Equity Release and Pension Credit

Sea_Shell

Can I ask a "what if..." question please.     This hasn't happened yet, but it might, so I'm just trying to get my ducks in a row, in case it does.


Estranged couple, both own marital house as Joint Tenants.   One lives in it, A, and one lives elsewhere, B.

A is on pension credit
B wants to do equity release for something personal to them 

AIUI, they would have to apply jointly for ER, even though the cash is only for one of them.

Would A be automatically deemed, by DWP, to have received half of any cash released, and would this effect their benefits, even though they may have felt pressured to agree to ER in the first place, and will not be the one to benefit from the money.   Especially if the money never hit their account, and all went straight into B's account.

Is this a very valid reason for A to put their foot down and not agree to any ER.  (along with all the usual reasons why ER might be the wrong thing to do)

Thanks.

Keep_pedalling

I would have thought the only way of doing this is with ER being part of a financial settlement as part of a divorce. A should certainly not agree to do ER without a formal agreement.

Alice_Holt

If the 'value' of the ER to A is an increased share of the % ownership of the house they live in, I would have thought PC is unaffected.
However a DWP Decision Maker will make the call on the exact facts / circumstances (a decision which carries appeal rights).

With PC £10k can be held in savings without the amount of PC being affected. Above that tariff income is assumed, which reduces any PC payable.

Sea_Shell

Keep_pedalling said:

I would have thought the only way of doing this is with ER being part of a financial settlement as part of a divorce. A should certainly not agree to do ER without a formal agreement.

After 30+ years estranged, that's unlikely!

Alice_Holt said:

If the 'value' of the ER to A is an increased share of the % ownership of the house they live in, I would have thought PC is unaffected.
However a DWP Decision Maker will make the call on the exact facts / circumstances (a decision which carries appeal rights).

With PC £10k can be held in savings without the amount of PC being affected. Above that tariff income is assumed, which reduces any PC payable.

Any money released would be for B's personal benefit only.    Be that a new car, or a medical procedure, etc.    

Not home improvements etc .

Even ER of 10% could release about £50k.    Would A be deemed to have had £25k, if they'd agreed to it, as part of a joint application.

A likes to "keep the peace" and isn't very *   , although they have full capacity to make (bad) decisions!



* can't think of the word I want just now. 

Jyana

Two of the problems I can see with this plan, which I have seen happen in real life. The first is with how high the interest is on ER, it builds very fast and could well completely erode B's half of the value in the property pretty quickly and then start eating into A's side of it too.

The other being, if A wants to move at any point in the future they could be faced with having to pay back a large chunk of the ER if loan company decide that the new property isn't worth enough for their loan.

Sea_Shell

I am aware of all the reasons why it's a bad idea, but wanted to know if A could shut down the idea before it gained traction, by saying NO, because of the Pension Credit situation.

Rather than a string of other "excuses".

born_again

Sea_Shell said:

I am aware of all the reasons why it's a bad idea, but wanted to know if A could shut down the idea before it gained traction, by saying NO, because of the Pension Credit situation.

Rather than a string of other "excuses".

Do they need to give a reason, other than no. It's not happening?

Sea_Shell

born_again said:

Sea_Shell said:

I am aware of all the reasons why it's a bad idea, but wanted to know if A could shut down the idea before it gained traction, by saying NO, because of the Pension Credit situation.

Rather than a string of other "excuses".

Do they need to give a reason, other than no. It's not happening?

Of course no should mean no.   But that's assuming someone is assertive.*

I was just wondering what the legal (DWP) position would be if A did agree to it, and how it could effect them.

Unintended consequences and all that.


*That's the word I couldn't remember earlier 

kaMelo

If it were owned as tenants in common then there would be a defined share of equity in the property, any equity release amounts would potentially follow this and it may be hard to argue A is not a beneficiary of the equity release unless the ownership percentage was adjusted accordingly.

As they're joint tenants they both technically own 100% so I guess one could argue as to who is benefiting from any equity release.

I don't understand though why the house is still owned as joint tenants, considering they're estranged. I also don't understand why B wants to do equity release rather than just force a sale of the home, split the money and be done with it. If I were A I'd be more concerned about this rather than equity release.

Sea_Shell

kaMelo said:

If it were owned as tenants in common then there would be a defined share of equity in the property, any equity release amounts would potentially follow this and it may be hard to argue A is not a beneficiary of the equity release unless the ownership percentage was adjusted accordingly.

As they're joint tenants they both technically own 100% so I guess one could argue as to who is benefiting from any equity release.

I don't understand though why the house is still owned as joint tenants, considering they're estranged. I also don't understand why B wants to do equity release rather than just force a sale of the home, split the money and be done with it. If I were A I'd be more concerned about this rather than equity release.

It's complicated 😉.    

I'm interested in the legal position around ER and PC.

stripling

You cannot have equity release under these circumstances. You have to own outright. You cannot have equity release on a half share. The equity release debt would be against the entire property thus compound interest, unless it was paid off, would eat the value of the entire property 'faster than the speed of light.' 

The smart thing to do would be to get B to sell his share to A at a token amount and for A to get a small equity release loan to pay B at the same time that there is a transfer of equity putting the entire property in A's name.

If A then wanted to pay the monthly interest like a mortgage, the property wouldn't lose value. The debt would be paid out of the eventual estate. 
If A didn't pay the interest she could continue living there for the rest of her life and probably forfeit the property in settlement from any estate. 

Or, having got the property into her name - A could sell, pay off the equity release debt and downsize. 

Ultimately, all these questions are for a professional financial advisor.