Equity Release Schemes
Discussion
After some advice/experience on equity release schemes.
My father in law has finally retired at 74 however the state pension and small private pension he receives are leaving him approx. £300 p/m short of living a comfortable life (i.e. bills paid and some left over).
He owns his property outright (value of c.£350k) so he has mentioned the idea of using one of those equity release schemes to untie some of the capital and use this to top up his pension. There appears to be a couple of variations on these, some give a one off lump sum and others pay a monthly 'income'.
I presume that either way you are incurring a debt secured against the property with compound interest/fees being incurred that is then settled when the property is sold (with the sum owing being significant).
If anyone had any direct experiences then It would be good to hear them, he deserves to have a good retirement and I really don't want him to get conned.....
My father in law has finally retired at 74 however the state pension and small private pension he receives are leaving him approx. £300 p/m short of living a comfortable life (i.e. bills paid and some left over).
He owns his property outright (value of c.£350k) so he has mentioned the idea of using one of those equity release schemes to untie some of the capital and use this to top up his pension. There appears to be a couple of variations on these, some give a one off lump sum and others pay a monthly 'income'.
I presume that either way you are incurring a debt secured against the property with compound interest/fees being incurred that is then settled when the property is sold (with the sum owing being significant).
If anyone had any direct experiences then It would be good to hear them, he deserves to have a good retirement and I really don't want him to get conned.....
blue_haddock said:
rather than equity release could he not downsize to a smaller/cheaper property and use the left over cash to top up his pension?
That was our original suggestion, however he is unwilling to give up on the space he has (its detached). The value of the property is limited as its not in a great state of repair which means he is restricted to the type of property he could then afford to downsize to.Its frustrating as it is the obvious suggestion and not doing it limits his options.
I might suggest he gets a estate agent round to value it as I may be off in my estimation.
My parents were in (relatively) poor health in 2003, when they decided that an Equity Release loan would be a good idea, to do some home improvements, go on a cruise, etc.
My sister and I had misgivings, we both worked in banking, and knew what the effect of compound interest would be, but we agreed that they had worked all of their lives, and deserved to make the most of what remained of their retirement. Neither of us thought that they would live too much longer at that point.
They did. A loan of £40k in 2003 became £140k in 2019 when Dad was in a home suffering from dementia, and mother passed away.
You can guess my opinion of Equity Release loans...
My sister and I had misgivings, we both worked in banking, and knew what the effect of compound interest would be, but we agreed that they had worked all of their lives, and deserved to make the most of what remained of their retirement. Neither of us thought that they would live too much longer at that point.
They did. A loan of £40k in 2003 became £140k in 2019 when Dad was in a home suffering from dementia, and mother passed away.
You can guess my opinion of Equity Release loans...
Dermot O'Logical said:
My parents were in (relatively) poor health in 2003, when they decided that an Equity Release loan would be a good idea, to do some home improvements, go on a cruise, etc.
My sister and I had misgivings, we both worked in banking, and knew what the effect of compound interest would be, but we agreed that they had worked all of their lives, and deserved to make the most of what remained of their retirement. Neither of us thought that they would live too much longer at that point.
They did. A loan of £40k in 2003 became £140k in 2019 when Dad was in a home suffering from dementia, and mother passed away.
You can guess my opinion of Equity Release loans...
Sorry to hear your experience, I appear to have the same misgivings you had. My sister and I had misgivings, we both worked in banking, and knew what the effect of compound interest would be, but we agreed that they had worked all of their lives, and deserved to make the most of what remained of their retirement. Neither of us thought that they would live too much longer at that point.
They did. A loan of £40k in 2003 became £140k in 2019 when Dad was in a home suffering from dementia, and mother passed away.
You can guess my opinion of Equity Release loans...
I ran a quick simple calculation that looked at borrowing £100k over an assumed 10 years period with a 5% compound interest rate, this came to £163k, so it will end up costing him over £500 a month (flattened over the time of the loan) to receive a £830 income (again flattened out to presume he pays himself the same amount each month over the 10 years). By 15 year the debt will be over £200k......
Krupp88 said:
Sorry to hear your experience, I appear to have the same misgivings you had.
I ran a quick simple calculation that looked at borrowing £100k over an assumed 10 years period with a 5% compound interest rate, this came to £163k, so it will end up costing him over £500 a month (flattened over the time of the loan) to receive a £830 income (again flattened out to presume he pays himself the same amount each month over the 10 years). By 15 year the debt will be over £200k......
It is obvious how 5% compounded interest added to the original amount borrowed becomes a large amount of money in a few years. Personally I don't understand how anybody would agree to this unless they literally have nobody to leave the money to and can't do simple maths.I ran a quick simple calculation that looked at borrowing £100k over an assumed 10 years period with a 5% compound interest rate, this came to £163k, so it will end up costing him over £500 a month (flattened over the time of the loan) to receive a £830 income (again flattened out to presume he pays himself the same amount each month over the 10 years). By 15 year the debt will be over £200k......
My uncle and aunty are in their 70s and have just done the same thing, using the equity release to do the extension they have always wanted. They have children who told them to do it as "they don't need the inheritance", but it just seems a crazy thing to do. They have essentially used their house to borrow money to improve the value of the house that they will be eventually giving to the equity release company.
I think this is going to be the next PPI scandal. I can forsee a story in the Daily Mail with a picture of a woman with a sad compo face. She will be going on about how granny didn't know what she was signing, even though she pissed the money up the wall on holidays to Gambia and a new Ford Fiesta. Going on about how granny has only just died and the nasty company are trying to take HER house away, the one she should be inheriting.
Can your wife not agree with her dad to give him the £300 a month in return for leaving the house to her?
Joey Deacon said:
Can your wife not agree with her dad to give him the £300 a month in return for leaving the house to her?
That's looking like a far more sensible option, or we take a loan/remortgage out for a lump sum to give him in return for that share in his house (currently his will is structured to pass one third to grandchildren, and then a third each to his two daughters, so that calculation would be the estate value minus the loan amount which would go to my wife). Joey Deacon said:
It is obvious how 5% compounded interest added to the original amount borrowed becomes a large amount of money in a few years. Personally I don't understand how anybody would agree to this unless they literally have nobody to leave the money to and can't do simple maths.
My uncle and aunty are in their 70s and have just done the same thing, using the equity release to do the extension they have always wanted. They have children who told them to do it as "they don't need the inheritance", but it just seems a crazy thing to do. They have essentially used their house to borrow money to improve the value of the house that they will be eventually giving to the equity release company.
I think this is going to be the next PPI scandal. I can forsee a story in the Daily Mail with a picture of a woman with a sad compo face. She will be going on about how granny didn't know what she was signing, even though she pissed the money up the wall on holidays to Gambia and a new Ford Fiesta. Going on about how granny has only just died and the nasty company are trying to take HER house away, the one she should be inheriting.
Can your wife not agree with her dad to give him the £300 a month in return for leaving the house to her?
It's an odd market. Children who say they don't need the money but haven't the money to help them. Selling half the home and the new owner getting them to then use that money to refurb and uplift them asset for them for free!My uncle and aunty are in their 70s and have just done the same thing, using the equity release to do the extension they have always wanted. They have children who told them to do it as "they don't need the inheritance", but it just seems a crazy thing to do. They have essentially used their house to borrow money to improve the value of the house that they will be eventually giving to the equity release company.
I think this is going to be the next PPI scandal. I can forsee a story in the Daily Mail with a picture of a woman with a sad compo face. She will be going on about how granny didn't know what she was signing, even though she pissed the money up the wall on holidays to Gambia and a new Ford Fiesta. Going on about how granny has only just died and the nasty company are trying to take HER house away, the one she should be inheriting.
Can your wife not agree with her dad to give him the £300 a month in return for leaving the house to her?
But this doesn't put the lender at fault. The only way it's worth taking a punt on how quickly the client will drop dead is if you factor in a lot of fat to hedge against the b
ds who don't die quickly enough. 
. And few people are missild. You don't even need to miss sell. The slight seat whiff of free shopping tokens and most potentially customers will be salivating. The fact that the sales schpeal involves being able to get the speedboat, car with extra letters under the better than the neighbours badge and the holiday they don't need, ells you who the buyers mostly are. Shopaholic t
ts who had a lifetime to save but pissed it away. The flipside is that where it does have a value is among those who worked for low pay where saving wasn't actually an option and through no fault of their own have ended up in a modest home with a silly price tag. Cashing that accidental gain in so as to have a peaceful and happy retirement is almost a no brainer if there is no need or desire to leave anything behind.
It also has a benefit if you can't logically downsize any further.
What's awkward about equity release is that in a nutshell you are selling your home and in return getting f
k all for it while also having to continue to pay all the runnings costs. In my eyes it's an absolute last resort, emergency transaction. DonkeyApple said:
What's awkward about equity release is that in a nutshell you are selling your home and in return getting fk all for it while also having to continue to pay all the runnings costs. In my eyes it's an absolute last resort, emergency transaction.
I think the world has changed since the 8% compound interest example mentioned above. If you think of it as a longevity swap with no ability to repossess before death and no ability for negative equity to pollute the rest of the estate, it starts to look more attractive at today's low/mid single digit interest rates.k all for it while also having to continue to pay all the runnings costs. In my eyes it's an absolute last resort, emergency transaction. Where the industry is going is the RIO product where the interest is paid current (but PIK'able given that the customers are or will become vulnerable), which at least avoids the sticker shock of 10+ years of rolled-up interest.
Joey Deacon said:
It is obvious how 5% compounded interest added to the original amount borrowed becomes a large amount of money in a few years. Personally I don't understand how anybody would agree to this unless they literally have nobody to leave the money to and can't do simple maths.
My uncle and aunty are in their 70s and have just done the same thing, using the equity release to do the extension they have always wanted. They have children who told them to do it as "they don't need the inheritance", but it just seems a crazy thing to do. They have essentially used their house to borrow money to improve the value of the house that they will be eventually giving to the equity release company.
I think this is going to be the next PPI scandal. I can forsee a story in the Daily Mail with a picture of a woman with a sad compo face. She will be going on about how granny didn't know what she was signing, even though she pissed the money up the wall on holidays to Gambia and a new Ford Fiesta. Going on about how granny has only just died and the nasty company are trying to take HER house away, the one she should be inheriting.
Can your wife not agree with her dad to give him the £300 a month in return for leaving the house to her?
Quite. In our case the interest was compounding at 7.5%. And we fervently hope that Equity Release becomes the next PPI scandal, we'll be at the front of the queue, practicing our "compo" faces. Strong emotions well up inside me whenever that smarmy git Eamonn Holmes appears on TV telling the old and gullible that they could "re-open the Bank of Mum and Dad". My uncle and aunty are in their 70s and have just done the same thing, using the equity release to do the extension they have always wanted. They have children who told them to do it as "they don't need the inheritance", but it just seems a crazy thing to do. They have essentially used their house to borrow money to improve the value of the house that they will be eventually giving to the equity release company.
I think this is going to be the next PPI scandal. I can forsee a story in the Daily Mail with a picture of a woman with a sad compo face. She will be going on about how granny didn't know what she was signing, even though she pissed the money up the wall on holidays to Gambia and a new Ford Fiesta. Going on about how granny has only just died and the nasty company are trying to take HER house away, the one she should be inheriting.
Can your wife not agree with her dad to give him the £300 a month in return for leaving the house to her?
thebraketester said:
Terrible idea and they should be banned.
I think there is a value to it and a logic when you look at it from particular perspectives. The average 70 year old arguably paid very little for the property and cleared any mortgage in their 50s yet they find themselves sitting in a home with a comedy valuation so in fairness, why not cash in that enormous premium and live better for the next 15-20 years?Of course there are those who also paid very little and cleared their mortgage in their 50s but then instead of banking those mortgage payment amounts going forward to pay for their retirement used that free income to have a higher standard of living which in order to maintain post retirement requires equity release but these are adult life choices and the financial services industry is merely supplying the tools.
I suspect the likes of Aviva et al have invested robustly in dotting the i's and crossing the t's precisely because selling products to the elderly is easy to be dodgy with.
I'd also say that given the nature of property types in the UK, many people would prefer to trade away their equity in order to stay in a nice three bed location/environment than downsize to smaller properties which tend to be in less pleasant areas if they are to release enough money. Not many people would sanely opt to move from a 3 star property in a 4 star area to a 2star property in a 2 star area if they had any other choice?
I love the advert, it is very catchy.
https://www.youtube.com/watch?v=aZvOO4CNkII
Also the mum was in the Benny Hill show and it is enforcing the get married, buy a house and instantly have children indoctrination.
10/10
https://www.youtube.com/watch?v=aZvOO4CNkII
Also the mum was in the Benny Hill show and it is enforcing the get married, buy a house and instantly have children indoctrination.
10/10
One thing to take into account is the possibility that house prices might continue their upward trend of the last 50 years or so, so the increase in value goes someway to offset the compound interest on the amount released.
This could mean that the residual inheritance value could still be the same as the current value or certainly not offset by the full amount of accrued interest.
Values can go down of course.
This could mean that the residual inheritance value could still be the same as the current value or certainly not offset by the full amount of accrued interest.
Values can go down of course.
Carbon Sasquatch said:
Who will inherit the house ?
Seems like its time for a conversation with the collective beneficiaries about the options. However, that would have to also cover potential future nursing care or home costs.
Anything you can do to cut out the middle man has got to be a winner.
The estate would be split into thirds, one to the grandchildren, and one each to my wife and her sister so not a complex arrangement. Seems like its time for a conversation with the collective beneficiaries about the options. However, that would have to also cover potential future nursing care or home costs.
Anything you can do to cut out the middle man has got to be a winner.
Father in law worked hard to buy the house (and almost lost it during the late 80's recession) so it would be a shame to see a chunk of value lost over a relatively small income shortfall (the £300 or so a month he thinks he will be short).
DonkeyApple said:
I think there is a value to it and a logic when you look at it from particular perspectives. The average 70 year old arguably paid very little for the property and cleared any mortgage in their 50s yet they find themselves sitting in a home with a comedy valuation so in fairness, why not cash in that enormous premium and live better for the next 15-20 years?
Of course there are those who also paid very little and cleared their mortgage in their 50s but then instead of banking those mortgage payment amounts going forward to pay for their retirement used that free income to have a higher standard of living which in order to maintain post retirement requires equity release but these are adult life choices and the financial services industry is merely supplying the tools.
I suspect the likes of Aviva et al have invested robustly in dotting the i's and crossing the t's precisely because selling products to the elderly is easy to be dodgy with.
I'd also say that given the nature of property types in the UK, many people would prefer to trade away their equity in order to stay in a nice three bed location/environment than downsize to smaller properties which tend to be in less pleasant areas if they are to release enough money. Not many people would sanely opt to move from a 3 star property in a 4 star area to a 2star property in a 2 star area if they had any other choice?
Indeed. Plenty of logic is some circumstances.Of course there are those who also paid very little and cleared their mortgage in their 50s but then instead of banking those mortgage payment amounts going forward to pay for their retirement used that free income to have a higher standard of living which in order to maintain post retirement requires equity release but these are adult life choices and the financial services industry is merely supplying the tools.
I suspect the likes of Aviva et al have invested robustly in dotting the i's and crossing the t's precisely because selling products to the elderly is easy to be dodgy with.
I'd also say that given the nature of property types in the UK, many people would prefer to trade away their equity in order to stay in a nice three bed location/environment than downsize to smaller properties which tend to be in less pleasant areas if they are to release enough money. Not many people would sanely opt to move from a 3 star property in a 4 star area to a 2star property in a 2 star area if they had any other choice?
We will have no one to leave anything to. But far the most valuable thing we have is the house. Sure, got pensions too, but after Major screwed it up, and Gordon stole the rest, frankly, theres not a lot left. With hindsight we could have made different decisions. But didnt.
Given i cant know how long life will be, its a useful backup in the event the other monies run out.
I cant for a moment imagine that, at , say 80, id want the upheaval of moving house and downsizing, which will, inevitably mean somewhere "less nice".
They have there place. The real issue is dodge selling practices. The finance industry it seems has zero morals, and also doesnt learn. Just move from one misselling idea to another. Fix that, dont take away a valid option.
Krupp88 said:
The estate would be split into thirds, one to the grandchildren, and one each to my wife and her sister so not a complex arrangement.
Father in law worked hard to buy the house (and almost lost it during the late 80's recession) so it would be a shame to see a chunk of value lost over a relatively small income shortfall (the £300 or so a month he thinks he will be short).
Tough one - £150/month each, inflation linked for maybe 20 years.Father in law worked hard to buy the house (and almost lost it during the late 80's recession) so it would be a shame to see a chunk of value lost over a relatively small income shortfall (the £300 or so a month he thinks he will be short).
I'd likely roll the dice & pay it, but your SiL also needs to commit & you both need to be sure it's long term sustainable.
monkfish1 said:
I cant for a moment imagine that, at, say 80, id want the upheaval of moving house and downsizing, which will, inevitably mean somewhere "less nice".
It happens all the time though. People move from houses to smaller houses to warden-controlled flats and finally to care homes. At some stage of decrepitude you are less bothered by having space for your gym equipment and hot tub and it's more important that you don't have to walk too far between the TV, kettle and bathroom, which are ideally all on the same floor as your bedroom.Gassing Station | Finance | Top of Page | What's New | My Stuff