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My parents are in the stages of agreeing an equity release from their mortgage free property. Property value approximately £375/400k
They are looking to have a new boiler system installed (6K), new wetroom installed to help them as their bathroom is becoming harder to use, some home renovations and a newer smaller car as they have an old diesel Volvo on its last legs.
They're looking to take up to 65k but this can be taken in stages apparently.
The scheme is a lifetime mortgage with interest at a fixed 5.5% and a couple of £K set up fee/solicitor fee.
The workings out from the scheme provider show some quite alarming levels of compounding interest the longer that they live, however my mum is 76 and my dad 71 (and recently given a life limiting health diagnosis).
If they were to live 17 years or so a 45k loan could become a 130k chunk from the eventual sale if the house. The scheme provider has said you can make interest payments which will make the eventual amount smaller.
Firstly, it's my parents house and they can do what they want. I'm in an ok position financially right now and inheritance was never a given right. Ive got 2 siblings in less of a good financial position.
I was wondering tho if there would be a better way to do it, with perhaps me taking a loan to give them or remortgaging my house. I'm not great at figuring out money/finance so would appreciate some really easy to understand help!
Very interested in this as my Mother is considering similar. She's already falling under the spell of the negotiator.
Cant comment on the best way of freeing the money up, but it might be worth looking into any grants/subsidies for the central heating and bathroom conversion if they are pensioners and have mobility issues?
65k sounds like a lot for the things listed...depending on what these 'rennovations' are... I'd really try to nail down exactly how much money they need.
10k for a new car
10k to refit the bathroom
6k for the chentral heating
is a lot less than 65k.
There must be a better way.
Your mortgage idea might work. You'd need to explain to siblings that the balance of that loan will come out of the estate before it is split. Also would your mortgage supplier allow that chunk, or balance of it, to be paid back without cost?
Equity release companies do seem to hav e some huge repayments.
If you've got the money and it's not making you 5.5% then give it to them instead. The issue isn't the equity release mechanism per se, it's just borrowing money at a rate of interest. Alternatively if they have any savings themselves it's probably better to dip into that (maybe leave a little for emergencies) assuming it's not making 5.5%. They can always do the equity release later if they feel the need.
They are attractive but poor value. Basically the accrued sum owing will be large because there are no repayments on what is just a mortgage. That lack of repayments becomes capital owed. You could just remortgage your home, pay down the interest repayments on their loan yourself, or they could move/downsize. The last option always seems unattractive, but I think is the best option. I speak to people who wished they’d done it and missed the “health window”.
Should either need care in the future (where there might be just one parent remaining - you can’t have a claim against a property with one of a couple living in it), then payment from the house to a local authority becomes interesting, because they are not the sole owners.
Remember 9that they can (*possibly) take 25% of their pension tax free. (*but this would need to be fully investigated and all implications fully understood).
Beware of commission based sales.
I may be incorrect but in a few years time if this became another scandal I would not be in the least surprised.
Did I say beware of commission based sales.
https://www.moneysavingexpert.com/mortgages/equity-release/
My parents did this a few years ago. So far house price increases have negated any interest accrued. but we know that won’t last! My parents used Key and they seemed pretty open about all fees involved.
Only thing I will say is, is the house they are currently in going to be suitable long term?
I’d look into moving to smaller property that may be better suited. And possibly release some cash that way.
My parents are mid 80’s and rattling around in a big 4 bed house, but the stress of moving now would kill them off.
Don’t take a loan yourself - you may never get the money back.
I would look at any other way before doing this. A friend's parents did this to limit iht exposure, house was over 1mn and the owner gifted the equity release to kids, lasted 7 years so it's out of her estate.
I d be looking at grants, if they are on any benefit now they qualify for energy grants to upgrade home.
Absolutely echo the downsizing thing. One trap I am determined to avoid, having seen several parents/in-laws/friends and acquaintances fall into it.
OTOH so many people do get stuck that I assume it's a mindset that comes on with age and is hard to avoid.
Should either need care in the future (where there might be just one parent remaining – you can’t have a claim against a property with one of a couple living in it), then payment from the house to a local authority becomes interesting, because they are not the sole owners
Some release schemes default the moment you go into care, forcing the local authority lower down the list in some way
I ‘bought’ my parents ex-council house about 18years ago, mainly to free up capital for them as they were struggling a bit financially. My mother died nearly a year ago and Dad’s just gone into a nursing home.
I’m in the process of selling the house now, I’ll take back what I’ve paid in and what’s left will be split between me and my siblings, capital gains tax will have to be paid first though.
I would say if you can afford to do it then it’s got to be way better than equity release, just agree what’s going to happen with your siblings when the time comes to sell.
Parasites, the lot of them, if you ask me. They are benefitting from others' good fortune of buying at the right time and working hard for it. Compound interest is nothing but a loan-shark move. We had to stop the mother in law, twice as it happens from doing it when she actually had access to capital. They'd basically convinced her it was free money, it was only free for them in my opinion. Luckily my wife has lasting power of attorney, so it was nipped in the bud.
Find another way if you can, unless the only other option is for them to suffer.
My parents did this in their early 70’s when they were with us. They spent the money mainly on holidays and had a great time whilst they were still mobile enough to enjoy them. Equity Release is a poor “deal” if getting your folks inheritance is important to you but it’s very low stress for folks in their later years and very clear. With Equity Release and care home fees my parents left nothing but they had a great time in their later years.
As much as I obviously want my parents to enjoy the money they've invested in their house, I still would like to know there would be something left for me and my sister's when my parents are gone.
I can't help but think that if my mum somehow lived into her 90s then there would be no capital left in the house. However, if my parents we to snuff it in the next 5 years or so, then there's still money left.
I don't think my sisters are in a financial position to contribute anything really.
What would be the implications of buying my parents house at £65k, (remortgaging my house to do so) then when my parents are gone getting my 65k out plus whatever interest it's cost me then splitting the rest between my sister's and I?
What would be the implications of buying my parents house at £65k, (remortgaging my house to do so) then when my parents are gone getting my 65k out plus whatever interest it’s cost me then splitting the rest between my sister’s and I?
My wife “purchased” half her elderly parents house, she had to buy the father in law out. Rather than being owed £65k (this is a random figure) “secured” with a call on a property she is show on the land registry as a joint owner with her mother. This should protect her investment (not that it was done as an investment) from any care costs, etc. When the house is eventually sold their may be some cgt to pay and the mother in laws half, if there is any, would then be split between my wife and her sister