Best way to release equity 14 October 2022 at 10:07AM in Budgeting & bank accounts 8 replies 301 views

pauline51

Hi, I’m new here and have a bit of a first world problem. We own a house that is worth around 500k and want to know the best way to release around 100k to buy a second accommodation (caravan or lodge) near to the family (about 250 miles away) so we can split  the time between the two. We are both in our 70s (both healthy 🤞) and have a comfortable life style . We could move but would rather find a way to have the best of both worlds. Any advice would really help.
thank you Keith 

Zanderman

I assume you've looked at Equity Release information?  There's loads of it online.  

This site would be a good start: https://www.moneysavingexpert.com/mortgages/equity-release/

pauline51

Thanks , I haven’t yet I’m just about to start to research it, thanks for the link 

[Deleted User]

The issue with equity release is that the loan has compound interest and you never pay any of it off, so you can end up with a huge debt which comes due when both people die or go into care (depending on the situation). If you want to enjoy your retirement and aren't worried about things like care home fees or inheritance, then go for it, it's your money but be aware of the numbers. It's probably a bit late for a mortgage unfortunately due to your ages though

md258

You say you're both healthy and presumably happy to drive 250 miles regularly- do you think that will still be the case in 5, 10, 15 years time? If your health did decline or one of you passed away, where would you rather live? Also, £100k buys a lot of hotel rooms/weeks in cottages- would that be a cheaper option longer term?

Sorry to be morbid, but it might be worth taking a bigger decision now.

I can't add anything about equity release to the above

pauline51

Yes  I get the compound interest thing but am I correct in thinking the debt would double in around 10 years !  We are considering a lodge for around 75k which would be resale able of course. We have lived in our current house for 9 years and the price of the property  has risen over 200k in that time, now obviously you can’t predict that going forward but it’s not been a bad return.  We do the Airbnb thing now but we want to more or less split out time between the two so for us it seems like a viable proposition .
Am I missing something here. 

Thanks 

Zanderman

pauline51 said:

Yes  I get the compound interest thing but am I correct in thinking the debt would double in around 10 years !  We are considering a lodge for around 75k which would be resale able of course. We have lived in our current house for 9 years and the price of the property  has risen over 200k in that time, now obviously you can’t predict that going forward but it’s not been a bad return.  We do the Airbnb thing now but we want to more or less split out time between the two so for us it seems like a viable proposition .
Am I missing something here. 

Thanks 

I can't comment on the Equity Release, other than to reiterate it's worth researching fully, as there are pitfalls and also some poor deals, but if you go in with your eyes open and decide it's best for you that's fine. 

The only point I'd add is in response to your point about the lodge being re-saleable. Yes, holiday lodges are re-saleable, but they aren't like houses.  They mostly depreciate with time, so will almost certainly make a loss, and there are, sometimes, problems with the site management - pressurising redevelopment of the site, having first refusal on any re-sale and then offering peanuts etc.  Horror stories abound about lodges, but it all depends on whether the site management is reliable and customer-focussed rather than merely profit-led (and even if it is now, will it be if they sold up to another, less owner-friendly, lodge company, which could happen anytime?). There may be no problem but, as with Equity Release, lodge purchase needs researching fully and you should go in with your eyes open! 

[Deleted User]

pauline51 said:

Yes  I get the compound interest thing but am I correct in thinking the debt would double in around 10 years !  We are considering a lodge for around 75k which would be resale able of course. We have lived in our current house for 9 years and the price of the property  has risen over 200k in that time, now obviously you can’t predict that going forward but it’s not been a bad return.  We do the Airbnb thing now but we want to more or less split out time between the two so for us it seems like a viable proposition .
Am I missing something here. 

Thanks 

The lifetime mortgage is the most common ER form, an example would be 50% of property value, say £65k on a £130k house, at a rate of 6.4% compounded, after 12 years say you need to move into care and the debt becomes due, that debt is now £137,000 assuming nothing was paid towards it. Any legitimate firm who is a member of the Equity Release Council will have a "no negative equity" guarantee meaning if the house was still worth £130k you would only owe £130k but that would of course mean no money left in the house.

As an alternative, have you considered simply downsizing? I obviously don't know where you live but if you have say a 4 bedroom house worth 500k, you could always sell and buy a smaller one with cash for say £400k and use the money for the lodge - and potentially move closer if you wanted? I had a look at houses around here in the countryside, a lot around 500k with 3-5 bedrooms and 2-3 bathrooms and knocking 100k off the pricing, there are plenty of plenty of extremely nice homes with 2-4 bedrooms and 1-2 bathrooms with similar gardens etc

pauline51

Thank you everybody I’ve come to my senses after a bit of research. It ain’t happening.