are intending to secure it on the property which will need recording on the deeds to the property and that is likely to cause issues with the family member if they're going to be looking at getting a mortgage for the outstanding amount. Mortgage companies tend to not like lending to people when 2/3 of the property has a charge on it and is effectively owned by a third party because if things fall apart you're the one who'll get most of their money back and not the mortgage company. The family member will need to find a specialist broker. This has the ability to go wrong very quickly and I have a feeling that it'll be barely 2-3 years before it goes south.

Robboseven

Thanks MinuteNoodles for some sound advice. We are in a quandary over this to be honest.  My wife and I are quite nicely set up with a mortgage-free house, life savings of 120k,plus reasonable pension prospects through hard work and diligence. The last thing we expected was to have to rescue our daughter and two grandchildren from a situation not of our making. However we are where we are and our children will always be our children. Grandchildren also.   

Ganga

Robboseven said:

Thanks MinuteNoodles for some sound advice. We are in a quandary over this to be honest.  My wife and I are quite nicely set up with a mortgage-free house, life savings of 120k,plus reasonable pension prospects through hard work and diligence. The last thing we expected was to have to rescue our daughter and two grandchildren from a situation not of our making. However we are where we are and our children will always be our children. Grandchildren also.   

As others have said lending money to friends normally does not bode well BUT as this is your daughter and she will probably inherit from you one day ,even if the deal does go south she is only getting some finance early and you yourself have said that it will not impact your own finances anyway. Also if you cannot help your own who can you help.

acardus10

Equity Release isn't really tailored for short term lending as it can be an expensive way to borrow money as they come with penalties for paying the plan back early and set up fees. With a property value of £550k, it also depends how old the youngest person on the deeds is which will have a big influence on how much you can borrow and the plans available to you.

There are plan which allow you to pay a certain amount back each year in over payments which you could do to pay the interest and bring down the capital, until the early repayment charges are reduced. 

Robboseven

Thanks for your suggestions and advice, I will investigate the 2 year fixed rate option I think.