Equity release boom on its way

EdInvestor

This looks like it could be a major beneficiary of the 'new environment'.

-Interest rates now lower than conventional mortgages
-ER now avaulable on BTL and holiday homes
-More sophisticated drawdown arrangments
-Morre flexible redemption arrangments
-Rollup ownership with home reversions
-Min age down to 55

Good to see this.

http://www.mortgagesolutions-online.com/public/showPage.html?page=741262

UK007BullDog

Yes, it is good and about time too.

But all they are doing is switching one not so profitable market for another more profitable one. :rolleyes:

Optikal

Color me confused, but what does this mean for 'sub-prime' lenders like me, with poor credit ratings and high (7.59%) interest rates? Can i get out now and get a better deal on a new house?, or do i wait until jan 2010 when my fixed rate runs out?

EdInvestor

Optikal wrote: »

Color me confused, but what does this mean for 'sub-prime' lenders like me, with poor credit ratings and high (7.59%) interest rates? Can i get out now and get a better deal on a new house?, or do i wait until jan 2010 when my fixed rate runs out?

Unlikely to affect you unless you are over age 55.

dopester

Last Sunday's Observer.

The sale of equity release schemes to people as young as 55 is another mis-selling scandal in the making, critics claim. But sellers of these schemes insist they are safe, transparent and simply meeting increasing customer demand. 'Because of the credit crunch and the level of indebtedness, affordable credit is much harder to come by these days,' says Mick McAteer, former principal policy adviser at consumer organisation Which? and now director of the Financial Inclusion Centre. 'A lot of people are running out of resources but have equity in their homes.

Murphy is equally shocked: 'If you can't service your debts at 55, it's time to downsize and reappraise your whole life situation - otherwise you will have a stressful and impoverished old age.'

However I don't really see equity release being on the table for too much longer. The banks don't like to lend in falling markets and that applies to equity release as well.

They think to themselves... why make a £10,000 loan which might only have a market value of £8,000 or £6,000 in the next few months/year. Added to which liquid capital is sacred now.

From yesterday's FT.

Lenders are frantically withdrawing many of their mortgage offers – sometimes with less than an hour’s warning – as severe funding constraints mean that they are unable to meet demand for the most competitive deals.
Brokers had as little as 10 minutes’ notice on Thursday when Scottish Widows removed the bulk of its mortgage range.

EdInvestor

Equity release is less risky for the banks as there is no risk of the buyer not servicing the loan. In some cases you could see it might be used to help kids with a deposit - or to ease the way to a remortgage, particularly if interest rates and redemption penalties are reasonably low.

poppy10_2

EdInvestor wrote: »

Equity release is less risky for the banks as there is no risk of the buyer not servicing the loan.

Why so? .

EdInvestor

poppy10 wrote: »

Why so? .

With equity release loans (aka lifetime mortgages) the loan rolls up until you die or go into care, at which point the house is sold and the bank is repaid. So there's no default problem.

More info here: https://www.ship-ltd.org

UK007BullDog

Some schemes roll up the interest, The idea is not having to pay any mortgage at all. This is very good for the very old, like 70 years and older.

It is here to stay. Too many people are not looking after their retirement and only have their house. Some equity release research has shown that downsizing does not release enough equity to live on for a long time.

Not everyone can sell these. Only qualified advisers can. Regulation is very tight, so I cannot see any miss selling here. However I can see prospective family members cry foul as they are not going to receive a big inheritance that they planned to get. Hence the advisers going this equity release ask to work with the immediate family members and a solicitor and accountant as well. So everyone knows what is going on.

Once the person dies the property is sold and the bank get theirs and the family get what is left over. In the mean time granny/grandpa had a lovely retirement.