.. to ask for your thoughts about equity release?

[LeftieRightsHoarder]

I have an 80-year-old friend who plans to raise money on her mortgage-free home through equity release. She has a good chance of living 15-20 years more, as she is active and healthy, and comes from a long-lived family.

She has no children or other dependants, so is not bothered about having nothing to leave. But I have never heard anything good about equity release, and I fear she could find herself homeless and penniless.

I would very much appreciate advice or information from anyone who knows anything about equity release, or knows people who have tried it.

I found a useful article by impartial researchers here: https://www.durham.ac.uk/business/impact/finance/the-darker-sides-of-equity-release/

Thanks for any advice.

Would downsizing her property be an option to her to release funds? Might be a safer option maybe?

I havent heard good things about equity release so would encourage investigating other routes with less risk.

Generally downsizing is a better way of releasing equity.

However, there’s nothing inherently wrong with equity release and all reputable companies will guarantee she never owes more than the property is worth and that she can remain living there until she dies or moves into care.

If she doesn’t care about leaving an inheritance, the main risk is that she will want to move in the future but can no longer afford to do so.

But she will need financial and legal advice. They will explain all this to her. If they can’t / don’t, she should definitely not proceed.

I never understand downsizing to release funds. Unless your home is worth millions, after fees and moving costs, realistically how much will you release? It might make sense for easier and lower running costs, but with the best will in the world, moving from a £400k house to a £250k flat, after costs, isn't going to give you a lot of cash yo play with, and if you want a bungalow, moving smaller probably won't release any cash at all.

Equity release sounds perfect for your friend to me.

It could release about the same amount as equity release, depending on age and health… plus you could always do equity release on the smaller property in the future assuming it’s not a retirement flat.

I’m definitely not in the “equity release is a scam” camp, but it does reduce future downsizing options and she needs to be aware of that.

I work with property lawyers and they always say they would never do an equity release themselves which tells me everything I need to know.

When we get customers who have used an equity release, our heart sinks because you know we almost certainly wont be able to help them.

It's up to your friend obviously but I'd strongly suggest she gets an independent lawyer to look over the paperwork and make sure she understands it thoroughly.

From what I've heard, equity release is awful, and the interest compounds over time, so a simple £10k loan can be £100k after 10 years.
Like @TheRealLillyAllenVerifiedAccount get a good lawyer to check the interest rates and the paperwork

It's a PITA for whoever is tasked with selling when she's gone.

My dad did this. It meant he had a better retirement than otherwise. He lived much longer than he expected but given he spent his last years in a care home, much of the equity he might have had would have gone in care fees anyway.

There is always an interest only lifetime mortgage sort of equity release on the property to consider where there won’t be any debt accruing.
There is no upper age limit.
https://www.mortgageadvicebureau.com/mortgages-for-over-50s/what-is-the-oldest-age-you-can-get-a-mortgage-in-the-uk/

Given her life expectancy whether she takes a lump sum or regular payments, she’d be able to pay the interest from either so she never goes into debt.

Downsizing is hard at her age, it would take her out of her social support network and she’d have to live in an unfamiliar house and surroundings. Many elderly people suffer poor health when moved so late in life.

She doesn't have family to leave it to so why not, might as well have the cash now and have a spending spree.

That will also put a stop to all the distant gleeful faced relatives coming out the woodwork looking for a cheeky little windfall when the time comes.

Rough rule of thumb is that the amount you borrow doubles every 10 years. So £10k becomes £20k after 10 years, £40k after 20 years etc.

@LeftieRightsHoarder at her age, I wouldn’t say it’s a bad idea (the older you are, the better - ER too young isn’t the best use of freeing up cash). I’d definitely encourage her to seek independent advice, especially around costs of any care needs as she gets older.

I think those who are single and without children are probably in the best position to consider ER, as you’re not worried about ensuring your estate is left for family. But it’s still best to explore what costs may arise as you get even older.

Downsizing isn’t always as easy an option as seems to be thrown around on here. Bungalows (in my area) are ridiculously expensive. Then factor in stamp duty, legal fees, moving fees, bloody stress etc. it’s not an easy solution a lot of the time.

This has raised a question for me - if you do equity release at 80, and then need care, you’ve effectively reduced the value of your main asset at sale. Does that complicate things when social care are requiring house to be sold to fund care? Do equity release firms ‘allow’ a charge to be put on the house they have an interest in?

Why do they say this? What do you mean ‘most certainly won’t be able to help them’? Help them do what?

Not correct.
My mum took out ER of £16K and when she died 8 years later the amount owing was £42K.

My understanding is that the worst thing that can happen is interest payments . mean the whole value of the house eventually belongs to the equity release company after a number of years. OK if you die in that home and don't mind leaving less in your estate. Not good if you need to move somewhere else.

Absolutely no issues with selling my DMs house when she died. The ER company is no different to a mortgage company - you sell the house, the conveyancing solicitor pays off the ER company and the rest is paid to the Executors to be given out to any beneficiaries.

An absolute no from me, downsizing is better.

If this situation arises, the LA take the amount owed to the ER company into account when completing their financial assessment. A charge wouldn’t need to be put on the house because it would be sold to fund care costs. At the same time, the ER loan would be repaid.

Why?

This. The problems if any are normally left to the inheritors of a property and cause little issue to the person who releases the equity as you can opt for no monthly payments.

If you haven’t got family to leave money to then I think it’s a good idea. You will have a home to always live in until you die. I think there have been improvements in equity release over the years.

@LeftieRightsHoarder Do you know what she wants the money for? Is it for a one off thing or is it to supplement her other income to help with cost of living?
Understanding her objectives is the starting point to then seeing whether or not equity release is the most suitable way forward.

If she has no dependants, it's a good idea. It just means her estate will be worth less when she dies. I have a friend who's a qualified financial advisor who plans to do this and she's only 65.

With all the expense and upheaval involved? Equity release would make more sense.

A no from me too. If she has to be in hospital or care home for a year her home can be sold by the equity release company. I'll be downsizing.