Equity release and Inheritances ???

mickthechippy

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on watching a bit of TV

there seems to be a fair old amount of adverts that are encouraging people to use equity release

ads that state about taking money out the value of your house and spending it on either improvements to the said houses ??, holidays or "we want to help the family"

being a tad cynical in my views, Im wondering about this, I can understand the idea, but all I can think about is stuff like the PPI scandals

theres gotta be some sort of catch to it, you dont get owt for nowt

there must be some sort of interest to pay, a loans a loan no matter how you disguise it, plus theres the commision factors that would be applied for the agents arranging the loans-equity release
 

kevin o connor

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When you die the house is sold and the loan is repaid ! No doubt by the time they add interest there is little or nothing left for the family ! So you borrow say £100,000 and they get a £250,000 house in repayment !
 

Neil ofthe nene

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Interest will accumulate and be added to the debt along with any commission. That debt is repaid on death or sale of the property. Yes it is borrowing from the inheritance being the value of the house that would otherwise pass on death.

Most banks lend money on the strength of a proposition, not purely against an asset (pawnbroking). Equity Release however looks purely at the present and future value of the property and lends against that in the fairly certain knowledge that there will be enough value in the property in the future to repay the loan and accrued interest.

It will be a very expensive way of "spending the kid's inheritance" even if the money raised is given to the children.
 

Dave

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You work all your life to pay off the mortgage and then once it's paid off (part) mortgage it again but settle the bill on death :D
 

mickthechippy

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So its not just me then

the ads themselves are a bit over the top, most showing nice semi detached homes owned by retired ? middle class type profiles, with a pair of kids smiling in the background

and a jolly advisor thats smiling his balls off dancing around to a catchy tune in front of the lot of them
 

Markywhizz

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You can normally borrow up to 30% of the property value and when the debt is settled it is a much higher proportion of the value. If you live a long time and house prices don’t go up much you could end up leaving nothing for your kids.
 

Markywhizz

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The adverts are criminal IMO as they trivialise one of the biggest decisions you will make in your life.
 

160642fishing

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So clearly some of you believe that older people should be cash poor but asset rich,not being able to maintain a lifestyle that they had when working,money is lent on something like 25% of the value of the of the house,that loan gathers a fixed interest until the house is sold,the house value increases at 100%,we've done it and all our kids are in favour,it's only children who believe that they have a god given right to an inheritance who don't believe in it,as for the setting up fees they are taken from the loan and does not accrue commission as Neils post could imply.
 

Maesknoll

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You can normally borrow up to 30% of the property value and when the debt is settled it is a much higher proportion of the value. If you live a long time and house prices don’t go up much you could end up leaving nothing for your kids.
Not a problem if you don’t have kids and have no one to leave it to.
 

DFL

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So its not just me then

the ads themselves are a bit over the top, most showing nice semi detached homes owned by retired ? middle class type profiles, with a pair of kids smiling in the background

and a jolly advisor thats smiling his balls off dancing around to a catchy tune in front of the lot of them

I’m sure it was on this forum that I got criticised for describing that advert as almost criminal. The well heeled couple maybe just retired, they look to be in their mid sixties. I have looked into equity release for a friend with a slight interest for myself in future years, the returns in your mid sixties are really, really poor. Makes sense because the lender come new owner of your home won’t see a return for possibly many years to come. A different prospect if you’re in you late 70s / 80s . The advert gives the impression that the parents/ grandparents can release money for younger family members to good effect, yes they can but those family members would get a whole lot more from the sale of that house in later years when they’ve croaked it.

It’s just a quick bit of money in the pocket at a huge cost in the long term.

Catchy piece of music? I want to kick the tv when it comes on
 

TonyA

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Funeral schemes are not too dissimilar, look at the small print. You can pay in more than you get back, no surrender value, rates quoted are for 50yr olds. If you want to save for your funeral, put some in a savings account each month.
 

62tucker

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My mate just got £60,000 off his £400,000 grand house but could end up paying back £120,000 depending how long he lives. He was told his house could go up in value by that amount anyway in that time.
He is 72. And wasn’t cash rich. So he went for it to enjoy the rest of his life without struggling. Bought a new caravan which will see him for 20 years. New bathroom. Newer car. Jobs a good on.
If he didn’t do it he would end up with no car. No caravan and a run down £400,000 house.
He could of downsized. Could of bought a £200,000 house and had same in bank but decided he wanted to stay in house so went down the equity release route.
He got no kids but 6/7 nephews. They all told him to do it. If they inherit £50 k instead of £70k I sure they still be happy.
 

Somersetlad

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Just remember the companies offering equity release are doing it for one reason only - they can make a substantial profit from it. Anybody considering it should get proper advice from an IFA, who will consider your overall financial position, you'll have to pay for the advice because the IFA doesn't rely on commision.
 

mickthechippy

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from what im reading from various sources, including the above,

one of the common themes used by the sales agents for equity release is the suposition that the value of the house will rise during the period after the loan and the death of the homeowner,

now that seems a bit of a pitch to me, as it seems the loan companies buy a percentage of the value of the home, not a monetry amount in the offer of equity release

lets say 30% of the value is advanced, it doesnt matter how much the price or value of the house rises in the future during the loanees lifetime, the loan company still has 40% of the final value on death or at settlement

eg house worth £100, 000, loan of £30,000, bought as a share of 40% of final value at settlement (£40,000 plus any interest, currently loan firms are charging around 5% compounded, well above a normal mortgage rate)

after lets say 20 years assuming a long life and the loanee was in his or her 60's, the house value has risen to £200,000

the loan company would still be due 40% of the value, so now thats risen to £80,000, plus any interest

so in my head in conclusion, it seems that the pitch that the house may rise in value, is not really a bonus for the loanee, rather a better investment for the loan providor ?
 

Dave

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One consideration to bear in mind is we are all living longer, the chances are a large percentage of us would end up in some kind of care, or remaining spouse/partner would do upon our deaths, the care would have to be paid for usually by the sale of the property. In this circumstance the equity release company would get first dibs on the profits from the sale of the house and the remaining funds would then be allocated to pay for the care.

So, would it be better to get the money in your pocket whilst you can still enjoy it, or lose it one way or another as and when we get to point of needing care? (Assuming we will)
Either way there would be little in the way of an inheritance left for the kids.
 

Somersetlad

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from what im reading from various sources, including the above,

one of the common themes used by the sales agents for equity release is the suposition that the value of the house will rise during the period after the loan and the death of the homeowner,

now that seems a bit of a pitch to me, as it seems the loan companies buy a percentage of the value of the home, not a monetry amount in the offer of equity release

lets say 30% of the value is advanced, it doesnt matter how much the price or value of the house rises in the future during the loanees lifetime, the loan company still has 40% of the final value on death or at settlement

eg house worth £100, 000, loan of £30,000, bought as a share of 40% of final value at settlement (£40,000 plus any interest, currently loan firms are charging around 5% compounded, well above a normal mortgage rate)

after lets say 20 years assuming a long life and the loanee was in his or her 60's, the house value has risen to £200,000

the loan company would still be due 40% of the value, so now thats risen to £80,000, plus any interest

so in my head in conclusion, it seems that the pitch that the house may rise in value, is not really a bonus for the loanee, rather a better investment for the loan providor ?
Heads they win, tails you lose! Also don't buy a retirement appartment, high lease and management charges as well as being virtually impossible to sell if you need to.
 

mickthechippy

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to my mind, being a simple lad

rather than going for the equity release, surely the better way would be to either sell the property as is at the current market value and downsize, or rent another property until death ?

you would have the full value of the house, rather than letting a third party in
 

Dave

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Nowt wrong with being simple Mick - my thoughts entirely :upthumb:


The marketing with equity release make it a glossy option and a quick fix
 
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