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http://www.bbc.co.uk/news/business-14371404

Many parents are accessing the equity in their homes and pensions to pass on wealth to their children while they are still alive, but with people living longer, could they be leaving themselves financially vulnerable in later life?

Sixty-five-year-old Jon Rees bought his former council house in Plymouth in the 1990s and like many people in Britain, sat back and watched the value of his home go up and up during the housing boom.

Today, he is capitalising on the increased value of his home by withdrawing some of the equity from the property to pay for home improvements.

He is one of a growing number of homeowners using equity release to pass on cash to their children, or grandchildren, while they are still alive.

"My son Darren had a few credit cards that he wanted to straighten out," he says, "and with my daughter Sara, she recently took delivery of a more up-to-date car."

Jon and Margaret Rees decided to release £29,000 of equity from their home to help their children

Jon says he was persuaded to go ahead and release around £29,000 ($47,000) of equity from his home, in part because he wanted to see his children enjoy the money now rather than after his death.

"That was there all the time, with my wife and I discussing it stage by stage," he says.

Equity release works like a loan against the value of a property, which is made either in monthly payments or in a lump sum and which accrues interest.

When the homeowner or homeowners die or sell their house, the debt is paid off through the proceeds of the sale.

But the sum owed can never be larger than the value of the property and, with most schemes, the borrower cannot be made to leave their home, even when there is no longer any equity in the property.

Left in the lurch?

Figures from the equity release specialist Key Retirement Solutions show there has been a drop in the average age of home owners releasing equity from 71 five years ago to 67 now.

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Nowadays being in your early sixties means you're still quite young so if you've taken out a scheme like this, aren't you really removing a real fail-safe that you might need in 20 years' time and not at 60?”

Mark Dampier

Hargreaves Lansdown

Mark Dampier, head of research for the financial services group Hargreaves Lansdown, is worried by this trend:

"Bear in mind you're compounding an interest rate up all the time, so the loan is doubling roughly ever 10 years," he says.

"Nowadays being in your early sixties means you're still quite young so if you've taken out a scheme like this, aren't you really removing a real fail-safe that you might need in 20 years' time, and not at 60?"

In Jon Rees' case, the £29,000 of equity he has released will cost around £130,000 to repay by his 89th birthday.

The house is currently valued at just £15,000 more than that.

So if Mr and Mrs Rees live for another couple of decades, there may be little or no equity left in the property for their children to inherit.

Jon's daughter, Sara, was initially sceptical because of the bad press she had read about the practice.

"I wasn't in it for the money, my concern was more about if my dad was to go first, what would happen to my mum?" she says.

"But when I found out they [the equity release company] can't just sell the house from under them, I'm happy with it now."

The age at which home owners are using equity to release is dropping

The equity release specialists Key Retirement Solutions says its customers are increasingly using these products to help out children and grandchildren with buying their own homes, to service debts and even to pay for weddings.

"There is a considerable amount of housing wealth, in particular in the 65 years and older age group," says the company's group director Dean Mirfin.

"Many homeowners are seeing this as a real way that they can make a difference to tomorrow's generation, but importantly not as an inheritance in the future, but at a time when they will benefit more from it today."

The company says its customers give an average of £20,000 but that it is not uncommon to see gifts of £50,000.

Baby boomers give back

But Mark Dampier from Hargreaves Lansdown does not think using equity release to pass on money to children is a sensible idea.

"That's not what I think equity release should be about. Why do they do it? I don't think they've done the maths," he says.

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Find out more

Alvin Hall's Poorer Than Their Parents continues on BBC Radio 4 on Saturday 6 August at 12:00 BST and Wednesday 10 August at 15:00 BST.

Listen again via the BBC iPlayer

Download via the Money Box podcast

Follow BBC Radio 4 on Facebook

"If you're in your late 70s, into your 80s I think it starts to make sense.

"But you should discuss it with your family, because they might suggest giving you [the parents] some money to help you along the way rather than you getting stuck."

But with the baby boomer generation born in the 20 years after World War II owning around half of all the UK's housing assets, some analysts think more and more families will look for ways of passing on wealth while they are still alive.

"For most of the 20th century, it was a story of the self-made man or woman who earned enough during their lifetime to finance a good and healthy retirement," says Professor Dominic Swords from the Henley Business School.

"But now we're almost going back to the 19th century where a lot of wealth was accumulated by families and passed onto their children."

"Over the next decade, we might see some of the wealth accumulated by the baby boomers during the 30-year housing boom not simply sticking with them but being passed on to their children."

Professor Swords say this might help put right the financial shortfall many young people face today - particularly when it comes to buying a home.

And it is the current financial climate which urged Jon and Margaret Rees to help their children through equity release.

"We inherited nothing from our parents," says Mr Rees.

"People these days do buy their house for the benefit of when they're gone; to leave something for their children to make sure they give them a kick-start in whatever they're doing."

His daughter Sara nods in agreement.

"That's why I'm doing it for my daughter and my step-children."

Alvin Hall's Poorer Than Their Parents continues on BBC Radio 4 on Saturday 6 August at 12:00 BST and Wednesday 10 August at 15:00 BST. Listen again via the BBC iPlayer or by downloading the Money Box podcast.

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"For most of the 20th century, it was a story of the self-made man or woman who earned enough during their lifetime to finance a good and healthy retirement," says Professor Dominic Swords from the Henley Business School.

"But now we're almost going back to the 19th century where a lot of wealth was accumulated by families and passed onto their children."

This for me is the retrograde step of the last thirty years

It does feel like we've gone from people earning money through working to making money through "investments" like shares, houses, even wine and paintings

It isn't healthy

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...the £29,000 of equity he has released will cost around £130,000 to repay...

Says it all, really. He's just sold his soul tot he devil.

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Alvin seems to be a remarkably sensible sort for a media pundit ... He was one of the most impressive 'teachers' on that Jamie Oliver Dreamschool show where he pretty much was the only person to point out that the kids weren't exactly the brightest bunch in the world. He also seemed to be one of the most effective at getting some information about his subject (maths) through to the unruly pack of young chavs.

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equity release is a misnomer.

If you really released your equity, you get free, unemcumbered cash.

What they are doing is TAKING ON A MORTGAGE.

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If the state is going to take all your money AND your home when you are old and need care

And if people with no assets or money get everything for free

then the sensible option is to make sure when you are old you own nothing.

infact the best option would be to live in rented accommodation paid for by housing benefit and have massive debts when you are old.

:blink:

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This for me is the retrograde step of the last thirty years

It does feel like we've gone from people earning money through working to making money through "investments" like shares, houses, even wine and paintings

It isn't healthy

the flipside of your a\rgument is that capital (machines, factories, houses) should not be allowed to profit

so we should live in caves and till the land with our hands

yeah

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The big loser with Equity Release will be the taxpayer.

When a surviving spouse who owns their home needs residential/nursing home care, the council/taxpayer will pick up the fees tab a lot sooner. The property sold to pay care fees will generate a much smaller net sum, once the equity release lender has taken their slice.

No problem for the person in care, but £30K a year more out of the taxpayer's pot.

Equity Release is another way of gifting assets, in order that someone else picks up the care fees tab.

Edited by juvenal

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the flipside of your a\rgument is that capital (machines, factories, houses) should not be allowed to profit

so we should live in caves and till the land with our hands

yeah

I think you've misunderstood

I think we should be taxing wealth more and taxing earnings less

Personally I don't have a problem with investment, but I dislike speculation

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I think you've misunderstood

ahh, fair enough

I think we should be taxing wealth more and taxing earnings less

I disagree, tax should be progressive, so the wealth AND earnigns of the poor should be taxed less, and varipous hidden forms of wealth such as land/property should be taxed more and more intelligently, I suspect we are not far from one another

Personally I don't have a problem with investment, but I dislike speculation

true, but I think pro-speculation politics are coming to an end, I suspect your view is not in isolation

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The big loser with Equity Release will be the taxpayer.

When a surviving spouse who owns their home needs residential/nursing home care, the council/taxpayer will pick up the fees tab a lot sooner. The property sold to pay care fees will generate a much smaller net sum, once the equity release lender has taken their slice.

No problem for the person in care, but £30K a year more out of the taxpayer's pot.

Equity Release is another way of gifting assets, in order that someone else picks up the care fees tab.

I dunno....

Most elderly people don't end up in care homes now

Besides I would personally be surprised in 10 years time if the government is still paying for care homes

With an ageing population thats just not a sustainable policy

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Says it all, really. He's just sold his soul tot he devil.

Not only that

How can the son possibly be "enjoying the money" released, by paying off credit card debts owed to bankers who lured him in - in the first place?

Edited by erranta

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If the state is going to take all your money AND your home when you are old and need care

And if people with no assets or money get everything for free

then the sensible option is to make sure when you are old you own nothing.

infact the best option would be to live in rented accommodation paid for by housing benefit and have massive debts when you are old.

:blink:

That's certainly true - but will the Welfare State as we know it exist in a few decades at all? I would say 'probably not'. It's totally unsustainable even at the current level but an ageing population and an anaemic economy will send it over the edge. So throwing yourself upon the mercy of the taxpayer in your old age might not look like a clever idea a little bit down the line.

What gets me is that this couple are putting themselves in the position of having to ultimately pay £130k so that their feckless son can get off the hook on his overspent credit cards and their daughter can have a nicer car. I don't know what irks me more - stupid parents who feel obliged to get into crazy amounts of debt in their old age on behalf of their adult children ... or their pathetic offspring who seem to think that it's OK to sponge off of their elderly parents when they should be responsible for their own financial matters as an adult.

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What gets me is that this couple are putting themselves in the position of having to ultimately pay £130k so that their feckless son can get off the hook on his overspent credit cards and their daughter can have a nicer car. I don't know what irks me more - stupid parents who feel obliged to get into crazy amounts of debt in their old age on behalf of their adult children ... or their pathetic offspring who seem to think that it's OK to sponge off of their elderly parents when they should be responsible for their own financial matters as an adult.

Parents.....the son/daughter were raised by them and not having a grasp of money and the effect on their parents is unfortunately the fault of the parents.

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I dunno....

Most elderly people don't end up in care homes now

Besides I would personally be surprised in 10 years time if the government is still paying for care homes

With an ageing population thats just not a sustainable policy

But hundreds of thousands do end up in residential care. And with projected longer lives the numbers will only increase.

If as you suggest, the government pulls out, what will replace care?

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I dunno....

Most elderly people don't end up in care homes now

Besides I would personally be surprised in 10 years time if the government is still paying for care homes

With an ageing population thats just not a sustainable policy

But hundreds of thousands do end up in residential care. And with projected longer lives the numbers will only increase.

If as you suggest, the government pulls out, what will replace care?

If the old person requires round the clock nursing, has no relatives or is genuinely impossible for the family to manage at home then care/nursing homes will continue to be needed and unless we’re content for the old to die when savings run out then welfare budgets will have to foot the bill.

That said, old age doesn’t mean government funding should take over if houses and other assets have not been liquidated. Indeed, the unsustainable burden of care home fees means we have to get used to family providing more logistic and/or financial support for parents and grandparents wherever they're cared for.

It’s a cultural as much as a financial challenge and £29k of equity release now against a £130k lien on a property twenty years down the road shows how far we have to go.

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What gets me is that this couple are putting themselves in the position of having to ultimately pay £130k so that their feckless son can get off the hook on his overspent credit cards and their daughter can have a nicer car.

Why don't the kids declare themselves bankrupt, keep their heads down for a couple of years, then start again?

Why pay a bank for an unsecured loan your kids have taken out? Declare bunkrupt, wait for the term to finish, then take the money of mum and dad.

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If the state is going to take all your money AND your home when you are old and need care

And if people with no assets or money get everything for free

then the sensible option is to make sure when you are old you own nothing.

infact the best option would be to live in rented accommodation paid for by housing benefit and have massive debts when you are old.

:blink:

+1

thats my plan. or retire to another country, taking as much cash with me as possible.

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+1

thats my plan. or retire to another country, taking as much cash with me as possible.

Even better, transfer all your assets to your NoK well in advance and have them look after your estate before you're senile, let the state look after your (but privately your NoK will too) then die with as much debt as possible, coked up to the eyeballs in a Ferrari on loan.

Debts don't transfer to NoK do they?

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  • 338 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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