Equity Release - Good idea? Any Alternatives?

gadjo

Are there any alternatives to Equity Release that people have knowledge or experience of?

Situation - My Mum and Dad are both retired and wanting at least £50k to see them into their twilight years! They're mortgage free and house valued about £250k. They saw a broker today... £2k fees, interest rate about 3.6% (I can't quite remember), if they both pass away at 10 years, the company will take £70k, if 20 years they'll take 103k.

Obviously I hope they live as long as possible! Just wondering if this is the best way for them to get some cash to help them in their old age?!

MWT

There are some alternative ways to access equity release products that will avoid the additional fees for the advice (High St. lenders, StepChange Financial Solutions) but in general, if they wish to borrow £50k without any repayments during their lifetime then the interest will roll-up over time in the way your numbers suggest,.

It is not so much the company 'taking' £70k or £103k that is what the debt will be over that time period, this isn't like the old home reversion plans, it is just a loan where the interest builds up unless they take the option to pay off the interest each year.

If for example you wanted to protect your inheritance, you could opt to pay the interest for them perhaps?

Cscott139

Are the £2k in fees just for the broker or does that include the solicitor and lender charges?

gadjo

I can't remember tbh, They had £600 for solicitor fees but can't recall if that was part of the £2k or not.

lisyloo

another option is to downsize.
This comes with the benefits of less/cheaper maintenance if/when they become less able
less cleaning
lower bills
They could also potentially move to a better area e.g. more activities for their twilight years or closer to family
They also have the option of a cheaper area if they aren't tied to work so they could even get the same size house for less money.
it has a lot going for it.

My personal experience is that it's a great idea to plan ahead for the problems that come with ageing.
it's much more difficult to sort your stuff out (both physically and mentally) if you are ill or restricted in term of mobility.

There are costs with moving - estate agent, solicitors, removals - the same as there are with equity release.
I wouldn't expect them to be massively more.

If they go to a high street lender, be aware they may not getting advice across the whole of the market.
There's a reason for those fees and sometimes good professional advise is well worthwhile (and of course watch out for scams, they can be quite sophisticated).
You need to be very careful that free/cheap advice is not a false economy IMO.

If they want to keep the house though - it's pretty much the only option.

MWT

lisyloo said:

There are costs with moving - estate agent, solicitors, removals - the same as there are with equity release.
I wouldn't expect them to be massively more.

SDLT is usually the big one, say £1,500 on a £200k property... and with care you can achieve equity release for around £500 in total including the solicitors fees, so there is a real difference in the upfront costs, but I do agree that if that can be managed then the lack of ongoing interest should make down-sizing the first thing to consider and in fact the regulated advice that has to be taken with equity release will ask exactly that question as well...

lisyloo said:

You need to be very careful that free/cheap advice is not a false economy IMO.

Certainly something to be careful about, but the flip-side is that even with expensive advice, the advisor is still getting paid by the lender on top of whatever you are paying as well, so it is never entirely free...

I would always suggest that people do a little research of their own to see what features are available with equity release products and then decide which ones are important to them.

These can include fixed ERC, down-sizing protection, the ability to make partial repayments without triggering the ERC etc.

Then it becomes easier to decide if a High St. product, which will most likely be from a very limited pool of products, offers what they need.

Also do not assume that just because you are paying a high fee that the advisor is not also drawing from a more restricted pool of lenders, so always ask the question...

Personally I prefer going with something like StepChange Financial Solutions as they do draw their recommendation from the wider market and provide their advice without additional payment beyond what they will receive from the chosen lender.

lisyloo

I think SDLT is £1500 not £7500. Was that a typo?
but yes agreed re: the fees.

a hollistic view needs to be taken
e.g. A smaller property would have lower bills, insurance etc for many years.

Downsizing has a lot of upsides although i understand some people like their homes.

MWT

lisyloo said:

I think SDLT is £1500 not £7500. Was that a typo?
but yes agreed re: the fees.

a hollistic view needs to be taken
e.g. A smaller property would have lower bills, insurance etc for many years.

Downsizing has a lot of upsides although i understand some people like their homes.

Yep, fixed that one. £7,500 was the corporate rate, not individual.

gwynlas

Will the house be suitable for them if either of them become mobility impaired in the next twenty years? Otherwise they need tp move into more suitable accommodation whilst it is a choice rather than a necessity. There are a number of 55 and over communities around some are classed as independent living others are supported and service charges vary accordingly. They could downsize abd free up capital, 50K does not go very far and as you see equity release can eat into inheritance. If they could afford repayments they could take out a small mortgage.

lisyloo

gwynlas said:

Will the house be suitable for them if either of them become mobility impaired in the next twenty years? Otherwise they need tp move into more suitable accommodation whilst it is a choice rather than a necessity. There are a number of 55 and over communities around some are classed as independent living others are supported and service charges vary accordingly. They could downsize abd free up capital, 50K does not go very far and as you see equity release can eat into inheritance. If they could afford repayments they could take out a small mortgage.

Do you mean a special retirement income only (RIO) mortgage?
normal mortgages aren’t generally available to people without earned income (even with good pension income and assets)

what are the pros and cons compared to equity release?

MWT

lisyloo said:

Do you mean a special retirement income only (RIO) mortgage?
normal mortgages aren’t generally available to people without earned income (even with good pension income and assets)

what are the pros and cons compared to equity release?

The main pro is that the interest does not roll-up, but the con is that you do have to commit to paying the interest.

You can achieve the same with equity release by voluntarily paying the interest each year, but you retain the option to stop doing that if it becomes difficult.

The other 'con' on the RIO is the lender will stress-test the ability to pay if there is only one remaining partner which can make it harder to meet the affordability criteria.