Equity release or remortgage?

Chip73

Hoping someone can advise on the following: I was my mother's live-in carer and when she passed away, the house (mortgage-free) was left to my two siblings and myself in equal parts. I am still living in the house and want to buy my siblings out for which I need to raise £40,000. I have a rental property (also mortgage-free) worth around £250,000 and am considering equity release. I have no-one to leave the property to so I am not so worried that equity release is a relatively expensive way of raising the cash. However, I'm not sure if I should consider remortgaging (or if I'm even eligible as I'm unofficially retired and living off rental income only.) Or is there another option possibly? Any suggestions or advice would be gratefully received. 

dimbo61

I would think that you could get a small Interest only mortgage on the rental property to buy out your siblings.
One for a broker 

[Deleted User]

I would raise the money you need on your BTL - interest only to get the funds to buy out your siblings. Probs be under 2% interest as very low LTV. Should be pretty straightforward if BTL standard construction, non cladded flat with no issues. See a broker for the best deals to be had 

[Deleted User]

Btl mortgages are not really income assessed so would be a much cheaper way of borrowing the funds if thats whst you are concerned with.  You could run the interest only mortgage through to 100yrs+ in age

MWT

Chip73 said:

I have no-one to leave the property to so I am not so worried that equity release is a relatively expensive way of raising the cash. However, I'm not sure if I should consider remortgaging (or if I'm even eligible as I'm unofficially retired and living off rental income only.) Or is there another option possibly? Any suggestions or advice would be gratefully received. 

It really all depends on what you can afford...

If there is sufficient spare cash in your income to support an interest-only mortgage on the rental property then that would make sense.

If not then the equity release would have to be on the property you occupy as your main residence, not the rental property, and that would be a little complicated if it is not in your name only at this point. Not impossible though but it would require the cooperation of your siblings and a bit more legal work than normal to arrange the transfer of ownership at the same time as completion of the equity release...

You don't mention your age or the value of the property you are occupying, both of those will be a factor in working out if you can raise at least £40k by way of equity release.

getmore4less

Would the siblings be happy with a deferred payment, either through regular payments or just waiting?

in effect they become your lender, depends how much they need the £20k each now and how much you could afford

£40k seems quite low to buy out 2 siblings wither a very cheap house or perhaps more fund in the estate.

ther emay be other ways to structure this.

Chip73

Thank you all so much. It sounds like an interest-only mortgage would be the most cost-effective way of raising the cash but I don't know if I can afford it and more importantly, why would I choose to pay interest now when equity release puts off repayment till after my death? Am I missing something? (If I understand correctly, there is always the option of paying a lifetime mortgage back should circumstances change.) 

MWT

Chip73 said:

Thank you all so much. It sounds like an interest-only mortgage would be the most cost-effective way of raising the cash but I don't know if I can afford it and more importantly, why would I choose to pay interest now when equity release puts off repayment till after my death? Am I missing something? (If I understand correctly, there is always the option of paying a lifetime mortgage back should circumstances change.) 

Without knowing your age and the current value of the property it is hard to be more specific

I would suggest you get some free advice and explore the equity release product options by calling Step Change Financial Services.

They are part of the Step Change charity group and although Step Change are best known for their free debt advice, they also provide free advice for equity release, so nothing to lose by talking to them.

When you do that you can let them know that having the ability to make repayments of interest, or even capital during a year without penalty is a feature you would value and they will ensure that is available on the product they recommend.

There are many reasons why going the equity release path is a good thing and a bad thing, but we don't have the level of detail needed to be more specific, but here are a couple of general things to be aware of...

Equity release is only available if you are 55 or over and only on your main residence (not the let property).

At 55 or there about you will only be able to release around 25% of the value of the property, which may or may not be enough.

If you release equity early in your retirement and do not repay any of the interest, the interest will compound and could prevent you from further equity release later in life as the total including interest would potentially represent a higher percentage of the property value than you could release, even with a higher percentage being available to you due to age.

Later in life you may need to pay for residential care, releasing the equity reduces the amount you might have available for that purpose and depending upon how close to the need for care vs the release, could impact on your access to benefits related to care.

Similarly if you are in receipts of any benefits now, a release of equity could impact on your ability to continue receiving them.

These and other points will be discussed with you during the advice stage you must go through before equity release.

You don't have to go to Step Change for the advice, there are many other sources of the required advice, but most if not all of the others will make a charge for the advice so do check what the costs are before proceeding.

All of the places you take advice from will receive a payment from the lender, even if they are an IFA so there is little difference between them on that point.

Chip73

This is all very helpful indeed so thank you again, MWT - it is much appreciated.