Equity release/home reversion

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.

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

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?

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.🙂

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.

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

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.

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.

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.

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.

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.

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.

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.