Equity Release options??
Discussion
My father has been looking into some equity release to help my brother get a deposit together for a property purchase.
Has anyone done this?
Know who to use?
Who to avoid?
What sort of rate?
Best to pay the interest so it is only the capital chunk at the end?
I am very against this being done, but he seems to want to do it, so looking for a bit of advice to give him before he makes a huge mistake.
Has anyone done this?
Know who to use?
Who to avoid?
What sort of rate?
Best to pay the interest so it is only the capital chunk at the end?
I am very against this being done, but he seems to want to do it, so looking for a bit of advice to give him before he makes a huge mistake.
An elderly friend of my parents did this. Be very careful. The contract will stipulate how the property has to be maintained. Painted inside every 5 years, outside every 3 years. All gutters, fascia boards, roof maintained. Chimney swept. Things that elderly people may be less inclined to do as they get older, but if they don't do it, they are breaking the contract.
If there is any way to avoid it, do.
If there is any way to avoid it, do.
RicksAlfas said:
The contract will stipulate how the property has to be maintained. Painted inside every 5 years, outside every 3 years. All gutters, fascia boards, roof maintained. Chimney swept.
If there is any way to avoid it, do.
Which company has this in their terms then? I've had a bit to do with various firm's equity release T&Cs but I've never seen anything close to being this prescriptive or onerous regarding the upkeep of the property. Usually it's not much more than 'the property must be kept in a good state of repair'.If there is any way to avoid it, do.
Agree with the last bit though!
Roger Irrelevant said:
Which company has this in their terms then? I've had a bit to do with various firm's equity release T&Cs but I've never seen anything close to being this prescriptive or onerous regarding the upkeep of the property. Usually it's not much more than 'the property must be kept in a good state of repair'.
Agree with the last bit though!
I don't know their name, as my Dad dealt with it all, but he commented how onerous it was. The old woman who had signed up to it didn't know what she was letting herself in for. This was back in the early 2000s though, so maybe they are not as bad now. The company made a mint from it though. 90% of a house from 15 years ago is a lot different to the 90% they got in 2016 when it was sold! Agree with the last bit though!
Thanks all.
They won't downsize, they only moved last year and just spent fortunes getting it how they want it, completely guttted the place and they love it.
They have added £120k to the value, hence why he is considering it.
I guess his thinking is "We are leaving it all to you two anyway, if you want to take £40k each now it doesn't bother me."
The figures he was looking at was a lump release of £80,000, which over 20 years fixed at 3.4% apr meant we would owe them £131k. Will the house have increased in value over 20 years by more than £131,000? I would like to think so. It is worth around £450k now.
What he asked is "Would £40k be more useful to you now than £55k in 20 years time?"
The answer to that was "Well, yeah."
They won't downsize, they only moved last year and just spent fortunes getting it how they want it, completely guttted the place and they love it.
They have added £120k to the value, hence why he is considering it.
I guess his thinking is "We are leaving it all to you two anyway, if you want to take £40k each now it doesn't bother me."
The figures he was looking at was a lump release of £80,000, which over 20 years fixed at 3.4% apr meant we would owe them £131k. Will the house have increased in value over 20 years by more than £131,000? I would like to think so. It is worth around £450k now.
What he asked is "Would £40k be more useful to you now than £55k in 20 years time?"
The answer to that was "Well, yeah."
Edited by gizlaroc on Monday 15th May 11:44
red_slr said:
So do they not have to make any repayments?
My in-laws did one a few years ago, and in rough terms they got a lump sum of 25% of the property's value in return for surrendering 50% of it on resale. They didn't have to make any payments.Snag was, not long after they did this, MIL became ill and subsequently died. FIL didn't want to stay in the house, partly for sentimental reasons, but also because it had a big, high maintenance, garden, which had really been MIL's thing.
The outstanding amount could have been transferred to the new property but it would have meant the lender owned nearly all of it. He ended settling the loan and we had a whip round in the family so he had enough to buy another property.
sidicks said:
red_slr said:
So do they not have to make any repayments?
There are various different versions that include interest roll-up, paying interest only, paying interest plus repayment etc.Sheepshanks said:
My in-laws did one a few years ago, and in rough terms they got a lump sum of 25% of the property's value in return for surrendering 50% of it on resale. They didn't have to make any payments.
Snag was, not long after they did this, MIL became ill and subsequently died. FIL didn't want to stay in the house, partly for sentimental reasons, but also because it had a big, high maintenance, garden, which had really been MIL's thing.
The outstanding amount could have been transferred to the new property but it would have meant the lender owned nearly all of it. He ended settling the loan and we had a whip round in the family so he had enough to buy another property.
Not sure I understand this - say property worth £400k, they gave him £100k and want £200k or half when sold so if he sold up for a smaller house he would still have 75% of what the old house was worth - so why the whip round ? Snag was, not long after they did this, MIL became ill and subsequently died. FIL didn't want to stay in the house, partly for sentimental reasons, but also because it had a big, high maintenance, garden, which had really been MIL's thing.
The outstanding amount could have been transferred to the new property but it would have meant the lender owned nearly all of it. He ended settling the loan and we had a whip round in the family so he had enough to buy another property.
Dermot O'Logical said:
My parents took one from Norwich Union (now Aviva) in 2003, interest accrues at 7.5%p.a. and is fixed.
The original £40k loan has now become £120k.
Avoid at all costs, or at least cover the interest.
Why did they choose the fixed rate option and not a floating rate?The original £40k loan has now become £120k.
Avoid at all costs, or at least cover the interest.
The fact is, you wouldn't normally offer a loan to someone who has no income to repay it.
Hence the only solution for those in retirement is for a lender to take a charge on an asset. Even then, particularly where interest is being rolled up, the lender faces increased exposure to property and has no certainty as to if / when the loan will be repaid.
Plus of course, the nature of the regulation around these products means that expenses are high.
DSLiverpool said:
Not sure I understand this - say property worth £400k, they gave him £100k and want £200k or half when sold so if he sold up for a smaller house he would still have 75% of what the old house was worth - so why the whip round ?
You're assuming he still had the £100K? There's not much point in doing equity release only to hang on to the money! In practice he didn't drop very much in terms of value of the house, but part of that was he let his old house go too easily - it was a bit unusual and could easily have stuck and he just wanted out of it.
He has an attitude to money which is different to mine - if he wants something (mainly these days that's cruising holidays) he just buys it. He has no savings and his current account floats from a few £K o/d to a few £K positive. He thinks that's fine as he has a chunky final salary pension so it evens itself out over time.
What we arranged was an interest only mortgage on the shortfall. We (family) pay it, but he gives everyone a cheque at Christmas which more than covers it.
gizlaroc said:
Thanks all.
The figures he was looking at was a lump release of £80,000, which over 20 years fixed at 3.4% apr meant we would owe them £111k.
If that's right then it's a very low rate indeed. The usual advice to not touch ER with a bargepole comes primarily from the fact that the interest rates tend to be quite high, and there is a good reason for that (the lender doesn't know when they'll be repaid, how much they'll be repaid, or whether any no-negative-equity-guarantees will bite). This means that rates of 5-6% are typical at the moment, and because people are generally crap at maths they don't understand how this compounds over time. The difference between 3.4% and 6% is massive though, certainly enough to make ER a sensible choice for a lot more people.The figures he was looking at was a lump release of £80,000, which over 20 years fixed at 3.4% apr meant we would owe them £111k.
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