Equity Release - surely it’s the next financial scandal

[mastertomsmum]

Elderly relative of my DH is going through the process of moving into a granny flat near her daughter. She has absurd amount of Equity Release and there’s also a clause saying she has to sell within a certain time now she’s moving even though she’s not buying another property. I’ve noticed that during daytime afternoon reruns of old dramas it’s a constant barrage of ads aimed at elders and a lot of them are about Equity Release.

The amount of debt and how the interest goes up is shocking. Should be the financial scandal.

I agree. It's always screamed massive con to me.

That and the over priced retirement homes that can't be sold - both criminal imo.

Oh yes, she looked at some of those. Amazing how many are also up for rental cos the owners can’t sell them

I still think that there needs to be a modicum of common sense as well, my DM looked at it years ago, decided that if it was too good to be true then it was.

If we ever feel we need more money we will downsize and use the equity to buy and invest the balance , to just hand it over IMO is lazy.

We have a friend who has just retired and done a form of this. She is single and has two adult children who don't live with her but visit. Has a house worth £270,000, mortgage paid. She released £70,000 as a low rate mortgage. She pays interest on the loan- which is at a set rate of approx £150.00 a month for the rest of the time she chooses to live there. When she dies or sells the house, the £70,000 has to be paid back to the loan company. So if she lives there another 30 years, she will have paid £54,000 in interest and the £70,000 will have to be re-paid. She says it is a good deal . I don't really know. In 30 years, her house will be worth significantly more so there will be money for her two children.

If she moved next year, she would have paid £1800 interest and would lose £70,000 from whatever she got for her house so would have to downsize.

There has certainly been plenty of press with financial columns in news outlets as different as The Mail and The Guardian advising that it’s rarely the best route to take. Martin Lewis advised that downsizing is a better option.

The DHs relative took a really huge amount of Equity Release despite having a good pension. Her family actually don’t know why or what kind of extravagant lifestyle she had been living. But that’s another story. She’s super lucky to have a daughter with apartment land

That’s definitely a more manageable proportion of the value of the house than the DHs relative. She could have downsized, we think as it’s 5 bed house that was rather lovely last time we visited a few years ago. I don’t know when she got the equity release. He daughter didn’t know until recently

My in-laws did some kind of equity release and the interest has been astronomical. When FIL died my BIL looked into getting it annulled as being missold but got nowhere because it was clearly stated at the outset that they should have got their own independent advice - they didn’t .

She obviously didn’t want to downsize though at the time and needed/wanted the money. I don’t think they are a bad thing so long as you understand all the pros and cons. It’s mostly the remaining relatives that feel agreaved as they feel they should have inherited more. Often the people that release equity, for many reasons, excluding making their life easier as don’t have sufficient pension income, sometimes paying off an interest only mortgage that has come to term, or helping kids, all B are valid reasons. Why have no money to live off but have a big house? If you don’t want to move releasing some equity can be a good thing. As mentioned above sometimes people service the interest to prevent it rolling up. If you end up In care your property will be sold to fund it, if you’ve had done equity and spent it, that can’t be used. It’s not a financial scandal. It gives people choices. Just greedy relatives that tend to disapprove as they expect to inherit more. Often why older people don’t tell their families.

I don't think it's necessarily a bad thing.

It allows someone to remain in their home until death and gives them enough money to live on between now and then.

I don't think the agreement is unclear or shady. Most people know what they are signing up for and are happy with the deal.

Most of those who complain about it does so due to the perception of missing out on inheritance but of their parent etc, didn't avail of the equity release they woukd have had to sell the house anyway so the inheritance would have reduced.

In this case I know them well enough to know that inheritance is not what her daughter is bothered about. It’s the feeling that her mum is in debt shade 80 something and also that she didn’t need to be

Financially, it’s better to sell and downsize.

Emotionally, equity release can be preferable.

There is no scandal - money is borrowed by the owner living in the property. They will NEVER be evicted due to that loan.

Agree that it’s mostly those who expect to inherit that are gutted when they find out the money’s all spent.

That’s as maybe, it can be ok within limits but that’s not how it is in this case. Also, her pension is thrice DH’s Dad.

Hmm, I don’t think I’d feel
like that. Apart from anything else, one never knows how much of the assets will be spent on care and I’ve certainly never assumed there would be much left after that

A lot of people have significant amounts of money tied up in their house but are cash poor.

If you aren't interested in leaving an inheritance then equity release or a number of other schemes can allow you to continue to live in the house while getting cash to enjoy life or for simple day to day living. Obviously this comes at a price - that generally is the price you pay for wanting cash but refusing to downsize.

Personally I think under certain circumstances it can be useful, but like anything you have to be careful you understand the terms and conditions and the price you are paying for your own inflexibility.

One thing that worries me is if people do equity release when they're still relatively fit and well in order to let them stay in the family home for their lifetime. They and their family are not too fussed about any inheritance as long as the older person can stay on in their home.

10 years later the family home may be totally unsuitable for their needs, they may be physically too frail to continue to run the house, manage to go up and down the stairs etc
If the interest has really built up on the equity release they may have really cut down on their affordable options if they sell up.

@ErmentrudeTheCow I agree with this. DFIL took out equity release at 6% compound interest Later down the line he could not afford to move somewhere more suitable & any money towards care home etc was drastically reduced. I think some of the equity was sensible but it sounds like he was "sold up" to take twice the amount. & yes he did not take independent advice but just listened to the FA / salmon sitting in his living room.

So in certain circumstances an amount can be a god idea , but years ago I am not sure it was regulated in the way you may have hoped.

@mastertomsmum I agree about the adverts and the timing when they are shown. I also agree that it is a potential financial scandal along with retirement housing and pensions.

I am a big believer in financial education at school and by employers to empower people to make informed decisions.

This is where our relative is at, basically her downsize is to a granny flat daughter because she gave up too much equity and had too much interest to pay. No one is worried about inheritance, although all are puzzled where it went. A cousin said that the home improvements were in no way that major and its mystery where any savings have gone.

Meanwhile, my own Dad is having to be persuaded to get a new stairlift even though he can afford it.

If you are in a position to help within the family, may make sense to loan the person the money against the house, but it would be important to get it drawn up by a lawyer ( so the debt is paid before care home fees) and let anyone else who may inherit know the person is borrowing against their estate, I.e. not to expect the full value of the property.

ILs did equity release, and then spent the money on “home improvements”. Not things that would make them more comfortable in the home, but things they thought would increase the value. They were very proud of it.

Now the house doesn’t meet their needs any more, but there is no equity left, so my understanding is they get nothing if they sell. They are stuck.