Friday, May 04, 2007
All your eggs in one basket ? Big hole about to split open
Daily Express: Millions rely on homes to retire
Yolks on you, greedy BTLs.
Posted by doomwatch @ 04:08 PM (151 views) Add Comment
7 Comments
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1. layers said...
Does anyone know if Mortgage Equity Release on your home has always been available or is it something new? I'm just wondering if this is the first time in history where a large portion of the population will still owe significant money to the banks when they're retired through MER? With rising IRs their pensions may not cover the mortgage!
2. enuii said...
As far as I know this sort of scheme for the over 65's has been available for at least the last 20 years or so, although not widely publicised and not generally offered by well known companies.
3. confused76 said...
Remortgaging has been available for a long long time. MEW is a type of remortgaging.
4. tony marshall said...
Confused, there's a subtle difference - MEWing is when people simply 'dip in' to the equity in their home for a lump sum to finance extra spending (normally prompted by rising house prices), whilst MER schemes are a specific 'product' aimed at systematic spending of the equity over a period of time to supplement pension income (as opposed to simply taking out a new, larger mortgage every so often). The problem lately is that the difference has become somewhat blurred, as younger people MEW on a regular basis to finance day to day living costs (normally by running up credit card debt, then MEWing to pay it off), thus having the effect of eroding their equity.
Whilst a falling market will put a stop to MEWing, MER schemes will remain relevant to people retiring, as they have normally repaid their mortgage by then and simply want to put the process into reverse.
5. confused76 said...
Tony
Agreed, there are some differences. Though, whatever we call them, MER and MEW are forms of lending against the market value of an illiquid (but NOT risk free) asset which is a house. Since one pays interests on risky loans, and on top a certain amount of "illiquidity" discount, it strikes me for being an inefficient way to receive a pension versus investing "income tax-free" into a pension fund... But, again, markets are not perfect and we have to consider humans are not 100% rational
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7. Marcosscriven said...
This story is about relying on the house you are living in for equity. Nothing whatsoever to do with BTL.
If you have a genuine BTL, ie one you don't live in, then it doesn't matter what the price is, just that if the mortgage is paid off, it will pay you the equivalent of whatever it costs to rent. Have a few of those, it doesn't matter about the value - living costs are always going to be a significant portion of income.