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’ve had three mortgages in my life. Two in my sole name, one joint, the first in 1998. Not once have I ever been asked to take out life insurance. It’s never even been alluded to by a lender. So I don’t think that the OP should rely on finding an as yet undiscovered life assurance policy to get her mother out of a financial mess. In any event, it’s obvious that selling and buying something smaller is the best solution.

Ok looked into this for Citizens Advice a few years ago:

• ER companies seem to typically buy properties at an undervalue. They’re in a unique negotiating position and argue that they’re giving you convenience in return.
• Financial advisors can be unscrupulous. Several complainants said their FAs had totally missold them the ER vision. However the FA will get you to sign a statement saying you have fully understood what ER entails (sometimes without setting out what they’ve said) and after that your rights against them or the ER company are limited. Why would a FA do this? Well they take a cut (usually a referral fee of sorts). It’s in their interests for you to do the deal.
• So what can go wrong? Well what if you need to make repairs to the house, or want to make changes to it? The ER company owns it now and can stop you from doing this (in case not up to standard) and they can refuse to do it (it’s their house). What if you need care? The ER company can claim you need to move out as the house is no longer suitable for you. What if a family member wants to move in to help you, or you want to take a lodger? Again, it’s not your house anymore and the ER company can refuse to allow this.
• As the OP has gathered, there’s then no inheritance for the next generation (unless some cash from the sale left over).
• Once the house is sold by the ER company (upon the occupant’s death or needing care) the ER company will want to sell the house on asap, so you need to be ready to remove any items fairly swiftly.

Always remember - ER is an option, but the ER company and your FA aren’t really on your side. They’re looking to get the most out of you (lowest price on the house, get you out of the house asap).

If you don’t like that, what are the alternatives?

• Sell the house (at full market value) and find your parent a more appropriate and manageable property.
• Keep the house but take in tenants. That’s asking for hassle but am including it here just in case.

Not a professional’s opinion… just what I found when referring people at CAB on to specialists.

I think this advice is quite out of date. I think most equity release products now do not involve the sale of the house to the lender. The lender simply provides a mortgage but instead of the borrower the interest, the interest is rolled up and compounded. The lender is repaid on the sale of the house when the borrower dies or moves into care. You should also ensure that there is no requirement for the borrower to repay more than the total value of the house when sold.

The main issue is that the rolled up interest does mean that in the later years the total due to the lender will increase quickly, but that be okay for some.

@Backstreetsbackalrightdadada

ER companies don't "buy" properties. They issue a mortgage on a property who's title deeds remain in the name of the owner, just like any other mortgage company.

It is true that they tend to be stingy with valuations. All this means in practice is that you're getting the mortgage on a smaller amount. So for example say an ER company calculates on the basis of your age that they're willing to lend you 40% of the value of your property, which agents and ordinary mortgage companies would consider worth £500,000. You think "great, I can get a mortgage for £200,000. But then they come round and survey your house and say in their opinion it's only worth £475,000, so they'll only actually give you a mortgage for £190,000. You're no worse off than it they'd said £190,000 in the first place. The interest rate is the same, and your house is still worth the same amount.

It's also true that you need to get an ER company's permission to make MAJOR building works, but that's true of any mortgage, not just ER. Obviously if a company has a financial interest in your house, they don't want you doing anything that will reduce its value.

And you can get ER deals that allow you to have lodgers, though you have to specify that at the outset.

It's probably true that the conditions attached to ER mortgages are, on balance, slightly more onerous than those attached to ordinary repayment mortgages. But that's just a question of knowing what you're signing up to. The agreements are not terribly long or complex so like any major financial commitment, you read them and if necessary negotiate or look elsewhere. The idea that they "own" the house and can automatically decide everything about it is simply wrong.

Seriously, I would look to sell and move, especially if it is a large house. My parents and MIL are now in their early 80s in houses they can’t manage with stairs they struggle dangerously with. They are now too old to manage a move or cope with the change required and the sorting necessary of their large houses. They all wished they had moved 8 years or so ago to a smaller manageable place on a single level. Your mum’s age means it is a good time to move. Equity release would prevent her ever doing this and the house would still require maintenance that she doesn’t have cash to do.

Actually I think we may be talking about different things. @Backstreetsbackalrightdadada seems to be referring to home reversion plans, where a company DOES indeed buy a percentage of your equity and then lease the property back to you. I have read that these are typically poor value.

What we've been discussing on this thread is lifetime mortgages which don't work like that at all.

It is true that both of these plans (and others) come under the umbrella term "equity release".

I'm sorry you have all this to struggle with on top of your loss.

Your mother has always relied on someone else (her husband) to manage
the money so she didn't have to. Don't get trapped in that same role. It's not sustainable; you cannot support her financially.

She has to face up to her new reality, paying all the bills herself from state pension.

She has to let go the emotional attachment to a house SP can't heat or maintain.

With £270 K from selling it, could she buy a small flat closer to family?

One thing it's worth mentioning op about the house sale, we lived in our family house for more than 20 years. I loved it as did the DC. Although it was a choice to move, I was expecting the packing and moving days to be traumatic and emotional.

Once everything was packed, the pictures were off the walls, the photographs in boxes and the furniture was on the van, it was no longer our home. It was a house, a shell, and it was very depersonalised. I was surprised that as soon as that happened and we left it was all quite unemotional.

Having gone through lifetime mortgages in detail within the last couple of months, I'd say treat this with caution. I think it's out of date in some areas.

You need to face up to the fact that she needs to sell, unfortunately, OP. She won't be able to run or maintain the house on her limited income. I can understand that you have memories tied up in the house yourself but while it's not really your job to sort out the financial details, it would be unfair to put the financial burden on your mum to keep the property. It's not an easy time for you at all, especially when you are dealing with the loss of your father.

Similar to other posters, I also had to take out some kind of investment policy to repay the mortgage for an interest-only mortgage in the eighties. By the time I moved in the mid-nineties, I was surprised to find that it would have been possible to get another interest-only mortgage without having to have a repayment vehicle in place, and the first one was assigned to the lender so it would pay out directly to them.

Sounds like your dad had no plan to pay off the mortgage and it was just a head in the sand situation for him too. Sell up

My condolences for your loss OP

My guess is that Dad took the interest rate mortgage as a way to afford the mortgage and on the basis that finances would improve

Life insurance used to be a thing with mortgages but is no longer a condition (think it was the 90’s this changed)

Personally I would start looking at smaller houses to buy outright. The stress of a mortgage or owing so much at mums age would be awful

@JupiterFortified

Can you approach the bank and ask for a mortgage holiday?

You also get an extra year to sort things out at the end of an interest only mortgage but the repayments will go up.

At the moment you both will be feeling a keen sense of loss. It's completely understandable.

My aunt was in a similar position many years ago. She decided on equity release, in hindsight it was the worst decision as her health deteriorated rapidly after her husbands death. She now lives housebound on one floor, can't access her garden, can't visit friends, 4 hours away from relatives, with no option to sell and buy a suitable property. As she's housed she's not entitled to help.

I'd advise you to ask the bank for a mortgage repayment break in the short term.

I'd start to go through and declutter. Get things in order before the spring. Then when nice suitable properties appear on the market around Easter you can consider them.

Could she move in with you in the meantime? Some difficult decisions to be made. But better to make them with a choice, than have that choice limited or removed by doing equity release.

It's also wise to fill in the forms for welfare guardian and POA on the government web site. This will enable you to help her with financial and welfare decisions if she nominates you.

Sadly been where you are and with hindsight this is what I'd do.

@JupiterFortified so sorry about your dad - hopefully this might help. My DM had my brother living with her in the large family home which helped cover the costs of running it. Finances were very tight. Then my brother died very suddenly one evening. My DM looked at an apartment the day after his funeral and put the family home on the market and sold the same day! We moved her in to the apartment a few weeks later. This enabled her to live in a warm modern home, not worry about bills and the ground maintenance is all covered. She’s in her late 80’s and the downsizing has given her a new lease of life. She has no money worries and is able to afford meals out, holidays, has a great social life and goes to lots of activities- she says she has to do what she can as doesn’t know how long she might have left! She’s so pleased she doesn’t have to clean and maintain a large family home - memories you take with you.

You are confusing two types of Equity Release in the one post and some of your info is well out of date.

In relation to lifetime mortgages the adviser can only recommend ER once all other options have been considered and discounted in writing.

You receive a recommendation letter and a personalised illustration showing what you'll owe at every year end for the rest of your life expectancy.

And you have to meet with your own solicitor who has to discuss with you the implications of the action you are taking and then sign a declaration to that effect for the lender. If they don't sign that then there's no loan.

No such disclaimer as you've referred to exists today.

in relation to fees, you agree the fees with your adviser in advance and they have to disclose that before the application is submitted.

The FA is most definitely on your side. As is your own solicitor.

And in the event of you dying or moving into permanent care it isn't the lender that sells the house. You or your representatives typically have 12 months to repay the debt. If there are other assets available the house doesn't need to be sold. If you don't settle within the timescales then the lender can take possession and sell it themselves.

You own your property until you no longer needed it, aha the lender can only require you to upkeep it to the standard it was at when they lent you the money. If you can't afford it they can have the work done and add it to your debt.

sell the house. if you do equity release you lose the house anyhow?

I suggest googling the Age UK fact sheet on equity release, which has useful info on the subject plus alternatives

My ex inlaws took out equity release when exmil started with pulmonary fibrosis 7 years ago to do adaptions to the house. Mil passed away 2 years ago & fil passed away a month ago. Doing this has caused chaos now with the will & exh & his siblings are having to sort it out. It looks like there will be very little left from a house worth £150k even though they only released £35k. This means there will be next to nothing to be shared between them, ds & his cousins. Could you change the mortgage to interest only until dm gets her finances sorted out? Don't touch Equity Release with a bargepole, it is a rip off.

You retain ownership of your house if you do ER via a lifetime mortgage, which is the most common form of ER.

If they only did it 7 years ago then it's unlikely that the debt will even have doubled in that time, so something is out of kilter with your comments.

Remember that ER is you using someone else's money indefinitely with no regular repayments bring made by you for the use of those funds.

You can pay the interest if you don't want it to compound.

It isn't a rip off, but it can be an expensive way to borrow if you don't service the interest.

This is ridiculous OP - why does your mum need a £450k house on her own and your parents have been incredibly stupid to have an interest only mortgage in their 70s with no means to pay it in the event of one of their deaths.

The house needs to be sold

She needs to move. Could she even afford the upkeep on a house? You need to be frank with her - if she is of the generation where the man did all the finances then she needs to know that sadly your late father wasn't very good at it (who has an interest only mortgage with no repayment vehicle?) and that she is going to have to be realistic about the consequences of this. Sorry for your loss and all of this on top of your grief, it's very difficult.

What did she decide to do op?

This thread is quite old.

I think OP you need to do the sums very carefully and disregard people with a blanket view of 'downsizing is best'

Firstly, she will have bills and maintanence wherever she goes and these will be worse if she buys a leasehold property. Do not under any circumstances go for a 'retirement flat' in a complex, not only do they cost the earth for service charges and maintenance but once you come to try to sell it when she passes, you cannot get rid of these things and the charges rack up while you're trying to sell leaving it virtually worthless with monies coming out of the estate

I might have missed it but OP didnt mention how big the house is that her mother is in, people are assuming a massive house but if its worth 450k, it could be a 2 bed terrace depending where they are in the country so I dont know why there is an assumption the upkeep and bills are beyond her.

Then there is the selling and buy costs if she downsizes, thats if she can find somewhere cheaper which is suitable.

Its worth looking into the schemes, it sounds like the best of a bad bunch of options.

There's a significant amount of interest only loans out there with no repayment vehicle in place.

The ambulance chasers did a wonderful job of getting people to cash in their endowments and claim compensation but sadly many then never converted to capital and interest because of the expense, so they get to the end of the term with no way to repay it.

I came across a lady whose husband had died and she didn't know they'd cashed in their policy so she had the double whammy of no life assurance, no capital to repay the loan and a looming deadline for repayment.

ER worked for her.