Equity Release Alternatives?

Altior

Renting is being 'dismissed' as an option a little too quickly I feel. I hope to be in a similar position to the OP, and more than likely I will sell up and rent, rather than ER. It obviously depends upon the situation and the circumstances at the time. I'll be looking at assisted living type places if I do opt for renting. The main benefit being that you no longer have to deal with repairs and maintenance, possible access to maintained communal gardens, other types of assistance etc. Also, living alone, a warden assisted place could be of significant benefit. From my research, these are not as expensive as regular market rental properties. Though obviously there are very high end ones, and the market could be a lot different when the time arises.

NlghtOwl

ER gets a bad name, typically for older products with high rates but rates now seem to be in the ballpark of other mortgage products. There are versions of ER now for example where you pay interest and the loaned amount does not increase which could be a good option if you had the income but want to enjoy the capital in the home. Personally I would prefer this over renting but would get the calculator out to look into it further and depends how much you want to deplete the capital.

Linton

Altior said:

Renting is being 'dismissed' as an option a little too quickly I feel. I hope to be in a similar position to the OP, and more than likely I will sell up and rent, rather than ER. It obviously depends upon the situation and the circumstances at the time. I'll be looking at assisted living type places if I do opt for renting. The main benefit being that you no longer have to deal with repairs and maintenance, possible access to maintained communal gardens, other types of assistance etc. Also, living alone, a warden assisted place could be of significant benefit. From my research, these are not as expensive as regular market rental properties. Though obviously there are very high end ones, and the market could be a lot different when the time arises.

Yes, it all depends on what your objectives are.  Your aim is to move to managed accommodation.  Selling your house and using the proceeds to buy or rent somewhere that meets your needs makes sense.

The OP was wanting to avoid ER. ER would be of no help to someone wanting to move elsewhere but rather a major hindrance.  So  it is reasonable to assume that the OP had a need to raise some money from their home.  That is the only purpose of ER.  Selling your home and moving to rented accommodation is not the best way of raising money from your home unless perhaps there are very special circumstances.

So no dismissal of moving to securely rented accommodation one's old age, just that it would not have solved the OPs problem.

Pat38493

Linton said:

Altior said:

Renting is being 'dismissed' as an option a little too quickly I feel. I hope to be in a similar position to the OP, and more than likely I will sell up and rent, rather than ER. It obviously depends upon the situation and the circumstances at the time. I'll be looking at assisted living type places if I do opt for renting. The main benefit being that you no longer have to deal with repairs and maintenance, possible access to maintained communal gardens, other types of assistance etc. Also, living alone, a warden assisted place could be of significant benefit. From my research, these are not as expensive as regular market rental properties. Though obviously there are very high end ones, and the market could be a lot different when the time arises.

Yes, it all depends on what your objectives are.  Your aim is to move to managed accommodation.  Selling your house and using the proceeds to buy or rent somewhere that meets your needs makes sense.

The OP was wanting to avoid ER. ER would be of no help to someone wanting to move elsewhere but rather a major hindrance.  So  it is reasonable to assume that the OP had a need to raise some money from their home.  That is the only purpose of ER.  Selling your home and moving to rented accommodation is not the best way of raising money from your home unless perhaps there are very special circumstances.

So no dismissal of moving to securely rented accommodation one's old age, just that it would not have solved the OPs problem.

Equity release seems to me like it could be a good option for those in the OPs situation if they need to release some money but definitely wish to remain in their property hopefully for the rest of their lives.

From what I've seen though, you don't get a huge proportion of the equity in your house as cash, and if you live for a very long time there is the risk that the interest will effectively mean your house ends up with the ER company I guess.

If OP is prepared to consider a downsize to a smaller / cheaper property, this might be a better way of releasing equity but then they would need to make sure it was clear who the property should be left to on death (even if to a charity or whatever).

Altior

Linton said:

Altior said:

Renting is being 'dismissed' as an option a little too quickly I feel. I hope to be in a similar position to the OP, and more than likely I will sell up and rent, rather than ER. It obviously depends upon the situation and the circumstances at the time. I'll be looking at assisted living type places if I do opt for renting. The main benefit being that you no longer have to deal with repairs and maintenance, possible access to maintained communal gardens, other types of assistance etc. Also, living alone, a warden assisted place could be of significant benefit. From my research, these are not as expensive as regular market rental properties. Though obviously there are very high end ones, and the market could be a lot different when the time arises.

Yes, it all depends on what your objectives are.  Your aim is to move to managed accommodation.  Selling your house and using the proceeds to buy or rent somewhere that meets your needs makes sense.

The OP was wanting to avoid ER. ER would be of no help to someone wanting to move elsewhere but rather a major hindrance.  So  it is reasonable to assume that the OP had a need to raise some money from their home.  That is the only purpose of ER.  Selling your home and moving to rented accommodation is not the best way of raising money from your home unless perhaps there are very special circumstances.

So no dismissal of moving to securely rented accommodation one's old age, just that it would not have solved the OPs problem.

My reading of the OP is that they want to make use of the capital tied up in their property, ie 'no pockets in a shroud'. As they don't have any descendants. 

As they'll always need somewhere to live, the two mainstream options currently available would be to sell and rent, or ER.

They are in a similar place to me. My objective isn't to move to managed accommodation, it is also to make the best use of capital tied up in my residential property. But it's one of the viable options, and at the moment, tips the scales. Of course, one could rent a regular mainstream property instead, but the assisted living type places appear give more for your money atm, and there are other potential benefits.

I appreciate the theoretical risk of running out of cash with the renting option. That is obviously a risk that that would need to be considered and mitigated against. 

The reality is that I don't feel this is something can be firmly planned for a long way ahead of time. The judgement needs to be made shortly before the levers are pulled. There are just too many economic unknowns and variables. 

Linton

Pat38493 said:

Linton said:

Altior said:

Renting is being 'dismissed' as an option a little too quickly I feel. I hope to be in a similar position to the OP, and more than likely I will sell up and rent, rather than ER. It obviously depends upon the situation and the circumstances at the time. I'll be looking at assisted living type places if I do opt for renting. The main benefit being that you no longer have to deal with repairs and maintenance, possible access to maintained communal gardens, other types of assistance etc. Also, living alone, a warden assisted place could be of significant benefit. From my research, these are not as expensive as regular market rental properties. Though obviously there are very high end ones, and the market could be a lot different when the time arises.

Yes, it all depends on what your objectives are.  Your aim is to move to managed accommodation.  Selling your house and using the proceeds to buy or rent somewhere that meets your needs makes sense.

The OP was wanting to avoid ER. ER would be of no help to someone wanting to move elsewhere but rather a major hindrance.  So  it is reasonable to assume that the OP had a need to raise some money from their home.  That is the only purpose of ER.  Selling your home and moving to rented accommodation is not the best way of raising money from your home unless perhaps there are very special circumstances.

So no dismissal of moving to securely rented accommodation one's old age, just that it would not have solved the OPs problem.

Equity release seems to me like it could be a good option for those in the OPs situation if they need to release some money but definitely wish to remain in their property hopefully for the rest of their lives.

From what I've seen though, you don't get a huge proportion of the equity in your house as cash, and if you live for a very long time there is the risk that the interest will effectively mean your house ends up with the ER company I guess.

If OP is prepared to consider a downsize to a smaller / cheaper property, this might be a better way of releasing equity but then they would need to make sure it was clear who the property should be left to on death (even if to a charity or whatever).

When I was looking, at 65-70 you could get around 30-35% of your house value for a rollup mortgage,  or more (50% perhaps) with a Retirement Interest Only (RIO) mortgage.  If you have no beneficiaries to whom you wish to leave a life-changing amount of money then it would seem a much better option than 0% .  Whether the money goes to the mortgage company or somone you dont know is financially the same to you as you will be dead.

In practice, unless the ER company have seriously miscalculated or house prices stop increasing in £ terms, there should be a reasonable amount left - they wont want to risk making a loss.  Note that ER is likely to be at a rate fixed for the lifetime of the mortgage so what happens to interest rates does not matter.

Downsizing is an option used by many peope but it could be difficult if you have got used to a particular style of living.  Unless you live in a mansion or London now it may not be easy to get the same amount of extra money by downsizing as you can get from ER.

lisyloo

Julezy101 said:

Thanks for the replies - I guess the renting idea is probably a silly one.

Surely I'm not the only one who thinks ER feels like your being taken advantage of to some extent? 

 You’re not the only one, but it’s a commercial product so of course you’d have to pay and taking it literally yes they they do want to take advantage as it’s a profit making business.
you have to accept you need to pay for the privilege of having the house AND the money.

the question is whether the profit is proportional.
you'd need a lot more detail and figures to debate that.

in principle there’s nothing wrong with the idea of paying for a loan, but over a long period that’s going to be expensive.

in principle nothing wrong with the idea, but is it the best idea?

what about downsizing?
a lot of people benefit from having a smaller property when they are less able and there’s the advantage of lower costs as well.
seems like a great idea to do it whilst you are able.

if you are desperately attached to your home but want the money as well for a long period then we’ll frankly you are going to have to pay for that. And if you don’t know anyone to come to a private arrangement with then yes you’ll have to pay someone a profit, it’s how the world works and what most people get out of bed for.
theres nothing wrong with profit if it’s reasonable, but it will be expensive to take a loan for a long period.

why not downsize?

Nebulous2

I've never liked the phrase 'equity release.' It conjures up visions of a caged bird, desperate to be set free - released and flying off in to the sunset. In reality, rather than 'releasing' anything, you are borrowing money and putting your house up as collateral. It will certainly work for some people, but we often see people on MSE who are upset about it, sometimes when a family member has died and they discovered it, or has confided in them that they took an equity release product some time ago. 

Downsizing is often not as straightforward as portrayed either. We looked at downsizing where we were and we were going to lose a lot of amenity and receive very little cash. Moving from a 4 bedroom house, to a 2 bedroom flat, by the time we paid all the legals, removal costs etc would have left us with around £30k. House prices were quite compressed and the market was more competitive for flats, as it was all a lot of people could afford. 

Where we did make it work was in moving away to a cheaper area. It worked for us as we were familiar with the area and had family there. However leaving roots and connections isn't always easy for people either. 

There is also, in my opinion, a critical window for downsizing. As people age their horizons generally shrink and they become more fearful. Putting it off can mean reaching a point where it is too scary and frightening, so people can't.

I remember visiting an older lady some 20 years ago in a large stone-built house. A house that now would be worth half-a-million. She was sitting in the living-room, with a blanket over her shoulders, hunched over a single bar electric fire, yet was adamant that she liked her house and didn't want to move. Very much asset-rich but cash-poor. 

I'm aware I'm portraying a picture where people are backed into a corner with few options. That isn't the case, but options will involve compromises, sometimes compromises that people don't want to make, so they simply stay put. 

On a more positive note, I had an acquaintance with a large 4 bedroom house, a BMW and an interest in golf. On retiring they sold the house, sold the car, bought a flat, a small car and a residential caravan near his favourite golf course. His wife hadn't liked driving the big car, but really liked the small one. I was impressed with the level of thinking that went into meeting both their interests / needs and taking a dispassionate view of what had been their family home. 

SMcGill

Please don’t consider standard private renting, and that’s speaking as a landlord who had to evict a 90 year old man. His mental faculties rapidly deteriorated, as they can in old age, and he would not disclose if he had any family I could approach to help out. Me having to destroy his stability in old age pretty much wrecked me mentally for a long time after.

Pat38493

Nebulous2 said:

Where we did make it work was in moving away to a cheaper area. It worked for us as we were familiar with the area and had family there. However leaving roots and connections isn't always easy for people either. 

This is what we are currently exploring - we intend over the next few years to visit quite a few different areas of the UK (and maybe even other countries) to see if there is somewhere we would like to live in retirement.  My wife is up for it and she has closer friends than I in the immediate local area.  If nothing else it gives us an opportunity to see more of the UK even if in the end we decide to stay local.

Downsizing will work for us because our house will just be too large for the two of us in future, we certainly don't need the number of bedrooms we have now, smaller garden as my wife is the gardener and has health issues that limit that.  Target is to get a house for 300K less than ours is worth to free up maybe £150-200K after fees and paying off the mortgage etc.  We got our house for a pretty good price as it was in a bit of a state so it's probably actually worth even quite a bit more than what I'm assuming which is just house price inflation, after all the improvements and changes we've done.  All down to my wife as she is the visionary genius when it comes to this type of thing.

Family were never that close by for a long time so it wouldn't really change much there - if anything likely we'll be moving closer to family.

We have a shortlist of places to visit and we already visited the Chichester area recently, partly because I heard it has "the best overall sunshine weather in the UK" and partly as there was also a show on that I wanted to see there at the same time.  Nice but pretty expensive there though so it probably won't make the final short list.  More for the spring / summer months - first lesson learned in Chichester area was that if you undertake these projects in winter you have limited daylight - duh!