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Equity release help!

Discussion in 'Personal' started by Crystalsecrets, Nov 26, 2011.

  1. Crystalsecrets

    Crystalsecrets New commenter

    I'm hoping some nice tessers out there might be able to help on this one. I phoned my dad last night who announced that he is considering an equity release scheme on his flat.
    The gentleman on the phone had suggested that he discuss it with me because they had had families getting upset when relatives had passed away and they didnt know that equity had been released on any property they owned and needed to be repaid.
    Ok so my first reaction was aaarrrghhhhhhhhhhh. I've done a bit of research on the net and as far as i can see the option he is looking at means he gets a cash lump sum now and then the 'loan with interest added' is paid back from his estate when he passes away.
    Has anyone on here done an equity release? anyone got any advice as im not sure what to say to him. Ultimately it is his flat, he has paid for it and it is upto him what he does with it. I worry long term that he might need the equity at a later date e.g if he needs to go in a care home at some point or needs to move to a bungalow because he cant manage tthe stairs etc. He is only in his early 60's so has plenty of years left in him yet.
    The flat has a value of less than £100k so the amount of money he would be able to release isnt huge and knowing my dad the way i do it would last him a couple of years at most.
    Why is talking about money with family sooo hard!

     
  2. lurk_much

    lurk_much Occasional commenter

    I don't know anyone that has one
    My natural assumption is that it will cost you dear and is worth avoiding, but when I see it as an upside down mortgage designed to wind down your financial commitments it kind of makes sense.
    I *think* I am agin as it limits flexibility long term.
     
    border_walker and lexus300 like this.
  3. Doitforfree

    Doitforfree Lead commenter

    Whatever he does he shouldn't go near the company that phoned him. If he does decide to release equity from his property in whatever way then he should shop around for the best deal from reputable companies.
     
    mothorchid and FrankWolley like this.
  4. jubilee

    jubilee Star commenter

    Exactly what I was about to post!
    Your dad could also consider seling his flat and moving into rented accommodation. The downside would be that he might lose any (low) income-based State benefits that get gets if he then has a large lump sum in his bank account. The same would apply to Equity release though.
    If he eventually needed a care home, his contribution would be based on his assets (and the flat would no longer be his asset as it will essentially belong to the Equity release company)
    They would look at what he had left from the Equity release funds and he might end up spending some of that on his care. If he's already spent it by the time he needs care, he will get the care for nothing based on his lack of assets. he would forego the bulk of his pension though. When I worked in Social Services Accounts years ago, pensioners in Homes paid over their State pensions and were given back 'pocket money' for things like toiletries, hairdressing etc. Thos ewith an occupational pension too, handed over all the State pension and and some of their additional pension.
    There are also two types of Equity release. One lends a specific amount and that amount + interest is recouped from the sale of the property on death of the owner . There may be money over for the Estate after that Equity debt is paid off.
    The other type involves the entire property being signed over to the Equity release company. If the property has increased in value significantly after the ER deal was done, the company hit the jackpot, not the beneficiaries in any will.
    My husband's auntie was looking into an ER scheme about 8 years ago as she couldn't afford to replace her unreliable car. Several family members checked out the schemes and advised her against doing it. She is single and has no children and her neices and nephews will inherit her modest house. Four of them stumped up the cash she needed and she arranged for her will to be ammended so they would be repaid first from her estate before the remainder was divided between all the neices and nephews. We';re losing interest on that money but don't mind as Mr jubilee will get a modest inheritance eventually that will more than make up for the loss.
    I think you /your dad can get advice from Age Concern / help the Aged (they have merged I think but I don't know which title survived).
     
  5. colpee

    colpee Star commenter

    There is some advice at http://www.ageuk.org.uk/money-matters/income-and-tax/equity-release/

    I agree with other posters that your father should not discuss the matter with anyone who cold calls -ever!
     
    Benidorm83 likes this.
  6. marlin

    marlin Star commenter Forum guide

    We were faced with a similar situation with my dad. He couldn't really afford to stay where he was and after looking at all the options the family decided that it was best that he downsize to a smaller place. This gave him an amount of money which he invested and gives him a monthly income.
    Independent advice based on your own dad's circumstances is really important though - what suits one situation will not necessarily suit another.
     
    FrankWolley likes this.
  7. gergil4

    gergil4 New commenter

    Is there any chance of you and/or family buying him out? that way he gets to stay and you get some investment. he could pay you a nominal rent if that's what suits.
     
  8. Crystalsecrets

    Crystalsecrets New commenter

    Unfortunately im not in a position to buy him out and if i was then you have the added complication of if he needs to go into a home in a few years time the government could possibly still come after me for the money for it, so i could lose the flat that i buy off him ( i think)
    Ive been looking at the company that he is dealing with and they seem reputable, well as reputable as they can be, but im still not happy about it.
    I've suggested to him that he consider what if he needs to move into a ground floor flat or bungalow in the future and he won't be able to as the equity in his flat will be eaten up by interest on any loan he gets from the company and also care home fees etc ( although he is adament he will never go into one).
    Im going to see him next week and hopefully i will sit down with him and go through his bills etc and find out if he is struggling and if so what help we can get or if it's just a case of wanting extra holidays.

     
  9. jubilee

    jubilee Star commenter

    They would only come after you if he GAVE YOU the flat as they'd see that as intentionally impoverishing himself to avoid care home fees.
    If you bought it (I appreciate that you are not able to) they would not regard the flat as his anymore but his bank balance would affect care home fees if over a certain amount.
    If someone is gifted a property and the giver dies within 7 years there would still be a potential inheritance Tax liablity. It immediately looks like Inheritance Tax avoidance if the donor of the property continued to live in it and didn't pay rent to the new owner.
    You have identified another problem (depending on the terms of the deal). Will it prevent him ever selling the flat and buying another place that is more suitable for his needs or is nearer relatives etc? Some deals involve the debt being settled if the property is ever sold and that would leave him high and dry if he's spent most of the Equity Release and is then unable to buy another flat.
     
  10. lindenlea

    lindenlea Star commenter

    It sounds like there's some good advice here from people who know a lot about it. From what i have read it is only advisable as a last option when the person is very old and certainly not your dad's age.
     
    minnie me likes this.
  11. Crystalsecrets

    Crystalsecrets New commenter

    Thank you to all those who took time to reply, a quick update......

    Thankfully dad has reconsidered and decided he may need the equity for the future if he needs to move so has decided not to follow through with the equity release. Turns out he wanted the money to tide him over until his state pension kicks in next christmas. I have now pointed him towards citizens advice who i hope can help him with discovering if he is entitled to any other benefits, for example i think he may be entitled to help with his council tax as he is on a low income.

     
  12. BertieBassett2

    BertieBassett2 Occasional commenter

    As this is an old thread, I thought I'd resurrect it to see if Equity Release is now more 'responsible' as it is being claimed. I believe regulations have changed and it does seem tempting for those of us who are 'asset rich but cash poor'. Any thoughts?
     
  13. lexus300

    lexus300 Star commenter

    Good to hear from you Lurk.:)
     
    lanokia and anotherauntsally like this.
  14. lexus300

    lexus300 Star commenter

    I regularly get post offering similar arrangements. I have left it well alone.
    OOPS!
    Did not see the date
     
  15. peakster

    peakster Star commenter

    DO NOT DO IT - IT'S A REALLY BAD IDEA
     
  16. florian gassmann

    florian gassmann Star commenter

    The key thing to remember is that because no repayments are made until you die, compound interest escalates (you are not reducing the capital, and thus also the interest, as with a conventional amortising mortgage).

    Martin lewis gives the example of borrowing £20,000 when aged 65 at 6.5% on a £120,000 home. Live for 25 years and, when you die, five times that amount (£100,000) has to be repaid. A rise in house prices may offset that to some extent, but rising house prices are becoming less common in some areas.
     
    burajda and Lara mfl 05 like this.
  17. lanokia

    lanokia Star commenter

    I shed a little tear seeing lurk...
     
    Lara mfl 05 likes this.
  18. anotherauntsally

    anotherauntsally Senior commenter

    Yes, that would be something to stay well clear of unless there was no other option but the ‘lifetime mortgages’ which some lenders are offering now, where it’s possible to make interest payments and even pay back a limited amount of the capital every year, must be a bit of an improvement - although I think the interest rate is probably higher than that for a normal mortgage and there will be, I assume, restrictions that will make selling and moving more difficult.
     
  19. Lara mfl 05

    Lara mfl 05 Star commenter

    This!

    This is the really frightening aspect and should you be unfortunate to need care at some point and need to sell your home, by the time the equity release is paid, there will be much less cash left for that care. The more cash, the more choice you will have as to where you are placed or your family will have in choosing where to place you.

    For what it's worth DO NOT consider would be my advice.
     
    sbkrobson likes this.
  20. lexus300

    lexus300 Star commenter

    I never have found out where he went:(
     

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