Equity Release

I remember hearing one comment recently, possibly on Money Box Live, that you need to be sure this is the house you will remain in. I think it is possible to move a lifetime mortgage/equity release but it's probably worth bearing I mind.

You can take your equity release with you if you move to a property that would cover the outstanding amount or you can downsize and repay an agreed amount with the lender. Obviously if you know you want to move in the near future it would be advisable to make payments and not allow interest to build up.

I wouldn't touch it. Know two people who have gone down this route. Both regretted it, both lost large amounts of money and problems galore with selling your property. As for doing it to avoid Inheritance Tax, thats a mugs game, you will probably end up paying more.

Why is using equity release for avoiding inheritance tax a mugs game and why would you end up paying more?

John and Jill in my extended family. They had equity release and had their garden designed and got a new car. Years later, neither can drive and they are utterly trapped in their house. They cannot sell and afford to buy near their son. They are trapped in a house too large for them and because of the accrued interest, mostly owned by the ER company

You can sell and move even with a lifetime mortgage on your property.

I have been into this quite a bit as I am trying to fund my OH in his highly expensive nursing home.

It is worth remembering that the interest that accumulates on these "products" is compound - i.e. not say 5% a year on the amount of the original debt , but 5% on the whole debt as it accumulates year by year.

At the moment I am using my savings to top up the fee - although top up is a bit of a misnomer because it represents about 3/4 of the fee. My OH's savings have already been used up on his care, so now it is coming from mine as a "third party."

When my savings are gone, I have an offer of a loan from a family member, on which I will have to pay a market rate non-compound interest and the capital will be recouped when I die.

The puzzle of course is that if that too runs out then equity release will be my only option - how to release that for my third party top-up without it becoming capital for SSD purposes?

It is all a conundrum and I am taking financial advice.

But to summarize - the advice I have been given is that equity release is now hedged around with legislation and is a better bet now than it used to be.

Monica, I am not a financial advisor, I can only go by what happened to friends. I don't know all the ins and outs. As one poster says the problem I think is selling the house. For reasons I cannot go into here. My friend ended up losing alot of money when she had to sell up and I think possibly ended up paying more than she would have even with IT. I think she was badly advised. They take back a ton of interest when you sell. If you want to move to another place you are stuffed as it seems to my observation, you dont have the money from your old house to put down on the new one. Apparently , there is advice out there that says you should never use ER to avoid Inht Tax. You really need to understand all the ins and outs and loopholes, before you embark on this. As one poster says if you want to stay in your home for the rest of your life- it might work. How many of us can say for sure we will? As it is I will never pay Inht Tax anyway. However, I know two people that Equity Release did not work for. There are alot of unscrupulous and unregulated financial advisors out there. Just be careful.

Maybe those people had a home reversion plan rather than a lifetime mortgage, or wanted to sell up to buy a retirement property which you are told are not great options. The lender has to be confident they will be able to sell your property easily when the time comes and retirement flats can take years to sell. When you sell they take the outstanding debt and that will be greater than the amount borrowed if you took the funds and chose to make no payments. If you make payments the amount may be smaller than the original amount borrowed. Nothing is done for free.

Just been warned by a financial adviser not to do this. The compound interest is unbelievable

But, there are products which allow you to pay the fixed rate interest just like an interest only mortgage and interest rates are really low at the moment.

Well, of course they take up a lot of interest when you sell up. If you accumulate the interest the capital sum grows each year and so does the interest due on the increased capital sum.

It is called compound interest and it was on the maths syllabus at most schools when I was about 12 or 13. That is where I learned all about it.

The only way I can see that it can affect your inheritance tax is if you fail to live more than 7 years after the gift or it is clear that you gave the money away in order to avois paying for your care when you need it.

In my friend's case, none of these apply. The seven years is up or nearly up and she is wealthy enough to still be able to pay any care costs when they arrise. She is not accumulating interest but paying it off each month. All the company will get when she dies is the original capital she brrowed as she has not allowed any further charges to accrue apart form the normal mortgage interest, which she pays each month.