Lifetime mortgage/Equity Release

Hobo1234

Hi My in laws own their property its ex council and probably only worth around £70,000. They have 4 children who it will be equally split between. The question of a lifetime mortgage/equity release repayable when property is sold has come up, some are of the opinion that they should use the money in the property to enjoy their life and do the things they want to do now rather than have something to leave the kids. Just Wondering if this is too simplistic a view and if there's other things that need to be taken into account? What happens if they had this on the property then either of them needed to go into a care home? Or both of them? 

All the children are financially independent and don't live at home. 

Thanks 

MWT

Hobo1234 said:

What happens if they had this on the property then either of them needed to go into a care home? Or both of them?

That part is common and easy to deal with, nothing changes if one of them has to go into long term care as long as both names were on the mortgage and deeds.

It is only when the last one either dies or goes into care that the repayment of the mortgage is required.

However do be aware that releasing equity can impact on other means tested benefits, just as care home fees and if the release is in close proximity to the need for care the council may form the opinion that the release amounted to deliberate deprivation of assets. So if this is toy be done, it is better done while they are both in good health and not anticipating the need for long term care.

The bigger question is if they can get an equity release in the first place...

£70,000 is about as low as you can go on a valuation and still be able to get an equity release product, and at that price there will be a lot of attention paid to the condition, type of construction, location etc. as the lender wants to be sure it is an easily saleable property.

The amount they can release will be based on the youngest of the two ages.

Hobo1234

Thanks for your reply, I had been looking at deprivation of assets and if this may be an issue. As you say the equity release might be a non starter anyway based on valuation. I know people want to leave some sort of inheritance for their kids but I'm a bit of the opinion that once they're all grown there's no real need. Maybe that's the wrong way of thinking on my part to be honest. 

Thanks for your help 

MWT

Hobo1234 said:

I know people want to leave some sort of inheritance for their kids but I'm a bit of the opinion that once they're all grown there's no real need. Maybe that's the wrong way of thinking on my part to be honest. 

Personally I think the only 'wrong thing' would be not to tell the kids they are doing it as that just leads to all sorts of grief later on when the kids turn up here complaining their parents were 'mis-sold' a product because they obviously couldn't have understood what they were doing...

I think it is a perfectly valid option for those who find they have a decent amount of equity in their house and perhaps a less than adequate amount in their pension.

We are in the transition period now from the majority of those who worked all their lives reaching retirement with a defined benefit pension scheme leaving them on a good percentage of their final salary, to those reaching retirement with money-purchase schemes which are subject to the vagaries of the stock market and annuity rates, so increasingly I think people are going to be factoring in the equity in their property as part of the retirement planning.

The trick is picking the right way to go about it and for someone at the very low end of the valuation spectrum equity release is far more likely to be a viable option than down-sizing for example...

Hobo1234

Yes downsizing wouldn't be an option, they wouldn't do anything without everyone knowing what their plan was anyway but yeah I can see how some families may have issues arising because of this. Especially if they've been expecting a large inheritance which doesn't come to be.