Equity release - bit grumpy brother is suggesting it Post Reply

[MoneyTalks]

My parents have just returned from their annual trip to visit my eldest brother and his family in the States. 

He's managed to persuade them to look at equity release.

I'm a bit grumpy over this mainly, to be super-blunt, because whilst I'm not depending on that money I can see that his next step may be to try and wiggle some of that money over in his direction once it's released.

I'm trying to be objective and would love to know if anyone has any relatives who've done this and how it turned out? Do they give away all their property? Is it gone forever? Is it safe for them i.e. will they lose their home? Is there ever anything left to inherit?

Any advice gratefully received.

Thanks.

[chorister]

Curiously enough I have just been involved with supporting and helping an elderly friend who is doing an equity release.

First of all, if they do do it, then make absolutely sure that they have a reputable adviser and decent solicitor, as there are sharks out there, even though the market has been cleaned up a lot.

That being said, it can be a good thing for the elderly people, as it basically gives them access to wealth which they have accumulated but cannot use / enjoy, and so could buy them comfort and peace of mind.  Personally - and it is only a personal view - I don't think it should ever be done to advance money to children, except perhaps in an emergency eg a medical emergency or something.

On the specifics, with a reputable company they do NOT give away or lose control of the property - it is actually just a mortgage, but with no repayments because interest is added to the amount outstanding.  They cannot be forced to sell, but the loan will become repayable if either they do sell the property themselves, they die, or they move out permanently into eg a care home.  The lender then has the right to sell the property and take the amount owning out of the proceeds, but no more than that, so there will always be a balance left, unless property prices collapse completely, because the lender will never advance the full value.  A reputable scheme will also have negative equity protection ie if prices do collapse and the property is worth less than the outstanding loan when it comes to be paid off, then the balance is written off.

Hope that helps.

[susan.barnett]

I think it’s a terrible way of raising money. My parents took out twenty thousand for some reason. They didn’t have much money in savings and within a few years it became nearly sixty thousand that they owed. The interest grows with the debt. Luckily their property price rose but in these uncertain times properties are falling and I think it’s a rip off. It certainly means that the longer people live the debt becomes bigger and their is less in the Kitty when they die. That’s a fact. My parents would have been horrified how much they paid in interest for such a small loan. Be careful. That was with a reputable company too.

[K1999]

It can be very tricky. My sister persuaded my mum to do this because she wanted money from my mum. Luckily my mum’s property had gained value, but it did mean the loan to the company just got bigger and bigger. But if your parents are short of money, it is hard to get extra money much later in life unless they have enough money to pay the interest. If not, this is one of the few ways to do it, unless you were offering to buy their house but giving them life interest to remain in it. Can the sell and downsize?

[Loupylou]

Hi!
On the positive side, with equity release, your parents will always be able to stay in the property. The company will realise their share when they both pass away & their home will need to be sold.
On the downside, the interest rates charged by these companies is usually really high. Your parents are better off using their savings up first.
If your parents ever need state care, the borrowed amount will act as a mortgage and reduce the value of their share in their home.
I would certainly not rush into equity release but suggest they see an independent financial advisor or an accountant with estate planning experience to see what their options are. I do agree with your brother that your parents should enjoy their assets but it is important to do it in the best way for them. My view is that inheritance should be seen as a bonus rather than an expectation. If your brother receives gifts from them during their life time and you are left everything equally in your parents will, then that gift should be take. Into account. Make sure you go to a solicitor for the administration of their estates, when the time comes.
I am a local mum who is a solicitor and works in the West End in Wills and Probate. I have acted for various families at my daughter’s school over the years.
I wish you the best of luck with it all. It is so hard watching our parents grow older...

[johnnyhandyman]

A few years ago my sister proposed equity release from my mothers house in order to build an annex for my mother to live in when the time came. My other sibling and I were dead against it at the time, but we agreed a sensible amount and it was treated as part of my sister's inheritance. My mother now lives there and will hopefully not need to go into care. The critical issue was the regular payment of the interest, which otherwise builds up quickly (the magic of compound interest), and in a short time the amount borrowed can rise considerably. However, many equity release funders will now allow regular payment of interest and repayment of lump sums as funds allow. Interest rates have also come down, although they are still higher than mortgage rates.

I would be cautious about going down this route, but make sure you fully explore all the options and use a competent solicitor. Best of luck. 

[chorister]

Could I add a couple more comments, in the light of some responses.

Firstly, it is correct that the interest accumulates (in many ways the whole point of equity release is not having to make repayments) but in the case I have been looking at the rate was not unreasonable - 3.76% - and it is only chargeable on the amount drawn down.

And secondly I do think it depends on one's attitude to the equity in the property, and whose it is.  Personally I think it belongs to the parents and that they should be able to enjoy their wealth - I entirely agree that an inheritance should be seen as a bonus, not an inheritance.  But others I know feel otherwise.

And above all - get good advice from a specialist broker, and, separately, get a good solicitor; I'm neither - this is disinterested advice!

[addled]

"I do think it depends on one's attitude to the equity in the property, and whose it is..."

That's the point of the question, which no-one has answered. I'm not a lawyer so don't have an answer, but it tickles me to see that so many responders just use the forum to voice their opinions, rather than offer a solution.

[chorister]

Addled - I think you've lost the plot.  There are answers to what equity release is, how it works, what the terms are etc, but there isn't an answer as to whether or not it is a good idea in a particular case, precisely because it does depend on your attitude to the equity in the property.  Some children think it is in some sort of way theirs through some sense of entitlement, some parents have an attitude that they are more or less holding it in trust for their children, and others take completely the opposite view. You have to make up your own mind.

[NoodleFan]

Is there any need to be so horrible on this thread - she only asked for advice.

[Jackie r brooks]

I find this a big no no .you get a lump sum .not full market value when anything happens equity take off the lump sump and a very high interest my friend had about 2 thousand left .try and and persuade them not to do it .or do a loan if needed .