AIBU to ask about equity release?

[showmethemoulah5]

NC as paranoid.

So my mum lives in a house worth between 1.6-1.8m, there is about 60k left of the mortgage to pay off. My mum doesn't want to downsize for a long time but she would like to help my younger siblings onto the ladder (she would give me some too). She has been looking at equity release, as apparently this is how a lot of parents help their kids these days.
Apart from the adverts on TV I don't know much about it but thought it had negative connotations. My mum did say they are better now & more regulated plus you can pay back interest monthly to keep the repayments down. Plus her argument is that 200k is more useful to us now than say 400k in 20 yrs times (made this figures up).

Mum still works 2 day a week, has an ok pension & a holiday home.

Obviously she would seek expert advice but thought MNs might have experience, opinions, etc.

You need an IFA

All sorts of implications here around inheritance tax, deprivation of assets if she needs care, etc, plus the fact that you're basically extending a mortgage so the interest / charge is still a factor.

Tbh on first glance it sounds like a spectacularly bad idea based on no real understanding of how to do estate planning - your mum needs to speak to someone more than laymen on MN who knows her estate and has proper competency here, the risks are too high here.

Sorry.

this is how a lot of parents help their kids these days

Who on earth has told her this?

They are better than they used to be, but I think they are still expensive.

Her age would be a factor I think, because obviously if she is, say in her 60s and in good health, she has a much longer lifespan than she would in her 80s, so much longer for interest charges to rack up.

If she is relatively young, and has the income to support it, she may qualify for a standard remortgage. She would have to see a broker to see if there was anything she qualified for and if it was cheaper than equity release.

I don't know if there are such products as 'family mortgages' that would be suitable if your siblings had the income but not the deposit to buy a property, with the deposit secured on your DMs home? Again, talk to a broker.

Equity release ? Why would she not remortgage? Rates are lower and she still has control over her property.

I dont think she has grasped the equity release is selling a percentage of your home and paying through the nose for the privilege of it.

Be careful: interest compounded over many years adds up. A rate of 5.5%, for example, compounded annually on a £100,000 lump sum would add interest costs over a ten-year period of around £71,000.

www.onefamily.com/hub/finance/the-pros-and-cons-of-equity-release/

Steer clear, steer clear, steer clear!

That really!

Hi, I have seen and dealt with professionally people who have been really abused by this and got themselves into needless trouble with the Inland Revenue. I really don’t know if anyone does it properly but, from what I have seen, I would never let an elderly person in my family near an IFA who specialises in this. The way these schemes work, everyone involved will be looking to to make a percentage on the money withdrawn. It is a very expensive thing to do.

^this is how a lot of parents help their kids these days

Who on earth has told her this^

Apparently 'The Bank of Mum and Dad' is the 6/7th biggest lender in the UK at the moment, ie more money is lent/given to DCs for property than some of the top ten banks/building socs in the UK.

Obviously some parents do this. How prevalent it is will vary enormously depending on the wealth of people in your circle. It's certainly not common amongst me and my peers.

But then neither is a house worth £1.6M plus. If I was in that situation, I would be retiring now in my mid 40s. Sell the house, live somewhere cheap where a nice house can be bought outright for £200k ish and use the rest to save/invest to live on for the rest of my life.

There was an article about this in the Times last weekend. It was saying that equity release has been "updated" and is not as bad as it was, but there are other options such as a lifetime mortgage with the Nationwide (I think).

If the house is worth that much, I'd be inclined to move somewhere smaller and cheaper and give the kids some cash. She doesn't need to downsize to a poky flat with that sort of budget, she could still have something really nice and have loads of money left over.

Equity release means you sign over ownership of the house and get significantly less for it than it would reach on the open market. And I don't think any of you would get anything when your parents die.

Bad, bad idea.

As ^pp said, remortgage it.

O/t I dont understand why anyone my age hangs on to a big house when you could sell up and sod off down to the coast and have a nice little bunglow and and some quality of life

yes, DH, this is my genius plan!

She definitely needs advice from an independent financial adviser

Which she'll have to pay for but it's still cheaper than making the wrong decision about a property of that value

Splinters I completely agree with you. However, in relation to my own DM, who is on her own in a 4 bed semi, she has lots of friends on the road she lives on, it is near relatives that she helps with childcare and it is on a good bus route to the nearest three towns.

Also it is full of 40 years worth of 'stuff' so for all those reasons moving would be a big deal. Although she does seem to be slowly having a clear out so maybe she has a 5/10 year plan? Selfishly I hope so, because the task of clearing her house if/when she moves, eg if she has to go into a care home would fall to me and my sister and there is currently so, so much stuff.

And as her house is probably worth about 10% of the OPs DMs, there isn't much scope for downsizing financially - there are 2 bed bungalows in the same area, but they aren't any cheaper.

Echoing others: remortgage and release equity that way.

albaub

"The third quarter of 2017 saw £824 million of property wealth accessed through equity release plans, up by 44% year on year from £572 million in the third quarter of 2016. New customer numbers also increased 34% from 7,414 to 9,905 over the same period. As a result, the market is on course to record double digit growth in lending activity for the sixth successive year."

I think it's becoming increasingly popular, just proves the theory that very few benefit from massive house price growth.

Barbara mid 60s & thinks she won't live till her 80s, she's a tad dramatic. She would never move away, her downsize option would be 700k as she wants to stay close to us, my kids & future grandkids. Plus she's an immigrant so wouldn't leave her friends, no partner. The high street is 5 mins away, tube 15 mins & she has off street parking. She thinks these are essential when getting older. She has a nice life, her job is super easy & she goes on holiday at least every 2 months. Holiday home in region of 250-300k.

socialmisfit will tell her about Nationwide, she will eventually downsize (it's too big for her) but it will take her years & she's worried that house prices will rise even further out of reach.

equity release is generally quite punitive compared to remortgaging but it depends on whether she can afford the repayments.

I believe there can be large penalties if you get out of it before dying, say if you want to move

Can she not sell the holiday home and then save for the holidays instead?

These things are a nightmare

Barbara Re your last post I feel your pain I think it's about 3000sq ft & she's filled every nook. She's not read Marie Kondo obvs!

Equity release eats capital very fast and should be a last resort option only....not for your DM!

However interest rates are very very low, so as she is working she would be eligable for the best deals......why does she not remortgage and give lump sums to DCs as others have said...

In order to remortgage on her own, the OPs DM would need an income to support a £260k mortgage, from the figures mentioned, which would probably be at least £60k. I don't know if that would be with or without the pension. She would also have to be able to afford the repayments, obviously.

For equity release, no repayments are required and there are no income requirements, so whether the remortgage option is available, would depend on whether she has the income, which would be unusual, although obviously not impossible, when she works 2 days a week. Also some lenders require mortgages to be repaid by a certain age, which would restrict choice.

Yes Barbara I think she would be looking at taking around 500k from the property with a view to us/her paying some of the monthly interest. She wouldn't want a mortgage of 500k & she plans to give up work in next few yrs

Thanks for the advice.

Wouldn't touch equity release with a bargepole. I know someone late 80's who have been ill a very long time yet going strong despite not being expected to did equity release on their house got about £50k yet house now worth about £300k but have nothing to leave their 3 grown up DC and 6 gdc. Not a chance I would go for something like that.

I also wouldn't touch equity release with a bargepole. The percentage of equity release may have increased but it in no way means it is the right thing to do. It's unlikely to happen with a house worth 1.6m but it depends how much equity is taken out and how long your mother lives - in many cases after death of the owner there is nothing left of the property to be inherited as it's owned 100% by the bank/company.

In my case, if in the future I need to go into sheltered accommodation, I want all of the sale value of my home to be available to pay for best possible care rather than end up in a home chosen and paid for by the council which could be of very poor quality.