Equity release. Should I?

I’d get appropriate professional advice from either a property solicitor or a tax consultant. There a implications in tax and disposal of assets.

Don’t do it.

Clearly I don't understand equity release. Maybe someone clever could explain? GSM comes to mind.

I would offer to have one of my children live with me until they had saved a deposit, but I wouldn’t get into equity release.

Not my area of expertise, but there are many pitfalls.

1. Potential deprivation of assets comes to mind. If you have disposed of capital, when it comes to needing care, there could be problems.
2. There will be little to inherit when you die. I believe that regulations mean you should not end up with a property in negative equity, but the cost will far exceed the amount of the loan, because the interest racks up.
Take proper advice, and not just from an equity release company.

Casdon

I would offer to have one of my children live with me until they had saved a deposit, but I wouldn’t get into equity release.

That sounds a sensible idea.

It’s mortgaging your house Norah, to get some of its value in cash, with the mortgage only being repayable when you die or go into care. The amount you borrow is called ‘the principal sum’ and interest is payable on it. There are different types of equity release available. You can pay off the interest each month and then just the principal sum has to be paid back when you die or go into care. Or the interest can be left unpaid, which is called rolling it up. If you choose to roll up the interest instead of paying it, then at the end of the first year that year’s interest is added to the principal sum and the following year you pay interest on the total of the principal sum and the previous year’s interest, and so on until the mortgage is repaid. As you can see, the amount that has to be repaid can really escalate if you roll up the interest, but usually you are given a guarantee that what you owe won’t exceed the value of your house when the mortgage comes to be repaid. However it can drastically reduce what your family might get when you die.
It’s a complicated business and equity release has got a bad name in the past but is better regulated now. It is always a requirement that you have independent financial and legal advice before proceeding.
I hope that helps, Norah, but if anything I’ve said isn’t clear please PM me if you like. It’s only a very brief explanation.
Whether equity release is suitable for someone, and if so how best to do it, will always depend on their particular situation so, for instance, it’s impossible to say whether it might be a good idea for the OP because we know practically nothing of her situation - though if someone doesn’t want to do it I would always say go with your gut instinct.

I don’t think I would do it and think the suggestion that she live with you is a good one, if you get on, then she can save.

When the DH of one of my friends became ill with Parkinsons they took out equity release on their house so that they could take some holidays and fly first class to NZ where their eldest daughter lives. From what I remember she took the money in tranches. After her DH died, she eventually sold her house and still had money left to buy a smaller house in a nearby village, one where she could walk to church, health and shops.

I think that it depends upon your age. You can take out a small amount, perhaps enough to top up her savings so that she could get a mortgage. You need to be certain that she will not ask you for more money in the future and also to be certain that she is able to make the mortgage payments.

If you go into care your house will be needed to fund the costs.

You should also think about other children, if you have them. If you do give her some money it should be taken into account in your will and ensure that inflation is taken into account. If you don't have any other children then that's not so important.

You don't mention your age - I think that the older you are the better deal you will get.

As regards the disposal of assets, you would be giving away cash, not a share in your house. You would need to keep a record of the gift of cash - by a dated covering letter, because of inheritance tax. If you survive the gift by 7 years there won't be a problem.

Finally, you should get some legal advice but you could start with Age UK or Citizens Advice Bureau.

I forgot to add Which.

When you say “her share” do you mean you have other children. If so be aware that if you chose to repay the lump sum plus interest at the end there will probably be very little left. The interest will have accumulated by a large amount.

If , on the other hand you chose to pay the interest as you go along so that only the amount borrowed is repaid, who will be paying that monthly interest, you or your daughter?

Would it be possible to downsize to release the equity rather than equity release? I recently knew someone who had done this a while ago and then went into a care home, since died. The interest is horrendous and there was nothing left at all in the end. There are stipulations that you have to maintain the property to certain standards too, not allow it to get into disrepair. Think very carefully. If it was me I would try to die size and release money. Best of luck with what you decide.

One thing to bear in mind is that, on average, the debt (i.e. the amount of equity you release from your home) will double every 12-13 years, assuming you don't pay the interest.

On the other hand, I have also seen that, on average, property doubles in value roughly every 10 years. (I don't know if that is true, but the article I read - some time ago - was written by someone who said they have kept charts regarding property values for several decades, and this was the average trend.)

Can only echo others’ comments or PM GSM who has a lot of knowledge on these things. It can be a mine field with lots of pitfalls if entered into without fully understanding the implications.

The only way to work out whether equity release is suitable for you is to talk to a financial advisor who knows the ins and outs.

Last year we went for equity release to finance an extension. It was always our intention to pay the interest as we went and not to let it roll up and repay the money when and if we have to move to a more manageable home.

We ended up with a Retirement Interest Only (RIO). The reason had nothing to do with the financial side of the deal but because they would not give equity release where the area of any 'flat' roofed extension exceeded 35% of the floor area of the house with a pitched roof! No, I do not know why either. The only difference it makes to us is that we have to pay the interest every month, but it is fixed for three years.

My neighbour did that. He regrets it now and at the age of 70, is having to work part-time.

Probably the safest option is to downsize, sell your and buy a retirement property, giving spare cash to daughter.

HowVeryDareYou if your neighbour has released money through a standard equity release scheme, there is no reason why he should now have to go back to work.

With a standard equity release scheme, he will not be making any repayments at all on his loan, so his income will be uneffected by it. The interest is rolled up and repaid with the capital when he dies or otherwise vacates his home and sells it.

If he has an equity release product, any monthly interest payments he makes will be entirely voluntary and he can stop them at any time. If that isn't how his capital release works, it is not an equity release scheme because that is the key feature that makes them Equity release schemes and not mortgages, in which case he more probably has a Retirement Interest Only (RIO) mortgage - and that is like any other mortgage, you must keep up wth the interest payments.

If he has a RIO, the lender will have made extensive investigations of both his income and expenditure and the mortgage usually starts with interest fix of 3 years. It is possible that the high inflation we are experiencing means that he is now having difficulty meeting all his bills, but that is a problem facing most of us. It is unlikely to be specifically the Equity release scheme he signed up for causing the problem.

Thanks all.
I couldn’t downsize and give Dd the cash as we would still need that amount of money to buy somewhere decent.
There wouldn’t be £20,000 to spare, which is what she needs.

Also, we don’t have room for her to move in with me and my grandson.

I think she will probably carry on renting for now.

Rather than give money to DD, if you did get equity release, you and she could be joint owners of a property for her to live in.

Definitely get financial advice before doing anything .

I agree with Katie59. (Frankly, I don't think I'd seek equity release. This can limit your own future options.) Whatever you do, get proper financial advice beforehand.

FarNorth, the daughter will need a mortgage. If the OP is a joint owner she will have to be a party to the mortgage and thus liable to the lender for repayments. That would not be a good move.

Germanshepherdsmum Thank you for the detailed answer. I don't need to equity release. I love information, someone may ask, now I know.

Glad it helped. Always happy to help if I can.