Equity Release

If you own a home and do not really have anyone who you would like to leave your home to then equity release is a really good option for you as you can release some money now and enjoy your retirement. If you would like to leave your home to your children it is less good. YOu could give children a lump sum now if you wished out of the equity you release. If you do equity release you effectively release the equity built up in your home already, so you can spend the money now but when you die your home is sold and the equity company take their share back plus a fee.

An example might help. John and Gill are 70 and in good health. They are retired but do not have enough money to really enjoy their retirement. They would like to travel while they are still fit and healthy. They own their house outright. They have no children or close kin they want to leave their home to. They release equity of £200l and can now afford to travel and take up new hobbies too. They will remain living in their home until the last partner dies. Then the house will be sold and the equity firm repaid. Any remaining money is per will or if intestate goes to government coffers.

I think age UK have impartial advice on their website.
Things have moved on from how equity release was in the past.

Thanks for your replies. I was amazed to ring Stepchange......a human answered the phone and it spoke!!

He was able to answer my question.

A real life human?
Well, i'll be blowed!
Good, hope it's clearer in your mind now (because I can't understand it!)

Please, please get proper financial advice before committing from an independent financial adviser.

Yes, Age Uk good place to start.

Make sure you understand that the equity release company can take a charge on your home.
My mother was well and truly conned.
She didn’t understand what she was signing.

Equity release has changed a lot over the past few years and is usually referred to as a lifetime mortgage now. You borrow about a quarter of the value of your house and can choose to repay it or not, it's your choice. If you choose to make no repayments then obviously the amount borrowed accrues interest at around 5% per year and the amount outstanding grows. If you choose to repay it, there are no set monthly payments but you can make around 4 payments each year but no more than 10% of the amount borrowed in total each year. It's quite flexible but how you manage it is up to you. If you decide to do it just make sure it suits your needs and have a family member or friend present to make sure you understand it all fully.

Please do remember that taking equity could cause you to lose some benefits. Personally I`m in a catch 22 place, as it would mean I have to pay for care which is now almost fully paid by the council.

My retirement isn't what I expected, due to disability.

I hope your plans come to good fruition.

Thanks, it was a silly clutching at straws idea.

I thi k these are now called 'Lifetime Mortgages' now and Flexiblefriend has given a good explanation.

I agree with those who say you should take good advise but please don't just take anything Age UK offers as some of their products have been shown to be far more costly than elsewhere.

I suggest you do lots of online research and make notes before getting advice so that you will know what questions to ask.

Good luck

I have friends who have taken out equity release and are entirely happy with their decision.

You do not have to take the whole amount in one lump sum but can draw it down as and when you need it. You only pay interest on the amount you have drawn down.

It is also a good way to reduce inheritance tax, especially if you can afford to pay the interest. A friend has done this, she gave both her children a substantial sum of money on their marriage to buy houses. As she is in her late 60s and in good health, she can reasonable expect to live another 7 years so that it is free from inheritance tax.

Trust me, I wouldn't be doing it to avoid paying inheritance tax.

A colleague of my dh did it but he had no family at all. He was an only child so no nephews or nieces. His wife died first and then when he retired he decided he wanted to travel and see the world. He had a good pension but not enough to travel as he wanted to. He released some of the equity in his house as he said he could not take it with him when he died. House was already paid for. He seemed happy with it though. No payment to make. He is still alive.

The problem arises if you need care...either at home or in a home.

The council will take most of the money to pay for care.

Yes, but what else would you need it for if you're at the stage of needing care?
Whether they take your house or your money seems to make little difference, although I don't know much about it.

Surely if you've had some money then you'll be likely to have spent some of it by the time you need care?

INTESTATE.
One post mentioned that if there was no will the estate goes to the government

No it does not

It is distributed by set rules to relations , starting with children, grandchildren, parents, siblings, all the way down to any living relatives that could be found.

There are companies that specialize in finding relatives of unclaimed estates - for a fee

Be very careful gfp who you take advice from, We took out equity release 12 years ago for home improvements and furniture and some put by, within 5years the interest rate had doubled , if we had carried on like this , our house would have been worth nothing by the time we were in our 80,s we were miss sold and probably didn't fully understand the conditions, If one of our daughters hadn't been in a position to pay this amount off , I dread to think what would have happened in our real old age , so shop around and read the small print carefully, Good luck x

It is NOT Equity Release now. Lifetime mortgages are different and I'm not sure that Equity Release still exists.

Please read the posts by flexiblefriend, Monica and others.

Interest rates are really low at the moment so interest payments are not huge.

Equity release should be seen as a last resort, if you need cash downsize and invest the spare cash in an ISA or some other safe and not too long investment. Remember your house will gain in value over the years and the finance company will make a lot of money when they get possession.

I wish people would learn the facts before giving misleading advice. When you take out equity release or a lifetime mortgage you will be given a breakdown of exactly how much you will owe each year if you choose to make no payments. Plus as the lender never wants to be in the position of being out of pocket, they will only lend the amount they know they can recover. So if your house increases in value or you pop your clogs early on the company will recover the amount outstanding and the remainder will be paid to your estate. The finance company does not stand to make a fortune. Don't forget if the borrower doesn't make any repayments they've had the use of those funds for maybe 25 years or more before it's repaid and 5% interest isn't extortionate and is fixed. Equity release is not what it used to be. That doesn't mean you shouldn't investigate it fully because you should, it isn't right for everyone.

Yes, if you need care , the Council will look at your potentially liquid assets whether these assets are cash remaining from equity release or saved cash and investments. Why shouldn't they?

If you go into care the Council will expect the house to be sold, equity release sum repaid and the balance left will be used to pay for your care, exactly as happens to those who own all the equity in their home.

DH and I are planningto release some equity from our house to pay for an extension that will make it more saleable when (if) we ever downsize. The amount will be relatively small and we intend to pay the interest each month, effectively an interest only mortgage, that way any increase of value in the house stays with us.

Quite!!!!