equity release

I've heard that the amount of interest charged is colossal. I had thought about it in the past I wouldn't do it now. I'll stay broke. lol I want to leave my house to my children when I pop me clogs...... unless I have to go into a home.

Equity loan only makes sense when you know you will get a sound return on your investment. Borrowing money to increase the value of your house, (putting in a new addition) would be a good example.
You get the money back when the house is sold and possibly much more.

Equity loan does allow the lender to place a lien on your house (All loans, liens, mortgages etc. must be satisfied at time of sale). Your multi hundred thousand (euro, dollar, other currency) house serves as collateral for the Equity loan during the lifetime of said loan.
Conversely, investing in a 'used' car that will only be worth a fraction of its original cost in less than three years, is not something you want to put your house on the line for.

A new car depreciates in value the minute you leave the showroom and will continue to depreciate for years. If you want to finance a new or used car, it's better to bite the bullet and a find a good (short term) dealership or bank loan that is otherwise unsecured.

I'm at a loss as to why others seem to think that their offspring are entitled to inheritance. By the time the person who takes out equity dies the 'children' will probably be in their 50s and 60s...70s in some cases.
Such an old fashioned and archaic idea. Why should the children enjoy the fruits of their parents hard earned money. (Puts hard hat on and retreats)

Sorry to disappoint Flower but I agree.

I am not sure how else I'd dispose of any assets Flowerofthewest

I may not have assets if the home I paid for with my blood, sweat and tears over decades is used to pay for my care in later life, but if there is anything left over, my children who have also made their own way in the world without any financial handouts whatsoever, can enjoy any little windfall which comes their way. That thought makes me happy.

I knew somebody whose parents were going to sign up to a plan whereby they would gain £100 a month but they would lose the house on demise.

Their adult child offered them £700 a month but as a direct loan on the cost of the house (with no interest) which would then pass into her ownership after about seven years when they could live rent free until the last of them no longer needed the property.

This meant they had far more cash at a time when they could use and enjoy it and the daughter was able to keep her inheritance. No tax was due as it was a direct loan with no gift element involved, nor was inheritance tax due.

If the children can afford something like this, it is an ideal arrangement. The loan could be tailored to the financial circumstances of both parties, for example, the parents could receive less cash per month but for longer.

I'm not sure how it would work if a parent had to go into residential care as the question did not come up in the case of which I write.

The short answer is that it's a very, very bad thing. If an ad for equity release comes on I find myself shouting at the TV, "Noooo, don't do it!", exactly as I do for those short-term payday loans or any type of gambling (those bingo ads, good grief!).

No, never.

Lilyflower: if the house was put in the name of the daughter paying the £700 a month it may be OK provided there is a record of all the financial transactions ideally in a formal arrangement, but if it remained in her parents' name then it's value would be taken into account in any financial assessment for residential care.

My aunt had a lifetime mortgage type thing on her home, and it meant she could do some essential work on the place, her her children towards deposits on their places.
She wasn't sure exactly how it worked, but it did; extremely well in her case.

My parents did this. Back in the 90s their home was valued at 200k. They borrowed 50k ... for holidays and general fun times. They didn't understand that once they'd either gone into a home or died they'd have to pay a colossal amount back. Or their estate. They were convinced that they'd just have to pay back the 50k. There was no telling them. I wasn't bothered about any inheritance. Their lives, up to them what they did. My sister is a tad more mercenary. Anyway. they both died. Had to pay back the 50 grand plus 75% of any cash over 200k that the house sold for. So all in all the bank did very nicely out if it. I'd not do it myself but I'm sure it can work for some. This was quite a few years ago now. I think that the banks have been reined in slightly from making excessive bucks.

If you pass your house onto your children for less than the market price and still live in it and do not pay the market rent. The house will be treated as still being owned by you.

I once went to see an elderly man who had passed a third of his house to each of his children, keeping a third for himself. He came to Age Concern (as it was) because if you do what he did, to not have the house taken in consideration if he needed care, or for inheritance purposes he had to pay his children the market rent.

Unfortunately rents rocketed, especially for big houses like his in desirable villages like his and the two thirds of the market rent he had to pay to his children now exceeded his entire pension income. HMRC checked the rent and whether he was paying it, every year, so he was in a difficult situation.

Esmerelda It was a very bad thing when they first came out, but now they are fairer, more flexible and can be done in many different ways and for some people they can be very useful. Two of my friends have taken equity release, one quite some years ago, and they have no complaints at all about the 2 different types of scheme they have entered. They fully understood what the product was, how it worked and how much it would cost them. In one case it has provided a house for a child in difficult circumstances and living in a poor quality rented home. In the other the money to make their house sound and in good order - and increase its value so that if they do have to sell they have a saleable house with enough to pay off the loan and have money left.

It does sometimes work but I would look at the new RIO mortgages first. Retirement Interest Only. You can take them out up to around age 90! For c55% of property value. You do have to pay normal mortgage interest and you can pay capital back also if you want, otherwise it has to be paid back when you (or relatives) sell the house or go into long term care.

Old style home reversion plans are completely different from the highly regulated equity release plans now available. There are very good independent financial advisers out there who are qualified to chartered level in later life planning and who wouldn’t consider doing something unless in the absolute best interests of a client.

I know this because I am one of these and I specialise in helping vulnerable clients, working alongside solicitors, the courts and other professionals.

If a client needs equity release I will always work with a second IFA so that we can ensure that a client is not disadvantaged in any way at all and, if they have family, we encourage them to be involved every step of the way.

We ensure that they take completely independent legal advice too and that there are always at least two solicitors involved, preferably who are completely independent of each other.

As with anything financial, there are always charlatans and villains who are looking to take advantage of the elderly and vulnerable which is why advice shouldn’t be taken from someone with no proof of track record or visibility on the FCA register. Don’t use someone who has no experience in the later life market as they are highly unlikely to consider the wider implications - sometimes these are mortgage advisers with fewer qualifications and who do not fully understand all of the potential issues (they mean well but can cause problems later on). Finally, ‘advice’ from a bank or building society (or other tied agent) should be checked vigorously as they are usually using a restricted panel or a single product provider and not necessarily accessing the very best available solution.

Equity release is not a ‘one size fits all’ and lots of people have horror stories (me included, although none of my clients I might add). Anyone releasing funds without a good reason, who plans on holding the balance in cash, is, more than likely, making a huge mistake. There are phased solutions and income solutions which may be a better fit; Or possibly a RIO (retirement interest only loan) which means there is no accumulating balance.

Similarly, beware of other schemes and ideas which can leave an individual being accused of deliberate deprivation of assets in the case of long term care, or with no saving on an inheritance tax bill if not done correctly and for the right reasons.

This is something I’m passionate about, despite it forming only a small part of my later life planning work, as it’s an area where the most vulnerable people can be hit hardest.

It depends on your mindset. My wife and I are fully for freeing up equity so that, while we are still in the land of the living, we can actually see our children make headway in these difficult times for house buying etc. What use is waiting for a WILL?? Its a non argument for us. The children gain when they need it and we can see how they gain and become happier and secure. Its not as if we are Bill Gates .. we have no control over the houseing price boom, we were lucky.
There is also the natter of the government getting the house if one of us or both of us become seriously ill or disabled. You literally have to sell your home to pay for the care. WE have paid tax for decades and still pay tax. MPs sell their second homes WE PAID FOR and keep the profit? so there is no way we will let the state get their hand son our home/money. Life is for living. Why not do things and see the result. Its a no brainer for us.

We've had no problems with ours. The children were obviously involved in the decision and it's been a lot better for them. We have a bit of spare money if they need help now rather than waiting till we die and they are middle aged and hopefully fairly settled. When we have both died the children will get first dibs on the house and can decide if either one wants to buy it from the company, it can't just be taken from them.

My parents borrowed £65,000 and now owe £220,000, (basically their whole house). My dad died last year and mum is in poor health. Very frail, isolated, developing dementia and lives in the sticks. I would love her to live near me but no chance now.
It will also impact if she needs care. Social services will refuse to pay (and rightly so) otherwise everybody would just release the equity, spend it and expect the government to pay for them.
Worst decision they ever took.

My advice is don't touch it with a barge pole! These Equity Release Companies don't do it for love, they do it to earn money! If you really really need to raise money, approach your bank and take a loan out with your house as security?

but if you take a loan out you need to have a repayment plan and pay interest month by month. - and banks are out to earn money off your loan.

The specific appeal of Equity release, is that you can have a large sum of money ready to draw down when you need it for anything from house repairs a holiday, Christmas or whatever with no need to make repayments or pay interest during your lifetime. Loans do not do that. They lend for a specific purpose for a limited time with repayments due over the life of the loan.

I do not think you fully understand what the purpose of Equity release is Evie64. For some people they are an excellent idea, for some people they are not.

I am not sure you entirely

Ours has the interest worked out in advance and it will be paid off when the house is sold. The amount we have been able to take means that there will be ample equity left to cover it and if house prices continue to rise there will even be a little for the children.

Don't count on house prices rising, we are selling a property in an area where values are falling. We have been told to expect a drop of about £30,000.

Exactly Harri my neighbours have just sold for less than they/we paid for it 8 years ago . Mind you this is the North East .

Instead of equity release, why not just downsize and put the balance of your money in the bank?

Or am I missing something here?

Urmstongran, that's what I did.....sold, downsized, gave some money to my 3 children, keeping rest for myself, as I don't have private pension (well, I have, but it's so small, I could sneeze and blow it all away). I also get a small alimony payment.
sartavel, Please don't take equity release.

Personally I wouldn't do it - compound interest means that the amount borrowed soon escalates. As others have said why not downsize instead? We are in the process of downsizing slightly (i.e. modern four bed det with small garden from 3 bed large cottage with huge garden/orchard - and will release about £50k ish. We will still wholly own our own property which will be under our control, much better than being in hock to some dubious finance company. We'll possibly give some of this equity to our daughter to help them move to a bigger family house. We have other savings and pensions, thanks to hard work and being fairly careful with money. Please don't be seduced into doing equity release - there's no such thing as a free lunch in the financial services world!