Equity release.

[John flightpath]

Yes I know this is a boring topic for a Friday night, however, there is a cross section of people on here so let me hear your views.

We own our own house, but we have never had a big money pot building up for various reasons. We do not have any direct dependents. I am exploring equity release basically to make home improvements, ie new bathroom, double glazing replaced, maybe a boiler change and maybe soffets and gutters around top of house. Oh and maybe some radiators. I am 56 this year. Basically using the cash to re invest solely back into the house. Any holidays, new car and stuff like that will be paid for out of my/our salaries.
The market value of the house is around 130-145 K.The mortgage got paid off a couple of years ago.

Have any of you done equity release, or considering doing it. What experiences have you had, What are the does and don'ts.

Interested to know your views.

Cheers
John 'flightpath'.

[Thunder]

I looked into it on behalf of the mother in law a couple years back. It looks quite complicated but in fact it is fairly simple.

You will be able to borrow roughly up to 75% of the market value of the property, however this depends on your credit rating, age, and area you live, the younger you are the less you’ll be able to borrow, although it depends on the lender. A good idea for home improvements like you’re looking at , not a good idea for buying luxuries likes holidays and cars.

Bear in mind that routine home improvements like the ones you mention will not add any value onto the property, they only make it more inviting to purchasers if you intend to sell. If you are intending to sell then I wouldn’t recommend equity release full stop as I’ll explain later.

There are two versions of the Lifestyle Mortgage, one where you pay the interest off as you go along leaving the initial borrowed amount to be settled when you either die, enter care or sell.

The second more popular one is where the interest is added monthly/annually to the initial amount borrowed then the whole lot is settled when you die, enter care or sell. This one obviously means you don’t have any monthly repayments.

The second one seems to scare off people for the reason that 15 or so years interest being added on will look scary, however if you borrow say £25k at 5% apr, on a property valued at £150k this leaves £125k in the house which should rise between 3 and 4% per year. So your house is making more money than the interest is accruing on the released equity. If you borrow more than 50% of the property value then the released equity is accruing more interest than the house is regardless, so beware. Note that figures I’ve used above are for example purposes only and if the property increases by 2% pa then the interest on the equity release is slowly eating away at the equity remaining in the property, if that makes sense. However if you don’t have any dependants this shouldn’t be an issue as all the main lenders have a guarantee against negative equity, which means you’ll never owe more than the property is worth.

Look at fixed rate schemes which are fixed for the duration of the loan, although the apr will be slightly higher, at least you will know what you owe. Go with variable rates you may save ‘000’s but it could cost ‘000’s if the interest rate raises, again not really an issue if you have no one to leave the house to.

On both schemes they may have no or at least very expensive early repayment terms, so beware of these. This is why it isn’t a good idea if you intend to sell and move.

If you enter a Lifestyle Mortgage you won’t be able to secure any further lending against the property, so it’s important to gauge the right amount that you require or think you may require.

If you have no dependants to leave the house to, then for me it’s worth considering releasing the maximum amount of funds available so you can carry out all the improvements and still have plenty to live in comfort, think of the house as a piggy bank which you’ve paid into now it’s time to open it and enjoy.

Highly recommend a financial adviser to go into all the fine details and of course a good solicitor.

[ChrisCwmbran]

For us, the person who took out the equity release scheme a few weeks before she died, and even though it released some money the small print caused us huge issues, and left us with no choice but to sell the house.

Think carefully before you do it. That's all I can say.

[John flightpath]

Thanks for the views and experiences Thunder and Chris.I welcome more views and comments.

Cheers
John 'flightpath'.

[Freeman Lowell]

The Martin Lewis Money Show on ITV 1 tonight had an article on this. Worth a view on catch-up.
Freeman

[Supra]

You really do need expert guidance on this issue. I have known of cases where perfectly sensible people have been coerced into "shared equity" arrangements whereby you basically pay rent to the 'Lender' & no longer have free options to sell on the open market. A truly awful predicament with no 'get-out' clause for you! The Money Show referenced above will give you a good insight into the pitfalls of going-it alone.

[baz1]

The Martin Lewis Money Show on ITV 1 tonight had an article on this. Worth a view on catch-up.
Freeman

yes and not many people in favour of it, Martin asked people if they could down size and get cash that way!!

[C24]

This is not advice


Financial planning can be split into two parts, NEEDS & WANTS.
In this case, needing a new boiler and wanting to replace soffits, buying another car, etc.

Things to think about before committing youselves.

Is the property in joint names? The survivor would have a home with little hassle.

As I understand things, I could be wrong, once into an equity release plan, you do not have an easy way to sell on the open market.

You have at least 12 years of earning before you are eligible for a State pension. During that period the market value of the property should rise.
Whatever you release now, payments begin immediately. So why not take these notional monthy amounts plus cash from income and make limited purchases over the next years? This would increase the value of the property to its 2030 value.

For example,
A new boiler during this summer, blow clean the pipes of the heating system at the same time. Then add radiators in the bedroom and sitting room. Finish it off when the cash is saved.
Them pick another need, adding a want if possible.

Review your situation in a couple of years.

Committing yourselves to anything until the Brexit cream has been distributed seems unwise.

Have you both written a will?

Being a client/customer of the legal profession/insurance companies and banks is an alternative way of saying "income stream for them".
Just a thought or two. Think long and hard

[ArabJazzie]

John,
Not that i have ever looked into schemes like this, but i have always been skeptical about them and one of my fears has been confirmed above!

You mentioned your age and i wonder if you still have another 9/10 years work left and if you could use a mortgage/secured loan to finance your home improvements? Would much rather deal with a bank/building society that an Equity release company for something like this.
Arabest,
Geoff.

[John flightpath]

Well, there is plenty of food for thought in the above posts, which is exactly what I was after. I really do appreciate your comments and views. I can tell you that my bathroom is the nr 1 priority as we want the bath out and a shower putting in. As this would not match the colour of the existing suite, the rest needs to be changed aswell. So the whole lot may as well be done. This evening I have made an online enquiry regarding equity release and have found that because my wife has not yet reached 55 (only 52) then we are probably not likely to be eligable for equity release anyway.

Cheers
John 'flightpath'.

[Thunder]

John,
Not that i have ever looked into schemes like this, but i have always been skeptical about them and one of my fears has been confirmed above!

You mentioned your age and i wonder if you still have another 9/10 years work left and if you could use a mortgage/secured loan to finance your home improvements? Would much rather deal with a bank/building society that an Equity release company for something like this.
Arabest,
Geoff.

I certainly wouldn’t want to take out a secured loan or second mortgage on a property that I already paid for. What if you lose your job or get injured preventing you from working, then you’re up the creek. Yes there has been horror stories regards equity release but if done through one of the bigger companies like Standard Life or Aviva, and depending on your circumstances they can be very rewarding. The example where people are paying rent to the lender sounds like they elected to pay the interest per month, maybe not aware that was what they signed up to.

One thing I didn’t mention in my earlier post, but I think may have been mentioned since, is to make sure both names are on the title deeds of the house and the equity release is in joint names.

[John flightpath]

Thanks Thunder. The mortgage was in joint names but the title deeds are only in my name . However, the equity release avenue has now been closed for a while because my wife is younger than me. So i'll just speak to the bank and prioritise the jobs.
I really appreciate the input from you and everybody else.

Best Regards
John

[ArabJazzie]

I certainly wouldn’t want to take out a secured loan or second mortgage on a property that I already paid for. What if you lose your job or get injured preventing you from working, then you’re up the creek. Yes there has been horror stories regards equity release but if done through one of the bigger companies like Standard Life or Aviva, and depending on your circumstances they can be very rewarding. The example where people are paying rent to the lender sounds like they elected to pay the interest per month, maybe not aware that was what they signed up to.

One thing I didn’t mention in my earlier post, but I think may have been mentioned since, is to make sure both names are on the title deeds of the house and the equity release is in joint names.

I have 5 payments remaining on my mortgage and until the middle of last month, i was contemplating the fact i may be looking at loosing my home on my first mortgage. In better times, anytime i discussed re-mortgaging my home, the lender has always insisted on looking at what alternative securities were in place, other than the flat itself. If they are not happy, they wont lend, or if they did and something bad happened, the securities come into effect and the house is still yours.

In my case, thankfully my knee is well on the mend and my endowment is not as bad off as expected! And i will be looking at re-mortgaging in time because it suits my situation.
Arabest,
Geoff.