advice on releasing equity in property please

totallynewbie

Hi all

Please be kind as this is my first posting and my heads throbbing with searching the site for an answer.

Situation is:

My parents (both mid fifties) own a property, no mortgage on it and last valued at 100,000. My father is now disabled and they live on benefits and my mother has a small part time job, but they could seriously do with an influx of money. Their house needs some refurbishment but other than the house they have no other assets. What action would anyone recommend??

Like many people, money and lending is a minefield to them so they've asked me to have a look and point them in some viable directions. Ive looked at these 'sell half your house and live in it till you die' schemes but the rates are extortionate. Any other options??

Would they get a secured loan? Self cert mortgage for some of the equity? Or would a bank loan be the better option?

Any other options available to them?

Id really appreciate any pointers in the right directions.


Jane.

Fairdo_2

Jane

There is an increasingly popular scheme available called "Equity Release", which was araound in a former guise and were slated in that guise. However, these are becoming more poular again, based on the fact that they are a lot more transparent and are being responsibly package by the lenders involved.

They do now have their own "Kite Mark" which identifies those that meet minimum standards. These are affiliated to the "SHIP" scheme (Safe Home Income Plan).

This is not to say that those not tied into the SHIP scheme are decidely dodgy, but that those lenders have opted not to subscribe and they may be just as safe. However, it always safer to assume that a SHIP scheme would generally be safer.

The main problem I see with this, in your parents' case is, that based on their ages, I do not think there would be a lender that would offer attractive enough terms for them. Basically, because the older the client, the more they can borrow against the property.

Lenders that roll off the tongue dealing with this are as follows:

Nortgern Rock, Norwich Union, Legal & General, Portman Building Society. Apologies for those I have not mentioned. It is just helpful for you to know where to start. I am also confident that there should be some sort of website available that would end up stating the lenders that subscribe to the SHIP scheme. Maybe someone with better knowledge may be able to give some pointers?

Other options may be to borrow on a Capital Raising basis from a Mortgage Lender. However, dangers on this are income and affordability, along with morgtgage term, as any borrowing would have to be paid for. This Capital would also need to be paid back at some point.

If this was made a Lifetime Mortgage, all the interested parties (Next of Kin, etc) would need to consider all the options and consequences of what would happen to the Estate at some point. Excuse my Candor about this!

Personal Loans would be the same and to me look like they would only delay the inevitable that living costs would still have to be met.

Again, I would open the forum to a different type of expert, but you wanted pointers. I wonder if it would be a benefit for you to discuss options with a legal adviser. This would be to look if there is a suitable vehicle you could set up by opening a Trust of sorts that allows your parents to give up their home in order for children/next of kin to own and borrow against the property over a very long period. Allowing the parents to have the protection of being allowed to live in the property for life. Obviously this opens a potential can of worms in terms of possible Stamp Duty costs, maybe even Capital Gains Tax, etc. As well as the complications of several parties finding this an appropriate solution. Please excuse my ignorance in this particular area, but I hope it prompts someone to expand upon, or correct me on the last option discussed.

dunstonh

Equity release is not available to them as they are not old enough. Even if it was, it should be considered last resort. It is viewed as a high risk area when giving advice which is always a sign of areas which need careful consideration.

Mortgage is the only lending option.

totallynewbie

Many thanks Fairdo & DD for your responses. Information from both is greatly appreciated. ;D

Fairdo - your candour is exactly what I need - someone to explain in basic and factual terms in this situation was just the reply I was looking for. Ive looked at cash release schemes (one of which is available for 55 and over), but will need to discuss this further with younger siblings who will inherit. I will research the 'SHIP' option and encourage them to contact the organisations you listed and see what they have to offer.

DD - a smallish mortgage on the property (around 20,000) was also what we considered, but with their limited income would mortgage companies lend on the equity on the house alone? Probably a stupid question but im not sure how that would stand.

Anyway thankyou for your help I am now armed with a bit more info to take to them. Again any further pointers would be most helpful.

Jane

dunstonh

I will let the mortgage guys comment on the chances of a small 20k mortgage being agreeable.

The only problem with mortgage is that it would incur a monthly cost. So it is not a good long term view. However, it may be ideal for 5-10 years and then do equity release and get better terms due to the increase in age than they would get with the only option available at present.

Fairdo_2

Jane

Thank you for your feedback. I am doing my best to help and the appreciationj makes it worthwile.

As posted earlier and further to DD's post, yes it is posible for some lenders to offer a mortgage to them. If the mortgage is set up to go beyond Retirement, the Lender and Regulator need proof of affordability in Retirement. Therefore, if their Reirement income is sufficient to show affordablility of their mortgage payments then there will be a few lenders availble to them.

Some Lenders still have age restrictions for when the mortgage must be redeemed by. However, a very good point made by DD was that the older they are if they do opt for an "Equity Release" mortgage, the better terms they are likely to get. I hope this is a bit more to the point than my previous posting.