Recommendations for equity release firms please

Thank you all….

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You are talking about a Lifetime Mortgage. You are already aware that this could swallow all the equity in your home so there is nothing to leave when you die.

Generally, the interest rate charged is at least 2% above Bank of Engand base rate and may be fixed for life. Money Release says that current lowest rate is 6.29%. (Compare ordinary mortgages which are currently charged at around 4.5%)

Always check whether the rate can be renegotiated if the base rate falls substantially, as it did after the crash of 2008 and remained historically low for 14 years until 2022.

You need to do your sums and be aware of how compound interest on lifetime mortgages mounts up very quickly. Use a spreadsheet.

Money Release say plans start from age 55 when you can release a maximum of 27.5% of your property's value. On average, for each birthday, you can release an extra 1%. Aound 45% would give you what you want. Generally, the closer to the maximum available to you which you wish to release, the higher the interest rate.

www.moneyrelease.co.uk/Equity-Release/Max-Release-Calculator/

Be realistic about what your home is worth. Equity release companies will happily overvalue properties if the applicant wants to borrow more than the age-related percentage would allow, but that will produce false projections of what your property could be worth 5, 10, 15, 20 years down the line, skewing the future debt to value ratio.

Assuming you could borrow £80,000, my charts shows how the debt would grow. At 6.29%, in 20 years time, you would owe over £270,000. An extra one percent would take that to over £325,000.

Something to be very aware of is that there comes a point very early on with lifetime mortgages where you may not be able to afford to downsize if the lender will not agree to transfer the debt to another property.

Say, in ten years time, when you are 82, you’d like to move to a small flat. Say house prices have increased by an even 5% a year over the preceding ten years. Your house in now worth £280,000 but you already owe £148,000 - £68,000 more than you borrowed on just £80,000.

That leaves you with only £132,000 before any early repayment charge is added. These can be punative. In ten years time, a flat you could now buy now for say £100,000, would cost £155,000.

Without other resources, you don’t now have enough equity to buy a smaller place unless the lender agrees to transfer the debt to the new property - which they might not do. The longer you stay in the original mortgaged property, the more money they make. It isn’t in their interest to let you transfer the debt to a lower valued property. This is because the the amount you have to repay on lifetime mortgages is usually capped to the eventual sale price on death.

I’m not saying don’t do it but make sure you know what you are agreeing to. Ask to see a dummy standard contract so you see exactly what’s the terms are before you get too far in what can be a costly process even at the outset with arrangement, valuation and legal fees.

Equity release isn’t the unregulated bandit country that it used to be 20 years ago but there are still pitfalls. I have seen contracts where the lender tightly controls what you can do to the property; can foreclose on the loan if they do not consider you are maintaining the property well enough (which can be a problem in older age), can restrict who lives with you and can even dictate whether or not you need residential care. (I know you say that isn’t what you want but thinking can change.)

I know of a case where someone wanted to sell their home, repay the debt and move into residential care. The equity release company tried to block it as they did not consider the support she needed for daily living activities (DLA) warranted being in care. In other words they wanted her to stay in her home until she died so they could make more money. You only have to look at how the debt accumulates in those last years to see why. It was challenged and they relented but that’s the kind of thing someone could be up against in the future.

You won't get 80k if your house is only worth 180k ....you would be lucky to get half that .

As MOnica says, the amount they will let you draw down might be quite a lot less than you are planning.

I wouldn't worry overmuch about Care Fees. At current fees of about £1,000 a week (which is not uncommon) it wouldn't last for long anyway, and Care Fees are likely to rise much faster than inflation, interest rates or house prices.

You have to go through an advisor now, Key is an excellent company. They will charge a fee but will get you the lender offering the best interest rates and also a solicitor to check everything before you proceed with equity release.

Shinamae I do not think anyone ever intends to go into a care home, but sometimes events run faster than we can, and by the time we need one we can no longer make decisions for ourselves.

When we took out equity release we just went to the Natitonwide, which is our bank and had been our mortgagor. It is the company granting the equity release who decide how much you can borrow. As you are still quite young, they may limit you to 25-35% of the houses current value.