Next Mis-selling scandal looms

So what is the alternative to ER?
If someone has reached retirement age, owns a valuble house, but has little pension savings?

The only alternatives I can see are:
1. Selling your house to someone who agrees for you to continue living there - perhaps paying rent to the new owner.
2. Selling your house, buying a cheaper house and spending some of the proceeds you make.
3. Selling your house and renting a property to live in.

But no one knows how long they're going to live.
This is why the pension 'annuity' system was devised.

There are lots of factors involved here; low annuity rates, high property prices and perhaps (and this may be controversial) an increased sense of entitlement for people to inherit money from their deceased parents. I'm not an economist, but it would be interesting to know the proportion of people who expect to inherit money today, compared to say, 30 years ago..?

Those people hitting retirement age now ('Babyboomers'), were born in about 1950. They were in their early 40s in the 1990s, when their parent's (wartime) generation (born around 1920) started to retire.

Reed_Richards wrote: »

Is it not possible to get a better interest rate than 7.15%? Or is Mrs Rosenthal locked-in to paying this rate? A quick look suggests there are some much better deals on offer now.

Depends if she can get a new, cheaper lender to lend enough money to pay off the old one. It is very possible that the amount required to pay off the old lender, with all the rolled-up interest, exceeds the maximum any new lender will lend.

I've only glanced at the headline figures but my gut feeling is that she would be right up against it given the LTV and her age. Any interest saved might be eaten up by the initial costs of the new loan.

I think re-mortgaging equity release in this way is very rare if it happens at all. If you borrow the maximum and roll up the interest, the added interest will immediately take you over the maximum, even with rising age and house value.

Surely if there is any hint of a scandal here it is that the house owner is locked-in to a high interest rate from which there may be no means of escape?

Computer_Beginner wrote: »

Well someone must be living in all the bungalows.
Unless they're all empty, how is the housing stock being wasted?

The point is more about smaller homes in general. In some places there are families with two children living in two bed houses while old people are rattling around in four bed detacted houses as downsizing with stamp duty is unaffortable. I know of a section of five four-bed houses with only six pensioners living in them in total. So that is twenty bedrooms with six occupants.

thrifty_pete wrote: »

The point is more about smaller homes in general. In some places there are families with two children living in two bed houses while old people are rattling around in four bed detacted houses as downsizing with stamp duty is unaffortable.

Stamp duty is a very unfair tax, but it is not enough in itself to make downsizing unaffordable. If you were only going to realise a few measly tens of thousands of quid then it's not going to make much difference to how much you can spend over the next decade or two, and is unlikely to be worth the hassle of moving in the first place.

The problem with downsizing is that the most valuable part of a house is usually the land. The few thousand bricks that make up a couple of extra bedrooms are worth almost nothing. Going from 4 to 2 bedrooms but keeping the same size kitchen, garage, living room etc etc doesn't free up enough land and enough money to enable a significant increase in spending.

If the family wants a 3- or 4-bed so their children can have a bedroom each then they can buy one. There is no need for one of the old people to move out of their 4-bed house, there are plenty of other 4-bed houses on the market. The idea that the old people are preventing them from having a 4-bed house is absurd; if the old people put their 4-bed on the market, the family either wouldn't want it or wouldn't be able to afford it.

Or is the idea that if all the selfish oldsters sell their 4-bed houses, the price of 4-beds will decrease to the level at which the family can afford to buy one? That would make it completely pointless for the oldsters to sell, because they won't release any capital.