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'housing Equity Is Not Right For Everyone, But Is Something That Everyone Should Consider'

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http://www.telegraph.co.uk/finance/personalfinance/borrowing/8535404/Housing-equity-is-not-right-for-everyone-but-is-something-that-everyone-should-consider.html

We know that people are looking to supplement retirement incomes. Our research found that one in 20 (7pc) of those over 60 had tried or considered ways of generating money, with around a third (37pc) securing employment, and one in eight (13pc) had taken on freelance work such as gardening or being a handyman.

Understanding that those in later life struggle financially, we are committed to providing products and services which help.

Most recently this involved reviewing the equity release market to identify what could be done to make this product a viable alternative. While we appreciate it is not appropriate for everyone, we believe it can provide a useful source of additional money for some, in some circumstances.

......

Equity release schemes do carry some disadvantages and so we recommend you take independent financial advice, review carefully whether it is appropriate for you and read the small print carefully.

A scheme with compound interest offers the greatest risk as it means you pay interest on interest and therefore the amount you owe can grow very quickly.

Second, you should be aware that you will receive less than full market value within the scheme.

Downsizing is the better option. I can't think of one advantage of having a compound interest scheme.

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Another post just appeared on this topic: http://www.telegraph.co.uk/finance/personalfinance/consumertips/8661496/Pensioners-forced-to-release-equity-from-their-home-to-pay-off-debts.html (i couldn't add a comment).

My Dad is keen on equity release and when speaking to him the other day asked my thoughts on it as @between you and me'. His tone was that of he's onto a winner and was expecting me to back him up and tell him to go for it, getting me on side. unfortunately for him my reaction was 'NO' as I remember past articles against it. He was pretty disgruntled at this and said I obviously haven't done my research, which is true.

I would be really helpful if anyone has any opinions on equity release (considering the current state of the Economy and house prices), also reasons for and against. Any insight is greatly appreciated :)

Non working parents on a pension/with money that will run out next year

Low mortgage payments under £100pm

Current ball park figure on property is £350k - 5 Bedroom Bungalow, 2 bathrooms, lounge, reception, front and rear garden, large parking area and double garage in Suffolk.

Thanks for your time!

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Downsizing is the better option. I can't think of one advantage of having a compound interest scheme.

Agree....you can only sit on one chair and sleep in one bed at any one time....a bit of land to grow stuff, a good oven a good open fire and good company. ;)

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I am against them for all the reasons stated.

Their compounding nature. The fact that the debt is real whereas it is being secured against a matter of opinion.

If people can't afford to live where they are, they should seriously look at alternatives such as trading down and freeing that space up for someone else.

Thanks,

Yes, I agree they should downsize. He built the property himself with land that he bought so there is a lot of sentimental value there. But with a property that big they are working full time just to do the upkeep, it's a bit mad! But we have a large family, I have 3 brothers and 3 sisters, 10 nieces and nephews, so I think that's another reason my Dad wants to hang onto it, because it's still the family home.

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I am against them for all the reasons stated.

Their compounding nature. The fact that the debt is real whereas it is being secured against a matter of opinion.

If people can't afford to live where they are, they should seriously look at alternatives such as trading down and freeing that space up for someone else.

Agreed.

Get them to start by writing an 'income/outgoings' sheet. You allude that they are overspending, could the balance be addressed by living in a cheaper house or are they overspending by much more than that?

eg no mortgage + cheaper council tax + lower bills on a smaller property might save you £3k a year. Will that allow them to break even? If so, it should be considered as the best option.

If not, then they are facing the classic problem of living a lifestyle they cannot afford and it will likely ruin them eventually. Equity withdrawal is, in the most part, for people who do not wish to face facts and are willing to impoverish themselves in order to avoid doing so.

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Agreed.

Get them to start by writing an 'income/outgoings' sheet. You allude that they are overspending, could the balance be addressed by living in a cheaper house or are they overspending by much more than that?

eg no mortgage + cheaper council tax + lower bills on a smaller property might save you £3k a year. Will that allow them to break even? If so, it should be considered as the best option.

If not, then they are facing the classic problem of living a lifestyle they cannot afford and it will likely ruin them eventually. Equity withdrawal is, in the most part, for people who do not wish to face facts and are willing to impoverish themselves in order to avoid doing so.

Good idea on the in/out sheet, need to get a better understanding of the financials which will result in more informed choices - not always easy to get straight answers from parents though, they can be funny buggers!

I think a smaller property will release enough cash to see them through, they don't have a 'lifestyle' so to speak. To give you a rough idea of my Dad, he bought a Volvo estate over 12 years ago for 4k - it is still the only car they own. They never go on holiday, in fact in my 32 years they have never been on holiday alone together, and in that time have only had 2 family holidays to Great Yarmouth when I was about 4.

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Good idea on the in/out sheet, need to get a better understanding of the financials which will result in more informed choices - not always easy to get straight answers from parents though, they can be funny buggers!

I think a smaller property will release enough cash to see them through, they don't have a 'lifestyle' so to speak. To give you a rough idea of my Dad, he bought a Volvo estate over 12 years ago for 4k - it is still the only car they own. They never go on holiday, in fact in my 32 years they have never been on holiday alone together, and in that time have only had 2 family holidays to Great Yarmouth when I was about 4.

Hmm, fair play, especially on the Volvo estate. One day I hope to have an 850 estate. Practically indestructible.

Seems like they already know the value of money which is a good start and suggests that they may quickly realise the flaws with equity release. Much harder to convince someone who doesn't have a clue about money I imagine.

If downsizing would allow them enough to see them through, and also enable them to get a place which is acceptable, seems like the best solution. The 'avoid at all costs' scenario is the one where they release equity and find out they need more.

Edited by cheeznbreed

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That is key.

Although with time it is increasingly silly to keep the house just for those few occasions when all the family are round.

Some innovative thinking:

1. Perhaps interest him in building his next home that more closely meets his needs?

2. Perhaps the family can buy stakes in the original home and one family actually live in it?

3. Both.

like your thinking. He already considered and looked at planning to reduce the property and double garage to build an additional smaller property on the land, although this would have been in an attempt to keep the current home. Ultimately this isn't going to happen as he is just too old to start a project like this. So as you suggested in point 1. to build a sole new property is also not viable.

Point 2. is something that I have thought about, one of my siblings family could even move into the property as one big family, but this is me thinking and would never work in reality. As for buying stakes in the home, sounds good but I guess that would mean matching the amount he could release in equity? If so I don't think that would be possible.

My thoughts, along the same line as yours, family steps in to help with costs or convince him to downgrade to home that meets his needs. Or downgrade, they are already looking at smaller properties, (but maybe another deterrent for him is it will cost him appx 20k to sell his current home?). I think downgrade is the simplest option and equity the last as cheeznbreed suggested.

I would be cool to to hear suggestions on family intervention though, family covers costs, buy stakes like AK suggested, etc. And perhaps on the best way to sell and buy as that could be tricky at the moment, well selling at least.

Thanks for all of your suggestions.

@cheeznbreed, yeah that Volvo is indestructible! always liked the 850 too!

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Downsizing is the better option. I can't think of one advantage of having a compound interest scheme.

Not necessarily. If the property is valuable enough, equity release is smarter.

To sell a £1m house would cost around £25K in fees at least. To buy a £650K downsize would be another £25K or so in SDLT.

So that is £50K in fees just gone.

Also by reducing your estate in value from £1m to £650K you then remove the IHT liability on £350K, so the tax saving is £140K.

Also if your house price is larger than the equity you withdraw you could have better growth in your asset than your debt (£1m increasing by 4% is £40K/annum; £350K increasing by 10%/annum is £35/annum)

So with a rough back of a fag packet calculation if you do equity release over the IHT threshold, you can more than double your money.

Obviously there is a risk of house value falling and the debt rising, but with fair fortune it can be more advantageous than downsizing.

Edited by arrgee1991

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downsize is the answer - I have done it and although you miss the old 'home' for a bit - a change is good and less upkeep, less council tax, less debt (which is what equity release is at the end of the day) makes life so much more contented..

the family don't really visit that often anyway as they have thier own lives to lead (as they should). The trick is to move close enough to them so that they can visit for a day and then go home :D

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downsize is the answer - I have done it and although you miss the old 'home' for a bit - a change is good and less upkeep, less council tax, less debt (which is what equity release is at the end of the day) makes life so much more contented..

the family don't really visit that often anyway as they have thier own lives to lead (as they should). The trick is to move close enough to them so that they can visit for a day and then go home :D

Mine have offered to camp in the garden.....all good fun. ;)

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Mine have offered to camp in the garden.....all good fun. ;)

LOL yeah I would be up for that, but we would have to put up with the old man moaning about his lawn :lol:

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Not necessarily. If the property is valuable enough, equity release is smarter.

To sell a £1m house would cost around £25K in fees at least. To buy a £650K downsize would be another £25K or so in SDLT.

So that is £50K in fees just gone.

Also by reducing your estate in value from £1m to £650K you then remove the IHT liability on £350K, so the tax saving is £140K.

Also if your house price is larger than the equity you withdraw you could have better growth in your asset than your debt (£1m increasing by 4% is £40K/annum; £350K increasing by 10%/annum is £35/annum)

So with a rough back of a fag packet calculation if you do equity release over the IHT threshold, you can more than double your money.

Obviously there is a risk of house value falling and the debt rising, but with fair fortune it can be more advantageous than downsizing.

Thanks for the alternate view, good to see some possible advantages for equity release. The only problem here is the chance of house prices falling at a rapid rate. This is the biggest argument I see to equity release at the moment. But I would like to be able to at least give some positives to equity release so we can have all the options mapped out and make the best decision.

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Thanks for the alternate view, good to see some possible advantages for equity release. The only problem here is the chance of house prices falling at a rapid rate. This is the biggest argument I see to equity release at the moment. But I would like to be able to at least give some positives to equity release so we can have all the options mapped out and make the best decision.

Tax is probably the main consideration. If an estate would be worth more than £650K (assuming a married couple), it makes sense to have a lifetime mortgage for the amount over £650K as all you will do is pay 40% tax on it anyway. So even with say £250K savings (PEPs/ISAs etc) and a £500K house, you should have a lifetime mortgage of £100K.

Best thing would be to discuss with accountant.

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Another post just appeared on this topic: http://www.telegraph.co.uk/finance/personalfinance/consumertips/8661496/Pensioners-forced-to-release-equity-from-their-home-to-pay-off-debts.html (i couldn't add a comment).

My Dad is keen on equity release and when speaking to him the other day asked my thoughts on it as @between you and me'. His tone was that of he's onto a winner and was expecting me to back him up and tell him to go for it, getting me on side. unfortunately for him my reaction was 'NO' as I remember past articles against it. He was pretty disgruntled at this and said I obviously haven't done my research, which is true.

I would be really helpful if anyone has any opinions on equity release (considering the current state of the Economy and house prices), also reasons for and against. Any insight is greatly appreciated :)

The problem with equity release for income is that you can't draw down the money as you need it. You have to take largish lump sums at a time for which you will be charged interest immediately.

Rates of interet are much higher than you can invest at so you end up with the next 12/24 months spending power sitting in the bank earning 3% whilst you are paying 7% for it to be there.

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From the Age UK website.

The Age UK group offers a wide range of products and services designed with the needs of the over-50s in mind.

Are you covered?

Great value insurance cover for your peace of mind. Provided by Age as Insurance Limited.

and

You've worked hard for your home. Now make it work hard for you with The Age UK Equity Release Advice Service.

....

The service offers:

Fully advised face to face or telephone appointments

A reduced advice fee of £599 (payable only on completion of your plan)

.....

(complete with pictures of cuddly smiling old folk :rolleyes: )

How independent and unbiased is the opinion of this "charity" on any financial product.

Sounds more bank than charity.

Edited by billybong

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  • 276 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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