Equity release? We’re desperate :(

[JupiterFortified]

If anyone can please offer any advice I’d be really grateful.

My dad recently passed away and my mum is left with a house with a large mortgage remaining on it.

The mortgage ends soon and we have no means with which to repay it (mum
only has state pension income).

Following dad’s death I don’t think she’d cope if she had to move out of their home :(

So we are thinking her only real option is to apply for an equity release mortgage to pay off the mortgage - does this seem like the best option?

I am lost. For what it’s worth, I’m not worried about any potential inheritance being eaten up by the interest on the equity release. I just want my mum to be able to keep her home :(

I work in the property industry.
DO NOT USE EQUITY RELEASE - NOT NOW - NOT EVER
Just downsize

Sorry, I know its tough emotionally but I also think the equity release is battling the inevitable.

I have a 4-bed 50's house, medium garden, and there's no way I'd want to live here alone unless I had a huge income that I could throw at builders, handymen and gardeners. And our combined gas/electric last month was over £400 without a huge amount of heating.

I'd work on finding exact financial details as suggested above and finding out just where you are before rushing into anything- given a few months your DM may decide moving is the best option anyway.

Agree with @DecayedStrumpet. My SIL is widowed and stuck in a house she can't manage without spending a lot of money on help. She's getting really frail now and it's such a worry.

It’s not a new thing. I started with a mortgage in 1987 (still have one now) and you always had to prove how the mortgage would be paid at the end of the term or if one person was to die. So say your partner was to die how would you pay the mortgage?

it was a very sensible decision. I don’t have life insurance now as my mortgage is small enough that I could pay it off if required.

interest only mortgages always have to be paid off at the end of the term or converted into repayment mortgages. Most people plan to downsize as Interest only enabled them to borrow more at low interest rate and get a bigger house. So hedging your bets that interest stays low and house prices rise. But at some stage that lump sum needs paying back.

Yes, this seems like the real problem with the plan to me, rather than the hysterical and inaccurate claims being made about equity release.

A single old person living in a massive old house full of empty rooms just makes no sense. It's going to cause all kinds of ongoing problems of maintenance and expense, which could be avoided by just facing the situation now.

Your mum won't die from having to move house. Stuff that reminds her of your dad can be taken into the new house. To be honest I'm a bit confused how they developed such a sense of permanent attachment to "their" house - "the" family home that carries their whole identity and sense of belonging with it - with a house they had a time-limited interest only mortgage on and no plans for paying back.

They may have had no understanding of what that meant, but that doesn't mean the reality of it can just be ignored.

An alternative to equity release is a retirement interest only mortgage, also known as a RIO, which are for people over the age of 55. You only pay the interest on the mortgage and it is repaid when the borrower dies or goes into care. How much you can borrow will depend on your income which includes pensions, plus other things like the value of your home. Only a few lenders offer these including some building societies but there also a lender called LiveMore that specialises in lending to people over the age of 50. They accept people with current interest only mortgages. Might be worth having a word with them or seeing a broker that understands about mortgages for older people.

If my partner died, I'd pay the mortgage using my salary. I can afford it. And vice verse if i were to die.

I would also add, not from a legal but a personal perspective.
You have been handed this problem to "solve". You do not have to find the perfect solution, you did not create the problem, your parents did. You can support your Mum in coming up with a plan of action but it is a natural consequence of decisions you had no input into. She has sufficient resources due to the equity to put a roof over her head and live for the rest of her days.
I am dealing with my elderly mum who is now wishing that she had shared the inheritance she had from her parents with us and her grandkids years ago. My view is "there are things that you could have done. You did not do them. That's not an issue I can fix, it's not an issue I created".it's sounds really cold when we actually have a great relationship but it helps when I feel overwhelmed/pressured into something that really is not of my doing.

Areotters, don’t forget that when a partner dies the remaining partner will find they have additional living expenses, for example paying all of the utility bills, not sharing the cost, paying three quarters of the council tax bill , any repairs or house maintenance costs will come out of a single salary, as will payment for services like a cleaner, gardener, window cleaner. Paying for Christmas and birthday presents for friends and family will be one persons responsibility. All these expenses add up and can put a strain on a single salary/ pension. A good life insurance policy, or critical illness can really make a difference.

It really is well worth both parties considering taking out insurance, preferably to repay all or part of the mortgage, but at least to pay for additional expenses the surviving partner will have, including of course funeral expenses.

I know my own financial circumstances, thank you!

I'm not saying her people should or shouldn't take out life insurance, just that none of the lenders I've used have required it, and I haven't needed it. A quick Google has shown me that there are a fair few lenders who don't require it.

@Iamthewombat we saw a mortgage advisor in 1999, she was a complete idiot who couldn’t even work the financial database so DH had to show her. Needless to say we didn’t deal with them again and do our own research. Unfortunately understanding financial products and outcomes is very poor in the UK. As much as some people are on a low income and whatever they do it’s hard many just don’t have a clue. I marched my own sister down to the bank aged 38 when I found out she didn’t even have a bank account.

Agree that you shouldn't rush into a decision.

See if the mortgage company will agree to a payment holiday while you work out your next move.

Pull figures together so you have a full picture of your parents finances - income your mum will have, expenditure on bills and reasonable house maintenance.

Try and think long term - will the house work for your mum if she becomes frail? i.e. downstairs bathroom, room that could become a bedroom. Is it close to shops, GPs etc. Can she comfortably afford to live there for another 20 years?

I never had to have life insurance from 1985 to 2010, whenever I bought a new house.

My understanding is there are a significant number of Interest only mortgages about to reach their term in the next 5 years or so

People should have a vehicle to repay them but often don’t for lots of reasons

You have had mixed advice here

my thrupence worth is
1 .Speak to lender to get a bit of time/breathing space

2.Take legal/financial advice

3.Listen to the advice and don’t be wedded to keeping the house at all costs

We did not need to get life insurance either for our mortgage although we did. It was recommended, but not compulsory.

Hi OP,

I can't help with equity release but I would double triple check for life insurance.
I've worked in LI for 8 years and the amount of people calling in that don't realise their relatives had a policy, it's almost daily. We also have a small number of policies that go unclaimed for a long time as relatives are unaware of them. Eventually the direct debit will be cancelled and the policy will lapse off which is sad. But please double triple check.

Check his bank statements. All different accounts. Check your mums / his / joint.

Not all direct debits have the insurer on them for reference. Some will just have a policy number. Some might be the name of an IFA or broker (so not the standard insurer name IE Aviva legal and gen etc)

With his previous employer, if he was still employed, check for a death in service benefit. Some employers, although rare, have a DIS in place for x amount of years after employment ceases and are retired.

And lastly, again this isn't that common, but some people pay their insurance via yearly instalment, so won't show on bank details. Legal and general accept this method as do AIG.

And if there is any chance he was going through a life insurance application at the time of this death, depending on how he died (I haven't RTFT) they cover accidental death cover whilst going through the underwriting process.

A lot of above probably doesn't apply to you, but I thought I'd just give you some pointers just in case. If you need any advise further on the above feel free to PM me OP. Best of luck!

That’s great. Stay healthy and employed. 🙂

Lots of good advice above but I would also say, talk to the mortgage provider to see what help they might be able to offer, even if it's only a reassurance that nothing will change overnight when the mortgage term ends.

I was in a similar situation last year but was able to remortgage interest only again. I was told that even if that didn't happen, they would offer support to sell the house, that it could all take a while and it's not uncommon for people not to have moved out 6 months or a year later. They're not going to turn up with bailiffs. As long as she keeps paying the existing mortgage amount and is in discussion and communication with them about what's next.

Longer term she is getting older - can she manage the house / stairs etc anyway??

Is this not a perfect chance to pause, readjust to a life / house that fits to the next life stage and move on?

Smaller?
Single level?
Closer to amenities / GP / bus stop etc

Seems like a no brainer to me so I'd try to move away from the emotional side as the practical benefits are so obvious!

You've got good advice here. Meanwhile, while you sort out your Dad's affairs, talk to the mortgage company and keep talking to them. Sadly they tend not to be as helpful as many here seem to think, but keeping in touch with them is important if your Mum can't afford the current mortgage payments now.
As your Mum could afford to buy a smaller property with the equity that would be left after selling the house, honestly that's going to be a good course of action for her. Don't get sentimental about bricks and mortar, think about what will be good for her long term. You can help her by not dwelling on the family home stuff but keeping the focus on how nice a smaller placewill be... cheaper to heat... maybe sheltered so company and help available...

Equity release does have it's place in my opinion. If an individual or couple has an interest only mortgage coming to an end. If they wouldn't have enough equity to buy a smaller home after repaying the mortgage. Then equity release means they can live in the house, with no mortgage repayments, until both of them die. It means that their inheritance to family is reduced, or even vanishes.
This is what Age Partnership would make very, very clear before anyone signed the paperwork. The downsides - the "lifetime mortgage" will likely be a higher rate of interest than regular mortgages. The interest charged varies depending on size of loan and age or loaners, but people are paying around 9% at the moment. Then it's compound interest - so the interest that isn't being paid by the loaners is added to the original loan, and then interest paid on the total. Meaning the loan gets bigger all the time. So for example - I saw figures on a £150k equity release mortgage recently and if the property had been sold after just 12 months there would have been about £165k to pay before accessing equity. Charts are provided showing exactly how the loan increases each year. So, even if there is a lot of equity in the property at the start, people need to be very aware of how quickly that will reduce in even say 5 years. You can sell the property at any time, to downsize of if someone goes into care, but the equity remaining is dropping.

Legally now the amount owing on the equity release can never exceed the value of the house. When the property owner dies it's important to realise that the mortgage company are in control of the sale and they sell the property for what they consider a fair market value, take their money, and the family get the leftovers. I don't know how it would work if the family disputed the value of the property when it's sold, that could be interesting.
I was looking through all this just before Xmas, helping some friends who were considering taking a lifetime mortgage of £150k on a £350k house to repay an interest only mortgage. They were offered £141k lifetime mortgage that they would have had to top up to pay the existing mortgage. Recently the amounts being lent have dropped a bit and the interest rates went up. In just about 4 weeks the interest rate they could have had went up by 2% and the loan amount went down by £9k!

How embarrassing and yet loads of people probably bought endowment plans from her (in the kingdom of the blind etc).

I can’t decide which type of mortgage advisor from that period was worse: the bumbling fools who couldn’t answer a simple question or the type who told you that you were stupid and/or a plodder for not buying an endowment from them, and for preferring a mortgage that would be safely and predictably repaid. I usually shut them up by asking to see their discounted cash flow calculations. Their poor little faces. Haha.

That’s great. Stay healthy and employed.

I find this attitude odd. If a couple aren’t mortgaged to the extremes of their joint affordability it probably doesn’t justify sneering at their lack of mortgage protection insurance.

I didn’t take out insurance with my first mortgage in 2007 nor my most recent one, but my monthly mortgage repayment is 1/3 that the rent would cost so I think I’m ok. No one insists that people who rent should insure their income for paying their rent…

Thank you! We both earn ok money, and we arent mortgaged to the hilt. Our outstanding mortgage is less than 1x our individual salaries.

Plus we both have death in service benefits through our jobs should the worst happen - which also exceed our mortgage.

It's pretty patronising to assume that anyone who chooses not to insure against a risk is just an idiot who hasn't considered the risk properly.

I'm afraid I'm in team sell. Even if your mum can sort out the mortage, a family home will be too much for her to heat, clean repair etc as she ages on state pension.

There is a huge family home shortage and your mum has a family home to herself another family could make amazing memories in like you did. She can buy a smaller, cheaper place that suits her needs like a bungalow or flat in retirement community she can make friends in.

Make sure she looks into benefits. If she only gets state pension she could be eligible for pension credit. It's somewhat of a gateway benefit to getting help with other things such as council tax, heating, tv licence etc.