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  • FIRST POST
    • capital0ne
    • By capital0ne 10th Sep 18, 6:14 PM
    • 604Posts
    • 286Thanks
    capital0ne
    Next Mis-selling scandal looms
    • #1
    • 10th Sep 18, 6:14 PM
    Next Mis-selling scandal looms 10th Sep 18 at 6:14 PM
    The next mis-selling scandal is live and running, and its called Equity Release.
    Article in the Telegraph last week:

    The 'dangers' of equity release: 'My £65,000 loan is costing me £12,000 a year in interest'

    Shirley Rosenthal and her husband, Stanley, took out an equity release mortgage with Hodge Lifetime, then known as Julian Hodge Bank, in April 2004 on their property in Buckhurst Hill, Essex.

    The couple released £65,000 from their home to pay for new windows, carpets and general home improvements and were charged a fixed interest rate of 7.15pc. This was negotiated by Mr Rosenthal, as he looked after the family finances.

    Following his death earlier this year, the true cost of the plan became apparent to Mrs Rosenthal. The 79-year-old has been charged £12,261 in interest in the past year alone, a figure that will only increase in future years thanks to the rolled up interest charged. Mrs Rosenthal now owes £178,210 to Hodge Lifetime on her £400,000 property.

    “When my husband died we started going through all of his papers and my daughter realised that we owe nearly half the value of our flat,” Mrs Rosenthal said. “We were horrified to see how much all the interest has mounted up.”

    https://www.telegraph.co.uk/personal-banking/mortgages/dangers-equity-release-65000-loan-costing-12000-year-interest/?li_source=LI&li_medium=li-recommendation-widget
    (apologies paywall link)
    The point here is that people just do not understand interest, especially compound interest, no matter how it's explained

    Trust me, in 20 yrs time or sooner it will be a huge mis-selling scandal with loads of companies piling in to help (after their cut of the compensation).

    And some of the TV adverts extolling the virtues of equity release make the salesman sound so jolly what could possibly go wrong.

    So kids, if your parents take our equity release, there will be NO inheritance to come to you. Just as long as you know that it's fine.
    Sleep tight - it will all be okay.
Page 3
    • Malthusian
    • By Malthusian 13th Sep 18, 10:26 AM
    • 5,630 Posts
    • 9,323 Thanks
    Malthusian
    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.
    Originally posted by thrifty_pete
    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.
    • thrifty_pete
    • By thrifty_pete 14th Sep 18, 10:57 AM
    • 258 Posts
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    thrifty_pete
    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.
    Originally posted by Malthusian
    It is not about capital and making money, homes are to be lived in, not a tax free speculation and wealth redistribution scheme. If our economy is going to stand on its own two feet after Brexit, we will have to find a way of supporting the "oldsters" without using a property market bubble to finance it. We've been living on tick for far too long. People will have to start saving and investing more for their retirement, and paying more tax to financial social care.
    Last edited by thrifty_pete; 14-09-2018 at 11:42 AM.
    • coyrls
    • By coyrls 14th Sep 18, 1:19 PM
    • 1,150 Posts
    • 1,252 Thanks
    coyrls
    It is not about capital and making money, homes are to be lived in, not a tax free speculation and wealth redistribution scheme. If our economy is going to stand on its own two feet after Brexit, we will have to find a way of supporting the "oldsters" without using a property market bubble to finance it. We've been living on tick for far too long. People will have to start saving and investing more for their retirement, and paying more tax to financial social care.
    Originally posted by thrifty_pete
    Brexitiers already searching for scapegoats?
    • Malthusian
    • By Malthusian 14th Sep 18, 2:00 PM
    • 5,630 Posts
    • 9,323 Thanks
    Malthusian
    It is not about capital and making money, homes are to be lived in, not a tax free speculation and wealth redistribution scheme. If our economy is going to stand on its own two feet after Brexit, we will have to find a way of supporting the "oldsters" without using a property market bubble to finance it.
    Originally posted by thrifty_pete
    How do you intend on persuading the oldsters to stop rattling around in their 4 bed houses and swap places with the more deserving young family if they aren't going to make any money by trading down?

    Gunpoint?
    • Onesipherous
    • By Onesipherous 15th Mar 19, 9:04 PM
    • 3 Posts
    • 1 Thanks
    Onesipherous
    Equity Release - one of the biggest con tricks
    I am a retired financial adviser. Once asked by a client to advise on Equity Release. After researching all the available plans I had to advise him against Equity Release. If he wanted to proceed, it certainly wasn't going to be through my agency. I wasn't prepared to risk my reputation. In my view, Equity Release is one of the biggest con tricks going. Don't touch it. Since I retired an elderly former client has entered into equity release, releasing half the value of his home. In less than a year £18,000 of interest has accrued. He would have been better to have taken out an interest only mortgage at 3.99% offered by one of the northern building societies, and kept up interest payments from his pension, rather than letting it roll up at a ridiculous compound rate through equity release. My advice - don't touch equity release unless you are absolutely desperate. Downsize first. Take an interest only mortgage specifically marketed for the elderly - there is at least one currently available. Do the maths.
    • Zanderman
    • By Zanderman 15th Mar 19, 10:49 PM
    • 2,055 Posts
    • 4,830 Thanks
    Zanderman
    ....an elderly former client.....He would have been better to have taken out an interest only mortgage at 3.99% offered by one of the northern building societies, and kept up interest payments from his pension, rather than letting it roll up at a ridiculous compound rate through equity release....
    Originally posted by Onesipherous
    Are you sure mortgages are available to the elderly?
    • dunstonh
    • By dunstonh 15th Mar 19, 11:59 PM
    • 97,994 Posts
    • 66,156 Thanks
    dunstonh
    Since I retired an elderly former client has entered into equity release, releasing half the value of his home. In less than a year £18,000 of interest has accrued.
    Interest is normal on debts. That should not be a surprise.

    He would have been better to have taken out an interest only mortgage at 3.99% offered by one of the northern building societies
    And which building society would that be?

    and kept up interest payments from his pension, rather than letting it roll up at a ridiculous compound rate through equity release.
    He can still pay down the debt on an equity release mortgage. Modern Equity release is far more flexible than legacy equity release.

    My advice - don't touch equity release unless you are absolutely desperate.
    It is generally considered as an option of last resort.

    Downsize first.
    Not always easy. By the time you pay stamp duty and other costs of moving, you rarely get an amount that is worthwhile.

    Take an interest only mortgage specifically marketed for the elderly - there is at least one currently available.
    Lots of lenders will lend to those that can repay the mortgage through pension. However, interest only? Which lender is doing new interest-only mortgages for residential borrowers?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Linton
    • By Linton 16th Mar 19, 10:31 AM
    • 10,585 Posts
    • 10,939 Thanks
    Linton
    .....


    Lots of lenders will lend to those that can repay the mortgage through pension. However, interest only? Which lender is doing new interest-only mortgages for residential borrowers?
    Originally posted by dunstonh
    ???

    Several companies do interest only lifetime mortgages where the capital is repaid when the house is eventually sold. What is the benefit in dying with £n00K tied up inaccessibly in bricks if there are no dependents or other relatives with justifiable expectations of a large inheritance? Also I guess it will relieve the executor of the hassle of selling the house.


    Like any debt ER can be dangerous for people who desparately need the money, but for those that dont it seems a useful financial management facility.
    • dunstonh
    • By dunstonh 16th Mar 19, 12:26 PM
    • 97,994 Posts
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    dunstonh
    Several companies do interest only lifetime mortgages where the capital is repaid when the house is eventually sold.
    Indeed they do. It is called equity release. it is just one of the variations that exist today. However, the previous poster was saying those mortgages are the next missale. He was saying they should take out residential interest-only mortgages instead. Not equity release.
    Last edited by dunstonh; 16-03-2019 at 12:47 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • reeac
    • By reeac 16th Mar 19, 1:48 PM
    • 1,308 Posts
    • 524 Thanks
    reeac
    I am a retired financial adviser. Once asked by a client to advise on Equity Release. After researching all the available plans I had to advise him against Equity Release. If he wanted to proceed, it certainly wasn't going to be through my agency. I wasn't prepared to risk my reputation. In my view, Equity Release is one of the biggest con tricks going. Don't touch it. Since I retired an elderly former client has entered into equity release, releasing half the value of his home. In less than a year £18,000 of interest has accrued. He would have been better to have taken out an interest only mortgage at 3.99% offered by one of the northern building societies, and kept up interest payments from his pension, rather than letting it roll up at a ridiculous compound rate through equity release. My advice - don't touch equity release unless you are absolutely desperate. Downsize first. Take an interest only mortgage specifically marketed for the elderly - there is at least one currently available. Do the maths.
    Originally posted by Onesipherous
    I agree with your suggested order of priorities. We downsized....by a factor of 3 financially by selling a big posh house in what had become a boom town with all the associated traffic problems to a new smaller place with plenty of land and a very pleasant environment. The arguments about greedy children wanting their inheritances and about dreaded stamp duty sound like justifications dreamed up by the ER marketing people. The big issue is the COStS associated with ET.
    • dunstonh
    • By dunstonh 16th Mar 19, 2:05 PM
    • 97,994 Posts
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    dunstonh
    The arguments about greedy children wanting their inheritances and about dreaded stamp duty sound like justifications dreamed up by the ER marketing people.
    The difference between a 4 bed estate style house and 2 bed estate style house is about £80,000 in our area. Factor in the costs of moving and stamp duty and you do not end up with much.

    A lot of people who plan to downsize suffer a reality check when it often means having to go from a nice area to a poor area with low standards and higher crime or just seeing the reality of a tiny bedroom and living rooms compared to what they have.

    Downsizing can be an option but its not an option for all. You are very naive if you think it is suitable for everyone.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • bostonerimus
    • By bostonerimus 16th Mar 19, 3:12 PM
    • 2,823 Posts
    • 2,140 Thanks
    bostonerimus
    As a matter of principle I avoid loans, equity release etc. I hate to pay anyone interest and for me financial independence means not having to worrry about paying anything to loan or mortgage companies. However, habits of borrowing to fund a lifestyle learned while working are often taken into retirement and that can be finically dangerous.
    Misanthrope in search of similar for mutual loathing
    • reeac
    • By reeac 16th Mar 19, 3:51 PM
    • 1,308 Posts
    • 524 Thanks
    reeac
    Not sure about being naive ....I'd just like to level the playing field, given the amount of advertising of ER in the Press.
    • Linton
    • By Linton 16th Mar 19, 4:12 PM
    • 10,585 Posts
    • 10,939 Thanks
    Linton
    Indeed they do. It is called equity release. it is just one of the variations that exist today. However, the previous poster was saying those mortgages are the next missale. He was saying they should take out residential interest-only mortgages instead. Not equity release.
    Originally posted by dunstonh

    Is there any difference for practical purposes other than the criteria for ending the loan? ER being more appropriate for a retired person who is unlikely to have more liquid assets available near end of life to repay a martgage than were available early on.
    • Linton
    • By Linton 16th Mar 19, 4:30 PM
    • 10,585 Posts
    • 10,939 Thanks
    Linton
    As a matter of principle I avoid loans, equity release etc. I hate to pay anyone interest and for me financial independence means not having to worrry about paying anything to loan or mortgage companies. However, habits of borrowing to fund a lifestyle learned while working are often taken into retirement and that can be finically dangerous.
    Originally posted by bostonerimus

    I do not understand why leaving behind an asset that possibly represents more than half your wealth is better in principle than making arrangements to spend some of it. It could be justified if you wanted that wealth to be passed onto your decendents but in other circumstances possibly not. In some circumstances it could be dangerous in others less so.


    In our circumstances we used ER to enable us to trade up whilst retaining the flexibility given by significant investment holdings. Over time inflation should steadily reduce the risks.
    • dunstonh
    • By dunstonh 16th Mar 19, 4:48 PM
    • 97,994 Posts
    • 66,156 Thanks
    dunstonh
    Not sure about being naive ....I'd just like to level the playing field, given the amount of advertising of ER in the Press.
    Originally posted by reeac
    I do have to agree that what advisers are expected to do vs how you see providers advertise is a world apart. Advisers are all "last resort" option and adverts are all go for it.

    Is there any difference for practical purposes other than the criteria for ending the loan?
    There probably shouldnt be but there is. Residential mortgages have different regulation and requirements to equity release. The MMR virtually killed interest only off apart from buy to lets or existing repayment vehicles.

    It used to be said that mortgage lenders expect to be paid back in 25 years. Whereas equity release could go on for 40 years. That is why the insurers are more active with equity release than banks or building societies. Banks are all for now. Insurers for the long term. I personally dont think it should make a difference today as mortgages now creep to 30+ years. However, it does.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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