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thefinalbear

Equity Release Growth Is Inevitable

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Equity release has been around for a while in various forms, but all the signs are now there that the banks plan to make a major push into this area over the next few years.

More here:

http://www.mortgagestrategy.co.uk/cgi-bin/...h=401&f=402

Esentially with equity release you can either sell part of your house to the bank, get a cash lump sum, live in it until you die, and then the house is sold and the bank takes its cut.

The other form is where you get a cash lump sum, but the interest keeps accumulating on the debt until you die, potentially giving the entire house to the bank.

There are quite a few problems with equity release (not least that older people may not quite understand what they are doing).

Leaving that aside it is obvious that the best time for the banks to get into equity release would be at the trough of a big crash, pay out relatively small sums to pensioners, and then get a big fat payoff when the next boom occurs.

depressing, isn't it?

Edited by thefinalbear

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This is the part that I found quite sad.....

Andrea Rozario, director-general of SHIP, says: “The reality is that declining levels of private pension provision and meagre state pension benefits will drive more people in this country to explore alternative ways to top up their income in later life.

“Some will work longer, but a very large number are already planning to use the value in their property.”

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Deeply, deeply depressing.

Just another massive con by the Moneylenders....

Agree they have to make massive money somewhere so its the old that are now the new target, my parents have been getting canvassing calls already

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This is the part that I found quite sad.....

Also baby boomers not having kids, or when they do have kids the kids either being ungrateful scroats or poverty stricken by negative equity.

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Equity release ...

Esentially with equity release you can :

[1] either sell part of your house to the bank, get a cash lump sum, live in it until you die, and then the house is sold and the bank takes its cut.

[2]The other form is where you get a cash lump sum, but the interest keeps accumulating on the debt until you die, potentially giving the entire house to the bank.

You seem to imply the first is more advantageous (though I'm sure you didn't mean to), BUT do bear in mind that IF the bank owns part of your home, it will want essentially to RENT that part to you. Of course they don't, but instead roll up the "rent" as part of the deal. Th eresult is you either get a paultry lump sum for that part of the property you give up OR, you guessed it, you end up giving the entire house to the bank. Of course, most poor souls will opt for deferred or rolled up rent/interest and their relatives will get a nasty shock. It's that or accept the nasty shock while you're still here!

Edited by Sledgehead

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You seem to imply the first is more advantageous (though I'm sure you didn't mean to), BUT do bear in mind that IF the bank owns part of your home, it will want essentially to RENT that part to you. Of course they don't, but instead roll up the "rent" as part of the deal. Th eresult is you either get a paultry lump sum for that part of the property you give up OR, you guessed it, you end up giving the entire house to the bank. Of course, most poor souls will opt for deferred or rolled up rent/interest and their relatives will get a nasty shock. It's that or accept the nasty shock while you're still here!

I wopuldn't have though equity release could be any worse............but there it is.......I actually had no idea about the rent/rolled up interest on the first option.

sob. :o

Edited by thefinalbear

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I seem to have seen somewhere that equity release is now regulated.

There were a few cases of retired people living so long (!) that the bank got the whole house but I don't think that type of deferrment is allowed any more.

Taking a lump sum now and signing over a %age of the house rather than a defined sum is almost as bad though. If there is any capital appreciation, the banks can still be on a bit of an earner, although it could be long term, what with rising life expectancy. ;)

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I'm not a fan of equity release - but if the council are going to force you to sell your house to cover the cost of a care home I can see the attraction of enjoying the money and having no assets when you are means tested.

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Taking a lump sum now and signing over a %age of the house rather than a defined sum is almost as bad though. If there is any capital appreciation, the banks can still be on a bit of an earner, although it could be long term, what with rising life expectancy. ;)

When I'm too old to earn my living I hope that there's something like this left to me so that I can supplement my pension. I don't intend to freeze so my niece or nephew can have a new kitchen.

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If you think about it this situation works very well for governments and business.

You get a compliant workforce as for most of their working life they are in debt to pay the mortgage and then when they retire they gradually spend any capital they have accumulated so that they are then unable to pass it on to the next generation through inhertiance. Thus Ensuring that that generation also has to comply because they too will be in debt most of there life so have to work.......etc

F :blink:

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This sort of thing has a nasty history.

Link

However this is not the first time that home equity release plans have been marketed heavily. In the early 1990’s, an independent financial advisor, Fisher Prew-Smith (“Fishers”) sold the product under a national press advertising campaign. The products were marketed as Home Income Plans (HIPs). The HIPs were targeted at retired people owning residential properties. The investor was persuaded to mortgage or re-mortgage their property to secure a loan of up to 50% of its value. No interest instalments were to be paid under the mortgage and they were rolled up and added to the sum secured. The mortgages were provided by the West Bromwich Building Society (“WBBS”) which, with a new Chief Executive at the helm was keen to increase its portfolio of non-traditional, non-status lending. This was in effect pre-empting the sub-prime lending of today.

In total sum 823 mortgages were arranged with WBBS as a result of the introduction by Fishers. The plans were sold by a sales force with no formal training and there was no or little effective supervision informing the investors where things might go wrong. What is more the advertisements used were enticing. Phrases such as: “You Don’t Have To Sell Your House To Live On The Sunny Side Of The Street” adorned Fishers’ marketing literature. The way the plans were advertised was to be quite important however when it came to future legal action.

The HIPs had a trigger point which meant that once the total debt exceeded two thirds of the value of the property, the WBBS could repossess the properties. In practice, at a time when interest rates were rising and property prices falling, the trigger points were reached quite quickly.

The majority of investors were compensated by the Investors Compensation Scheme Limited (“ICS”). The ICS in return for compensating the investors took an assignment of their claims to compensation. The ICS could clearly on the surface bring a claim against Fishers for the sales. However they were far more interested with the organisation with much deeper pockets: the WBBS. However, how could the ICS (in the shoes of the investors) pin the blame of the WBBS; after all they just provided the funds.

The High Court Judge hearing the case, Mr Justice Evans-Lombe used a novel approach. He held that the marketing of the home income plans to the public was a joint enterprise by WBBS and Fishers. This rendered WBBS liable, together with Fishers, for the negligence committed by Fishers. Mr Justice Evans-Lombe stated:

“[Fishers] material plainly represents that [their] HIPs will be a safe and secure investment for the remainder of the life of borrowers…. during which they would enjoy the benefits of the Plan”.

No such event in fact occurred.

The above history lesson should perhaps be remembered today. Home equity release plans are being marketed heavily by various organisations. In turn these organisations are backed by building societies and banks. Could for example (albeit with a few changes of character) the part of the WBBS now be played by The Northern Rock? That is a question only and indeed, Northern Rock are not active in the home equity release market, but they do have a reputation as sub prime lenders and sub-prime lending after all is lending to borrowers who may have difficulty in repaying the loan (capital and interest elements).

Conclusions

What lessons can be learnt from the experience of the home equity release plan investors and indeed the WBBS. Firstly, it should be remembered that because of regulation, the consumer was protected. The vast majority of investors were compensated by the ICS. This was a consumer-compensation success story! In a different way, the crowds of people looking to take money out of the Northern Rock, dispersed when the Government announced they would protect people’s investment. In short, although from time to time, we come across mis-selling scandals, the consumer is usually compensated.

In the current climate however there are certain similarities in the home equity release plans now compared to those being marketed 15 years ago or so. Let us hope that it does not get too serious. However if interest rates rise (and there are indications that they are) and if house prices fall (and there are similar such indications) then these things might just be possible. In those circumstances we might see consumers looking for compensation.

Also from WB website

Equity Release is a means of using the value of your home to receive either a lump sum of cash or regular monthly instalments. In all instances, age is the primary factor in determining the percentage of the value of your home that can be released.

A person of an older age can release a higher percentage of the value of their home, than a person of a younger age, as they are not expected to live as long.

There is no maximum age limit for equity release, although applications are not usually granted for anyone under the age of sixty.

Important factors to consider

Equity release is not regulated by the government.

When choosing an equity release plan, ensure that it has negative equity guarantee. This means that the debt can never exceed the value of the property. This will ensure that any outstanding debt, after the sale of your property will not be passed on to your next of kin.

Not all lenders will allow you to move home after you have taken out an equity release plan.

If you are living with a partner, you must take out a joint plan to ensure that the debt will only be reclaimed after the death, or admittance into long term care, of the last surviving partner.

There are a number of hidden charges, such as; legal fees (as a solicitor is needed to set up the equity release plan), you will be charged for the surveying of your property. There are also charges for the setting up, maintenance and redemption of the loan.

I wouldn't touch one of these with a sh!tystick.

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Oh dear. I don't think people will be too pleased to be the first in their family not to inherit their parents' home. Come equity release time, don't hold out much hope of your kids bothering to look after you :(

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Any financial product with deferred/rolled up interest compounding will very quickly get out of control.

At an interest rate of just 7% the debt would double within 10 years. So if someone borrowed 50% of their home value within just 120 months they would be homeless and broke.

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Any financial product with deferred/rolled up interest compounding will very quickly get out of control.

At an interest rate of just 7% the debt would double within 10 years. So if someone borrowed 50% of their home value within just 120 months they would be homeless and broke.

It's sick --- REALLY SICK - The archetypal Moneylenders Dirty little TRICK......

PUKE.

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  • 293 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% +
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      • up 5%



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