Has anyone used equity release for retirement?

[Lilyflame]

I’ve only heard horror stories from the old days where people ended up owing more than the house was worth
ive spoken to one company and it sounds like its doable. I just don’t want to get ripped off

I think your example is one when I works. For whatever reason, they weren't bothered about passing on the value of the house, this way they managed to use some of the value of it without having to sell.

No one can say whether it was a good deal or not becuase we don't know how long the "loan" was outstanding, but they effectively spent the whole value of their home to achieve something they wanted.

@Doteycat I can bet your bottom dollar this was done quite a long while ago in their 60s and was taken as a lump sum. Things have changed a lot, these days there are many alternative ways of taking some house value that aren’t nearly so drastic

Im not bitter.
HTH.

Yep. Its about 30 years i think.

I agree - hence why I posted about it - there are so many variations of it these days and far more regulated. I think a real biggie is though people doing it far too young (50s and 60s) this only really works at that age if you are going for a RIO and paying interest( effectively like an interest only mortgage) - as I mentioned my relative is doing draw down and has a fixed limit . 7 years on they have drawn down around £52k sometimes to boost monthly income, others for bits to house to keep it in good order, pay for cleaner and Gardner etc - now owe £73k - mid 80s - but house worth 7 times this. It comes down to amount of equity, inheritance expectations of others ( not that it’s their business) and age this is entered into - a lot of people posting about this clearly have very old agreements that parents did , likely in their 50s and 60s and yes they were very crap deals

its very much changed these days , but I do totally understand why people see these old arrangements and think WTF .they were dreadful - it’s why I’ve posted about the modern versions because they can work well for the right people, in the right age group and using it appropriately - personally I wouldn’t take a huge lump sum to help others onto housing ladder unless I was going to do an ‘interest paid ‘ version or made it very very clear that there may well not be much/any inheritance - which is slightly unfair if all the benefit has gone to 1 child/grandchild etc -

Only do it if you are ok with leaving nothing when you die.

It also depends on the interest rate when you take it out, my FIL took a £30,000 ER loan out in the 90s at around 8% and when he passed away in 2022 it had more than trebled to £100,000, I took a £30,000 ER loan out in 2021 but the interest rate was low at the time (2%) and is fixed, I took advice from a FA and the equity release company is a reputable one, the loan is increasing by around £1,000 a year atm (I do realise about compound interest and that will probably increase) but my house is worth around £450,000 and I would think it will increase in value, either way I can't see it losing value in the area I'm in so if I live another 20 years there will still be plenty of equity left in the house for my children

An ex-colleague of mine did it, but he had no spouse and no children so it worked well for him.

@summerbreeze31 yes this is an important point too - go for fixed rates at a point when they are lowish .

I would strongly advise you not to do this. If you live long enough, the loan will use up all the equity in the house. You will be stuck there even if you need to move. That is the situation my elderly MIL is in. Can’t use the stairs or even the garden and the place is falling apart.

The equity release was about £60k, 25 years ago. The house - even the site (it will likely be demolished and redeveloped) - is worth 10 times that. The interest has eaten up all the equity.

I have also heard this too but not clear on the details

You basically take the equity out of the property, gift it away.

A seven year clock starts ticking, IHT will start reducing, by the end of the seven years the gift is out of your estate for IHT purposes.

I would consider doing this for children’s house deposits, I hope to live until they’re mid fifties, by then they’ll be established in life hopefully so the inheritance is less important. However, if they can of got on the property ladder by virtue of that gift, they may well have saved £££££££ in rental payments and be well on the way to fully owning their own homes.

it does have it uses, the tone to have done it was when the interest rates were very low, their not bad at the moment. But of course people doing it when rates were very high, pay a lot more back.

One thing to note on ER is they often have early repayment penalties, these are on a sliding scale depending on number of years since taking the money.

I can’t explain properly how it works, because I don’t understand completely myself. We caught a bit of a break with mum’s property. When she took the funds out, interest rates were quite low. When we came to exiting, interest rates had risen which meant that they’d passed a threshold in one of the early repayment conditions. This meant that there was no early repayment charge (which in our case would have been an additional £16k).

So you had offers but were rejecting them? The difference here is that I marketed the house at a realistic price and accepted the first offer, which fell through because of the buyer, and then accepted another offer almost immediately. The ER company were in monthly contact with me and knew about all this. They didn’t bother because they knew the interest was clocking up and they’d get more money following the sale.

@Soontobe60 We had one offer which was ridiculously low. The second offer we accepted but they pulled out. We had to explain all of this to the company. I know you still have to go through the stress of a sale when someone dies , but this was an added layer of complexity that we just weren’t prepared for.

No early repayment fees when moving to long term care or death, You can also take the loan with you of you downsize, assuming it is a suitable property.

I'd definitely approach the idea with caution. I've recently discovered (whilst helping DM sort things out now that DF has died and she is struggling with her health) that my parents took one out about 10 years ago. DM could really do with moving because the house and garden are too big for her to look after plus the house is in a fairly isolated area and she can no longer drive. But if she sold and paid back the ER there would not be enough money left to buy somewhere else and pay for moving costs. So she's basically trapped in an isolated house spending her limited savings and pensions on trying to heat and maintain a house that's far too big for her.

I'm getting increasingly worried about the difficult and stress that will inevitably be brought about by this added complication when we do have to sell it. Particularly because I think it's fairly likely that she will need residential care at some stage and and I'm not sure how the ER impacts what I could do as POA, or the process of selling the house. If we do not need to sell the house to pay for care I'm sure that there will be very little left after paying the ER and all the interest. This would not bother me if my parents had used the money to fund an enjoyable lifestyle but actually it looks like they used it to fund maintenance/refurbishments on a house that was too big for them, when they would have been happier selling and moving to a smaller place is a more convenient location (which they would have been able to afford if they sold before they took out the ER).

She should be able to port the loan to the new house, so she can still downsize. Check the original paperwork or speak to the lender.

@Nevernonono That's useful to know, thanks. We're just trying to navigate all of this and mum doesn't seem to have any idea what she signed up to. I will definitely read the fine print and speak to the lender. It's just another hurdle to overcome when mum could really do with moving but is scared it will all be too stressful and difficult.

You’re welcome to DM me, I cannot give you advice, but I can guide you what to ask.