Equity release/home reversion

Crikey Graphite - thanks for explaining that clearly to us all.

I do not think any of us were taught about household finances when we were at school, but we sorted everything out. I think we learn more about prudent money management from our parents and family than we do at school

M0nica

I do not think any of us were taught about household finances when we were at school, but we sorted everything out. I think we learn more about prudent money management from our parents and family than we do at school

Gawd help some people then M0nica - as many people don't learn much about money management from our family.

I know I didn't basically. Just one lesson - ie don't get into debt - and that about sums it up. My mother was the one that managed money in their household and she wasnt great at it. Am now recalling when someone came along for due visit for money she owed and she commented she'd told me to sit quietly on the stairs - so we could pretend to be out - as she didnt have that money she knew was due. I can't actually think just where I did learn money management in the event - so maybe it was at school??

Thankfully I'm a "reader" and so I know I read all the stuff about bulk-buying/own brand buying/shopping around/using up leftovers/etc from newspapers and magazines. Basically I think I must have learnt absolutely everything I do know financially in fact from those sources - and have certainly picked up some very useful financial info. on managing my money over the years from said newspapers/magazines. Thankfully including higher level stuff - like basic pension advice, basic benefits advice (thankfully - or the DHSS as was would have underpaid me benefit when I was unemployed thanks to a "daffy delilah" who didnt know her job properly), all sorts of useful money management advice. So - thank goodness for that magazine/newspaper money advice.

My mother was so not-that-good with money that the one and only time I asked to borrow some money to invest in a cast-iron certainty investment (ie opening loads of building society accounts and then sitting back and waiting for payouts to their customers a couple of years later) she couldnt (or wouldnt) see it and trust me about the one "ask" I ever made in that respect. Cue for me thinking "I'm going to do this anyway" and having to get an overdraft on my bank account and mentally knock the fees off those payments - as "costs incurred" to get them. I still managed to make a noticeable profit - oh well....at least that profit was all mine...as I'd proposed to her that, if she lent me the money, I'd share the profit 50/50 with her. So I probably made more in the event - despite those bank charges.

Remembered exactly why now that I learnt a big fat Nothing about finances from my family - as there was an occasion where teenage me proposed we have a family meeting to discuss the family finances (errrm....I'd already got the idea that maybe I was better with money than my mother....) and she pointblank refused. Fast forward many years and my father told me a bit about how my brother had got the lions share of the "children" money thanks to her - and so I guess the reason for pointblank refusal by her to discuss any money with me was because I'd have realised many years sooner than I did that that was going on.....(eg my - high - board and lodge money when I started work just went. But his board and lodge money when he did got saved by her and handed back to him when he got married!).

So some peoples families are the last place many people are going to learn about finances.

My parents never said anything about money, but they lived within their income.

But basic money management was in the atmosphere of life. keeping out of debt, saving for a rainy date, budgetting for regular outgoings. Nobody need say anything that is what people did aand if your ead newspapers and magzines, womens page, whenever money came up, these principles underlaay it.

Mr Micawbers advice wasn't bad although lots of young people wouldn't understand 19/6d.

I have to say if one of my teenagers had suggested a meeting to discuss family finances based on their belief they understood it better than I did I'd have wondered if they were sniffing glue or if it was something worse.

M0nica

My parents never said anything about money, but they lived within their income.

But basic money management was in the atmosphere of life. keeping out of debt, saving for a rainy date, budgetting for regular outgoings. Nobody need say anything that is what people did aand if your ead newspapers and magzines, womens page, whenever money came up, these principles underlaay it.

I agree, my parents didn't discuss it with us, I didn't discuss it with mine beyond saying no I can't afford it or no I'm not spending my hard earned money on over expensive rubbish. I managed to work it out.

I wanted to know what the thinking was behind it all personally - as all I did understand was I was being charged rather noticeably more than my friends for "board and lodge" once I left school. So all I knew was that my mother had probably based her ideas about that on the fact that her "mother" (ie her grandmother - so someone two generations older than her) had charged my mother £2 per week board and lodge when she started work (that would have been in the 1940s) and that was the same amount as the lodger paid! She was also told to hand over money towards the coalman (and the lodger wasnt) and was expected to do all her grandmothers housework (and the lodger wasnt). So I knew her way of thinking was probably illogical and unfair.

Unless the logic of it was to get me to move out as soon as possible in order to avoid my own mother making money out of me etc. Cue for heading off to Denmark to live only about 18 months after leaving school and then deciding to head into Bedsitland when I re-emerged back in England a few months later - as I decided that, if anyone was going to make a profit out of me, I'd rather it was a landlord than my mother (as he/she would be entitled to a profit - as it was their living and at least I'd have my freedom to live as I chose without problem). Yep....I'd also noticed that my brother wasnt expected to do as much housework as me....no explanation given for that either. It didnt take me long to notice I didnt seem to be any worse off at all when I moved into Bedsitland - and so I must have been correct in how I was thinking.

I was too modern and fair-minded to continue living with my mother basically and knew my father would rarely stick up for me against her. He'd put his foot down that I was to continue in education however long I myself decided to (ie even if it meant university eventually) - she would have whipped me out of school at 16 left to her - but that was it basically.

I think the issue with historical cases of massive equity release debt is rooted in issues not necessarily connected to lack of arithmetical skills. In the cases I have seen and read about on the Financial Ombudsman’s decision database, the equity release company did provide the numbers showing how the debt would grow over time, although I haven’t seen any numbers that went beyond 20 years.

However what they sometimes did was to overestimate the value of the property at the start. It’s easy to pull off as it exploits the tendency that some people have of wanting to think their property is worth more than it is. That initial overvaluation was then used not only as the basis for the loan offered but also as the basis for the projections of what the property would be worth in 10 and 20 years time compared to the size of the debt. Projections were based on 3% and 6% annual growth.

Nowadays we have easy online access to Land Registry sales data directly from registry and from RightMove and Zoopla. That wasn’t the case in the earlier years of equity release. Someone may not have known what similar houses in the area had been sold for and just accepted the valuer’s word, happy that their property was worth what he said it was.

What they didn’t know was that ER firms had contracts with national valuers to commit what is effectively mortgage fraud. Whatever valuation the sales rep needed in order to push the size of loan he wanted (so he could earn more commission) was given to the valuer who just returned the value requested.

As the linked article shows, it’s been common practice for all kinds of of mortgages. Some loan applicants are willing and complicit because they want to borrow more than an accurate valuation would allow.

But when the overvaluation is used in equity, it deliberately misleads the borrower into believing they will have more equity left than proves to be the case. I’ve see overvaluations of 30% to 40% on lower value properties.

Valuing a £50,000 house at £65,000 may not seem a lot but 20 years down the line, if values have risen by an average of 6% a year, that makes a difference of over £40,000 between the projected value and the real value - the difference between having enough equity left to be able to pay for a year of old age care or not.

Combatting valuation fraud:

www.mortgagefinancegazette.com/market-news/fraud/combating-valuation-fraud-13-08-2009/

The answer is you get owt for nought and if it looks too good to be true, it generally is. But people are greedy, both borrower and lender, and this gets more people into trouble than anything else.

There is no teason why families should not discuss finance and loans these days, many have a loan to buy a car or a house and credit cards are universal.

I did quite early, dad had a loan to buy land, so I understood how it was going to be paid back, so I followed on in my business. I also learned to read the small print, as Graphite illustrates, there are blatant crooks in the finace industry who will fleece you then brag about it to their mates
The GFC was caused by deliberate fraud and the smart polititians and economists watched it happen.

MOnica I to came across a few people who had transferred property thinking they would beat the system for tax, care costs. No such thing for the ordinary person.

However if you have started your ninth decade and need adaptations to your home done for your medical needs then it is a wonderful arrangement. If your children encourage you to go for it, it can remove a huge amount of stress and provide a cushion.

Absolutely agree.