Is equity release a scam?
Discussion
The older the borrower the higher the LTV can be.
Needs specialist broker and solicitor who involve not only the mortgagor but also their potential inheritors and other immediate family.
Obviously some scenarios are much simpler than others, but the potential for creating massive family acrimony is enormous and the specialists should be able to identify potential pitfalls and address them appropriately.
In my M-I-L's case had either her rich sister or her daughter been aware she was intending to take this loan they would have put a stop to it as soon as they'd been told about it. Caused considerable acrimony in the family to say the least. Poor old lady hasn't a clue about the ins and outs of it and really only did it "to help out her son".
Needs specialist broker and solicitor who involve not only the mortgagor but also their potential inheritors and other immediate family.
Obviously some scenarios are much simpler than others, but the potential for creating massive family acrimony is enormous and the specialists should be able to identify potential pitfalls and address them appropriately.
In my M-I-L's case had either her rich sister or her daughter been aware she was intending to take this loan they would have put a stop to it as soon as they'd been told about it. Caused considerable acrimony in the family to say the least. Poor old lady hasn't a clue about the ins and outs of it and really only did it "to help out her son".
Edited by drainbrain on Tuesday 9th January 00:16
drainbrain said:
The older the borrower the higher the LTV can be.
Needs specialist broker and solicitor who involve not only the mortgagor but also their potential inheritors and other immediate family.
Obviously some scenarios are much simpler than others, but the potential for creating massive family acrimony is enormous and the specialists should be able to identify potential pitfalls and address them appropriately.
In my M-I-L's case had either her rich sister or her daughter been aware she was intending to take this loan they would have put a stop to it as soon as they'd been told about it. Caused considerable acrimony in the family to say the least. Poor old lady hasn't a clue about the ins and outs of it and really only did it "to help out her son".
Not really, it's got FA to do with the potential inheritors until the old dears croak. It should be entirely up to them if they want to cash in some of the equity they've got in their home for a more comfortable retirement. Unless of course they are of unsound mind, and not capable of understanding the product and making the decision properly, wouldn't that come under misselling laws if the salesman/broker ignored signs of that?Needs specialist broker and solicitor who involve not only the mortgagor but also their potential inheritors and other immediate family.
Obviously some scenarios are much simpler than others, but the potential for creating massive family acrimony is enormous and the specialists should be able to identify potential pitfalls and address them appropriately.
In my M-I-L's case had either her rich sister or her daughter been aware she was intending to take this loan they would have put a stop to it as soon as they'd been told about it. Caused considerable acrimony in the family to say the least. Poor old lady hasn't a clue about the ins and outs of it and really only did it "to help out her son".
Edited by drainbrain on Tuesday 9th January 00:16
I know some old people live a very frugal retirement, so as to leave as much as possible to their offspring, which is nice as long as they are happy with it. But kids and grand kids circulating like vultures, trying to talk their parents out of doing something because it'll affect their inheritance is not a pleasant thought. What if granny wants to go on a cruise that she otherwise couldn't afford?
I'm sure that in a lot of scenarios, equity release isn't the most monetary efficient route, but it might be the only route. It'd be nice for people to discuss it with their kids first (if the kids are reasonable comfortable, they might be able to buy some equity in their parents home themselves, which could be a better solution all round), but it shouldn't be a requirement.
CarlosFandango11 said:
Monkeylegend said:
It's a lifetime mortgage which allows you to live in the house until you are no more, then the outstanding balance is paid out of your estate before your children get their greedy mits on their inheritance.
The trouble is that even at low interest rates running at 3-4%, the amount you borrow plus compounded interest will very quickly grow, so if you take say £50kin equity, in 10 years time or so you will owe £100k ish.
They do guarantee that the amount to be paid back will never exceed the value of your house, but unless house prices rise significantly, and you live to the ripe old age of 90 or so there will be nothing left to gift to your children.
You're wrong on this and you clearly don't have any experience of these products.The trouble is that even at low interest rates running at 3-4%, the amount you borrow plus compounded interest will very quickly grow, so if you take say £50kin equity, in 10 years time or so you will owe £100k ish.
They do guarantee that the amount to be paid back will never exceed the value of your house, but unless house prices rise significantly, and you live to the ripe old age of 90 or so there will be nothing left to gift to your children.
The lender does not want the guarantee to bite - that's where they lose out financially. So the loan-to-value is very low compared to a normal mortgage, around 25% at age 60. Hence the guarantee is very unlikely to bite even with zero house price inflation if you were to die at 90.
fixed interest rates are available.
They do provide that guarantee though but it is unlikely you would reach that point.My parents took out an equity release to extend and improve their house about 11 years ago. Dad died last year, mum has just sold the house to move into a retirement apartment (another potential money pit, but it's what she wants to do).
They borrowed £65k, she had to pay back £145k. This means she effectively sold the much improved house for less than the original purchase price 13 years ago. With hindsight it wasn't a good idea, but it meant they could live in their dream house.
It's a shame they didn't tell us what they did until the loan was well over £100k, as my brother and I could have lent them the initial £65k in exchange for a share of the property, putting mum in a much better position at sale time.
No scam, just a poor choice as things worked out (low house price inflation relative to loan interest rate, mum outliving dad and wanting to sell).
They borrowed £65k, she had to pay back £145k. This means she effectively sold the much improved house for less than the original purchase price 13 years ago. With hindsight it wasn't a good idea, but it meant they could live in their dream house.
It's a shame they didn't tell us what they did until the loan was well over £100k, as my brother and I could have lent them the initial £65k in exchange for a share of the property, putting mum in a much better position at sale time.
No scam, just a poor choice as things worked out (low house price inflation relative to loan interest rate, mum outliving dad and wanting to sell).
Monkeylegend said:
Point out to me where I said they wanted the guarantee to bite They do provide that guarantee though but it is unlikely you would reach that point.
I'm not saying that you said that they want the guarantee to bite. They do provide that guarantee though but it is unlikely you would reach that point.I'm saying that you're completely wrong where you stated the guarantee will bite without significant house price inflation:
Monkeylegend said:
They do guarantee that the amount to be paid back will never exceed the value of your house, but unless house prices rise significantly, and you live to the ripe old age of 90 or so there will be nothing left to gift to your children.
CarlosFandango11 said:
Monkeylegend said:
Point out to me where I said they wanted the guarantee to bite They do provide that guarantee though but it is unlikely you would reach that point.
I'm not saying that you said that they want the guarantee to bite. They do provide that guarantee though but it is unlikely you would reach that point.I'm saying that you're completely wrong where you stated the guarantee will bite without significant house price inflation:
Monkeylegend said:
They do guarantee that the amount to be paid back will never exceed the value of your house, but unless house prices rise significantly, and you live to the ripe old age of 90 or so there will be nothing left to gift to your children.
All I am saying is that they give a guarantee that you will never have to pay back more than the market price of the house when the mortgage repayment becomes due, even if the outstanding accrued mortgage is higher than the house value.
This situation is unlikely, as you say they limit the amount of equity you can release depending on age at the time of taking out the lifetime mortgage.
However if you managed to live long enough to get a telegram from the Queen or probably King it could happen.
Monkeylegend said:
Either I have worded it badly or you are reading it wrong, probably me, but ignore the bit re house price inflation, I probably should not have mentioned that.
All I am saying is that they give a guarantee that you will never have to pay back more than the market price of the house when the mortgage repayment becomes due, even if the outstanding accrued mortgage is higher than the house value.
This situation is unlikely, as you say they limit the amount of equity you can release depending on age at the time of taking out the lifetime mortgage.
However if you managed to live long enough to get a telegram from the Queen or probably King it could happen.
Fair enough.All I am saying is that they give a guarantee that you will never have to pay back more than the market price of the house when the mortgage repayment becomes due, even if the outstanding accrued mortgage is higher than the house value.
This situation is unlikely, as you say they limit the amount of equity you can release depending on age at the time of taking out the lifetime mortgage.
However if you managed to live long enough to get a telegram from the Queen or probably King it could happen.
One point to note is that the mortgage is also repaid if the borrower moves into long term care.
davhill said:
Thank you for the input so far.
OK, here's the situation. I live in house 1 and let the ground floor as holiday accommodation in The Lakes. This is a stone built two bed detached house, with an en-suite bathroom and an en-suite shower room downstairs. I live upstairs and the majority of guests are happy about it.
Now, the house is my parents' legacy. With financial help from a very good friend, I managed to keep the place after the biggest divorce battle since Rorke's Drift.I made a modest profit over the first season but I'm still well in the red. A newholiday booking agency might turn this around. Currently, I intend leaving the house(s) to my 'sponsor', who'd see that a medium legacy would go to my brother unless he predeceases me.
Currently then, I have no savings or investment money. Changes I had done to give extra parking and a new drive have just pumped up the value by 60 grand.
On to scenario two. There's no real need for me to live in The Lake District and moving 100 miles South would suit me better. Were I to buy a bungalow there, I could manage on earnings from house 1.
Part of this would give me the ability to holiday let the whole of house 1, This would take the occupancy from 2+2 to 4+2, plus one infant. I could also rent the whole house out instead, which gives a lesser return but greater confidence as regards chicken counting.
Holiday letting the whole house brings one downside, I'd have to pay someone to do changeovers, see to laundry cleaning, etc. Renting the lot out would mean storing my furniture.
I'm sure you've realised I'm thinking aloud here and I just have a couple of Qs.
Where do the releasers make a profit? Is it on the property's value rising over time or is it that and interest?
Is there likely to be a sector working with commercial premises, such as my house, that have an intrinsic value?
Thanks again.
The Mortgage Works (there may be others) do a let to buy product, where you can let out an owned property and secure the mortgage against this to release equity to use as security for another mortgage.OK, here's the situation. I live in house 1 and let the ground floor as holiday accommodation in The Lakes. This is a stone built two bed detached house, with an en-suite bathroom and an en-suite shower room downstairs. I live upstairs and the majority of guests are happy about it.
Now, the house is my parents' legacy. With financial help from a very good friend, I managed to keep the place after the biggest divorce battle since Rorke's Drift.I made a modest profit over the first season but I'm still well in the red. A newholiday booking agency might turn this around. Currently, I intend leaving the house(s) to my 'sponsor', who'd see that a medium legacy would go to my brother unless he predeceases me.
Currently then, I have no savings or investment money. Changes I had done to give extra parking and a new drive have just pumped up the value by 60 grand.
On to scenario two. There's no real need for me to live in The Lake District and moving 100 miles South would suit me better. Were I to buy a bungalow there, I could manage on earnings from house 1.
Part of this would give me the ability to holiday let the whole of house 1, This would take the occupancy from 2+2 to 4+2, plus one infant. I could also rent the whole house out instead, which gives a lesser return but greater confidence as regards chicken counting.
Holiday letting the whole house brings one downside, I'd have to pay someone to do changeovers, see to laundry cleaning, etc. Renting the lot out would mean storing my furniture.
I'm sure you've realised I'm thinking aloud here and I just have a couple of Qs.
Where do the releasers make a profit? Is it on the property's value rising over time or is it that and interest?
Is there likely to be a sector working with commercial premises, such as my house, that have an intrinsic value?
Thanks again.
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