Equity release/home reversion

It is usually a last resort and you will only receive a small percentage of the value of your property is my understanding.
It also affects any benefits you may otherwise be entitled to.
Go into it with all the knowledge and good advice you can.

The big drawback is the worth of your house after you die but if you have no relatives to leave it to why not. However look into it carefully and seek proper advice.

In France there is a system whereby you sell your home but live in it until death, obviously the price is much lower, the purchaser is responsible for maintenance.

This is a much better system than using these grabbing companies.

Here is a link to an Age Concern Factsheet on Equity release that also covers home reversion sales. www.ageuk.org.uk/siteassets/documents/factsheets/fs65_equity_release_fcs.pdf

If you consider either of these options it is essential that you take proper financial and other advice and beware of any lender who does not insist you have separate legal advisor. This isn't usually a problem with euity release, but some home reversion companies are operating on the edge of probity.

This applies, in particular to the proportion of the value of the house they are prepared to buy your house for. They are unlikely to pay you more than 75% of the market price and it could be less than 50% if you are as young as you are.

The younger you are, and in home reversion and equity release, you are young, and if in good health could live another 30 years, the less you will be offered.

To get the best value from a home reversion sale you need ideally to be 80 plus with at least high blood pressure, high cholsterol and type two diabetes or worse.

It was literally a life saver for us. DH, 80 last year, had a severe brain bleed and the very little NHS rehab provided would have left him with right arm and leg permanently paralysed. We had to pay for 8 weeks in a private rehab hospital, where he got 4 therapy sessions a day, and are now paying for private physio at home, as well as all the alterations to the house. He is now fully continent, people have no problems understanding his speech, and he can stand unaided for up to a minute, and take a shaky step forwards and backwards. Without the tens of thousands we took out on the property, I think he would have faced a nursing home for the rest of his life. The interest is fixed when you take the money out, ours is, if I recall, 5.7%. Yes, our children won't get quite such a large inheritance, but they are okay financially and encouraged us to do it. We have enough left as a safety net for any emergencies in the future, which is hugely reassuring. We did take independent financial advice, and I believe we got a good deal.

This made me look things up. Just out of interest. It’s not something I’m ever going to need to do.

I think lifetime mortgages look a better deal than reversion.

I was particularly taken with Aviva who lend a sum which they then hold and you can take it out bit by bit. The attraction was that you don’t lay any interest on the money they hold for you.

So you could borrow £100,00 and take out £10,00 and only pay interest on that £10,000 until you wanted more.

But then I can see some pitfalls in that. It really does need expert, independent advice. Hard to find I think even if you pay, how would you know they don’t still have an interest in pushing you a certain at.

We did take independent financial advice, and I believe we got a good deal. B9Exchange, with thatsentence you put your finger on the key reuirement before entering one of these schemes, taking proper independent advice.

You and your DH are also 80, and your DH, is already in poor helath. The person who started this thread wants to take out some policy at 65 and mentions nothing about poor health. At that age and in good health, she cold live another 30 years or more. I suspect many firms would just turn her down because of the time they might need to wait to get their money back.

Thanks for the replies so far everyone, I still work, but my income is not high, maybe give it a couple of years, when I get state pension at 68, a lifetime mortgage may be the best bet if reversion is not full value

Cillifan Euity release will not be for the full value of the house either. Remember, the lender is lending the money to you and rolling up the interest, they have also got to estimate how much house prices will rise in the period over which they lend you the money because they want there to be enough money when your house is finally sold, that they get the money and interest back.

Let me give you an example. Let us assume that your house is worth £250,000. Current interest rates for euity release are between 6.5-9%.

Let us use an interest rate of 7%. Supposing that an euity release company decided to lend you half the value of your house, £125,000. Let us assume you take the loan out when you are 65 and you die when you are 85, that is 20 years,

By the time you die, the money your estate will owe the lender will be approximately £450,000. In the past 20 years house prices have risn by 75%. So assuming the same going forward, in 20 years your house couldl be worth about £440,000, but it could be more, it could be less. That final value will be too close for the lender, so I suspect that they would not lend you more than £100,000 and may not lend to you at all because, uite simply given that in fact you could live another 30 years or more, they will consider that the potential mortgage term is too long for them to risk.

Remember the lender will be looking at you and your house and deciding what they think it is safe to lend you to be sure they get all their money back when you die. They are the ones that decide whether to lend to you and how much they will lend you.

As things stand at the moment you are actually a bad risk.

Would you consider downsizing? Your outgoings would be less then, as well as having a lump sum.

Or you may find that actually your money goes much further when you are not working. I didn’t realise how much I spent on going to work until I retired😬

It may not be as bad as you fear.🙂

Another disadvantage of home reversion/euity release. It can make a later move into smaller accommodation difficult. With home reversion someone else owns the house and if you have spent the cash, and you need to rent smaller accommodation then you will have to rent on the private rental market as the council will consider that you have a home and therefore yo will not ualify for state provision.

Remember also, that a condition of any euity release of home conversion scheme is that you keep the house in good condtion - keeping it in good decorative condtion inside and out, maintaining the garden,, perhaps replacing kitchen and bathrooms at some point. could your money last long enough for you to be able to do this for over 20 years?

If I had no family to leave an inheritance I would either downsize to a retirement site or just rent. For many investing the house proceeds and renting, enjoying all the value has an attraction for many

The problem is estimating how long you will live and how to spread the expenditure of the house price. When I worked with older people I met so many whose spouse had died young or had lived to an extreme old age. One man gave each of his children a third of his house, but because he continued to live there he had to pay his children the market rent - and HMRC checked to confirm both the market rent and whether it was being paid. He had expected to live into his early 80s and I met him in his late 90s, by that time there had been a price surge and rents had recketted. His rent now exceeded his pension income and I was called in to see if there was anyway we could resolve the problem. There wasn't short of the children returning their ownership in the house.

Don't forget that's one bit of sex discrimination that still exists - ie a woman is paid less than a same age man in same house would be.

I certainly won't ever check out those schemes whilst that discrimination is going on that's for sure. I refuse to be discriminated against.

They've got an excuse for it and, as I recall, the excuse reads "Oh well - the average woman lives longer than the average man". Those actuarial tables on how long people are going to live that the insurance companies etc have are still to this day doing one set for men and another set for women - rather than putting both sexes together and putting "average age PEOPLE reach" (sex irrelevant).

I'd be sick as a parrot to know an equivalent man to me would be being paid more than me - for no reason whatsoever that was to do with me - but just because my body is female. I'm longing for the day when some of these people that self-identify as the opposite sex to what they are find this is affecting one of them - ie a man who self-identifies as a woman - and then this might be put right.

M0nica. I disagree that OP would be a bad risk using that data as an example. Equity release lenders know that the the longer someone lives, the more money they make especially in the later years. Younger applicants are seen as a very lucrative long term investment.

Lenders would be unlikely to offer 50% of market value to someone age 68. 25% to 27% is the norm for someone late 60s early 70s.

A compound interest rate over 6% is considered toxic. The current rate, as you say, is nearer 7%.

Let’s say the property is worth £250,000 and they are loaned £67,000. After 10 years the debt is £132,000. After 20 years, £232,000. After 30 years, £462,000. It’s still loansharking but the increasing value of the house even at just 3% a year is likely to exceed the size of the debt.

The people who have to be most careful with these schemes are those who property has a low value. Some firms will lend on property with a market value as little as £75,000. 25 years ago it was £50,000. These companies prey on people who are both cash and asset poor.

My feelings about these vultures aside, unless there is a pressing need for that amount of funds for some capital venture why do it? I have known people borrow on equity release at a compound interest rate only to put the money in the bank at a much lower rate of simple interest Why?

A draw down loan might be worth considering instead.

It should be borne in mind, that some of the clauses written into loan agreements are frightening as regards the lender’s rights over the property e.g the right to repossess if it doesn’t consider sufficient maintenance is being carried out.

Every five years they will write and ask for a list of what maintenance has been done in the preceding five years with documentary evidence. If nothing has been done they will want to know why.

They have the right to repossess if even a minor change to the property was made without its permission.

They can veto any proposed move to another property by refusing to roll the debt into the new property. Instead they could demand repayment of the debt with an early repayment penalty that could be as much as 90% of the original loan.

The debt is capped at the value of the property at the death of the mortgagee or when they go into residental care. Therefore they are reluctant to agree to downsizing if it means rolling the debt into a lower value property.

They can even veto a move into residential care if they consider care needs are not suffient to warrant it. It is in the lender’s interest to have the loan continue until the borrower’s death as it in the last years that they make the most money on the loan. In M0nica’s example of a £125,000 loan, interest added in the first years is £8,750. By year 10 it’s over £16,000 a year, year 20 over £28,000 a year, year 30 over £56,000 a year.

If a 68 year old applicant were to borrow £125,000 and lives to 98, the accumulated debt would be over £920,000. That’s a substantial return on the loan even if the lender has to wait 30 years for it.

Crikey - I didn't know those other disadvantages to those schemes (ie as well as the sex discrimination ones).

That would sound an absolute death knell to me - even when they finally have no choice but to remove that discrimination. Not even able to do (or not do) whatever one pleased to one's own home because of their "terms and conditions" = eeek!!!!

Cheaper/easier to see if there's one of those schemes around whereby an older home-owner deliberately takes in a younger lodger at a reduced rate and it's done on an expected "friendly" and "helpful" to the home-owner basis - assuming one can bear sharing one's home. I'd add a little note into that - that I had to take in lodgers when I bought my starter home finally all those years back - and hindsight tells me I'd never have taken in any male lodgers (as they were always bad ones without fail - basically because they never ever did any of their own housework - even though I always specified to all lodgers that I never did their housework and they would be expected to do their own and I stuck to it - I would only ever do my own housework and the communal areas general housework).

Graphite The question must be whether the house is worth the rounded up debt. if the debt owed is £9

If someone took out a equity release scheme in 2005, and died this years, it would be evenstevens and equity release schemes like to see the value of the house exceed the total owed, to be on the safe side. We cannot assume that house prices will continue to rise as fast as they have in the past. If a house has racked up interst payments of £920,000 and its market value is £750,000, then the company is out of pocket.

Cariad I think you were unluckywith your male lodger. DD had 2 male and 2 female lodgers, separately, and the men were fine. One remains a good friend, over 30 years later. one female died and she had a big fallout with the other someone she had been friens with since she was free.

Mind you both mothers, we were friends, knowing our respective daughters could see how it would end and tried to discourage them from sharing a flat, but they were convinced they knew better, sigh.

Be very sure that you don't want to ever sell the house and downsize.

The information that Graphite has given should be enough to put most people off

my widowed mother took equity out on her house over 34 years ago , she is now 96 and ten weeks ago had to go into a home as I could not mange caring for her any longer , both my husband and I have LPA's it was mums idea, so we found out 10 years ago about the Equity release, her house is now on the market for £775.000 and all but £20.000 will be taken by the Equity release , she has no idea that everything has gone she really thinks I am about to inherit a fortune, I cant tell her she would be devastated especially as at the moment we are funding her care home fees ourselves.

surfingsal

my widowed mother took equity out on her house over 34 years ago , she is now 96 and ten weeks ago had to go into a home as I could not mange caring for her any longer , both my husband and I have LPA's it was mums idea, so we found out 10 years ago about the Equity release, her house is now on the market for £775.000 and all but £20.000 will be taken by the Equity release , she has no idea that everything has gone she really thinks I am about to inherit a fortune, I cant tell her she would be devastated especially as at the moment we are funding her care home fees ourselves.

Sadly, that is the reality of equity release, and this would have been explained to your mother when she signed up to it. Unfortunately many people really do not understand the way compound interest works and just the extent to which this leads to an escalating annual interest chargewhich soon swallows up the remaining equity in the house despite rising house prices.

I am sorry to hear that surfingsal but I can understand how it happened and have seen it many times.

The Financial Ombudsman’s case decision database records over 2000 complaints about lifetime mortgages, almost 800 upheld.

It’s usual for equity release companies to charge 3 points above base rate; compound interest fixed for the lifetime of the mortgage.

As M0nica says, compound interest is often misunderstood.

In 1991, interest rates were very high. At the start of that year the base rate was 13.38% and at the end 10.38%. Therefore, your mother may have been charged anything from 16.38% to 13.38%. Even assuming the lower of the two, a loan of only £10,000 would accumulate into debt of over £700,000 in 34 years. That sounds extraordinary but plugging the numbers into a simple spreadsheet shows how this happens.

Typically, someone in their early 60s would have been offered a loan of between 15% and 25% of the market value of their house.

Your mother should have received an annual statement showing the accumulating debt and the early repayment penalty so she would have been aware of the numbers but I know that people can go into denial over it, frightened to tell their families. Often the truth doesn’t emerge until after their death or the need for residential care arises.

Whatever they spent the money on decades ago - a car, some home improvements or just to put in the bank to supplement a low income and pay the bills - is long forgotten but the debt keeps mounting at a rate of £50,000, then £60,000, then £70,000, then £80,000, then £90,000 a year in the latter years.

It’s nothing less than loansharking. And while interest rates are lower now, the current rate of near 7% is still considered toxic. I would advise anyone under the age of 80 to avoid these schemes.

I would also urge you to look very closely at the originally paperwork for your mother's loan. Cases of misselling were rife. Sales reps masquerading as financial advisors worked on high rates of commission under pressure to push loans which were more than the applicant wanted or needed. Why not borrow an extra £5,000 to have some luxury holidays? was a common ploy. A £5,000 loan turns into a debt of almost £360,000 over 34 years.

There was a report in the papers last week on just how poor the mathematical skills of many people are.

I cannot find a reference to this years report, but this link, which is a couple of years old says essentially what this year's report said www.nationalnumeracy.org.uk/news/new-survey-uk-numeracy

M0nica

There was a report in the papers last week on just how poor the mathematical skills of many people are.

I cannot find a reference to this years report, but this link, which is a couple of years old says essentially what this year's report said www.nationalnumeracy.org.uk/news/new-survey-uk-numeracy

Many graduates dont have a basic grasp of household finances and certainly polititians dont have a clue about economics. Try running a business without being very skilled handling finances.

Its a basic flaw in our education system