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Equity Release


howie

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I,ve been looking at the possibility of raising extra income from equity release for some time now and wonder if anyone out there has any experience or advice on this subject.

Not desperate for money, but no denying a little extra would certainly help, and with the children already taken care of no need to feel guilty over spending 'their' inheritance.

eg. NPI offer a tax free lump sum or monthly income with the money repaid from the value of our house on death, and the amount given is entirely down to what we need and not the full value of our property.

Aware of the implications, but such a big commitment really needs thinking through, and any thoughts on the matter would be welcome.

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I seem to recall that Norwich Union do these schemes Howie?

 

I did a couple many years ago when I worked for the Pru but I must admit to a certain degree of apprehension on behalf of the victim - sorry - I mean applicant. But in both cases they were elderly widows and the families were aware and agreed and supported them both.

 

Be very wary of your future needs which are more unpredictable when there are two of you than when one is alone - and be specially aware that it can make selling up to move home to a more manageable property, should you ever need to, even more difficult due to the shortage of capital.

 

Great idea for extra cash if it is appropriate and as long as you know what you are getting into.

 

Ask CliveH as he seems well versed in the modern theory and practise of these things.

 

Is it just coincidence that you choose April 1st to look at this idea Howie?

 

Good luck.

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Nothing to do with April 1st Richard and I take it you are not entirely in favour of these schemes. I agree that the future can be unpredictable, but for our personal circumstances it does seem a reasonable way to release some equity for our time of life where it would be more than welcome.

No intention of moving from our present house, and if and when the time comes where we are unable to care for ourselves, well thats a bridge we,ll cross when we come to it.

A bit simplistic perhaps, and a lot of guesswork here, but lets say our house is worth £150,000 and I want to raise £50,000 through one of these plans. Obviously there must be a profit involved for the loan company, although i,m not sure how much this would be, but I see no problems when settlement is due and the house is sold.

Should still be a reasonable sum left for the children after this settlement, and in the meantime we enjoy the benifits, and what i,m looking for are any pitfalls or disadvantages with this sort of plan that is not obvious to me at the moment.

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I'm not against them in principle Howie - I just have some reservations about the unforeseen -and it's very nasty habit of biting people when they least expect it and are least able to cope with it.

 

If your good self (and I use the word guardedly!) and Mrs Howie fully understand what is being offered and are happy to accept the possible pitfalls in exchange for the probable benefits then I sincerely wish the very best of luck to you both.

 

Getting your hands on your own loot and enjoying it yourself rather than leave it for others to spend is a wonderful idea.

 

 

 

 

 

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Hi guys - I do not want to become a bore - popping up every time there is a financial matter on the site - but like Tracker I am apprehensive about Equity Release. If you are going to do it - use only a Registered SHIP one (Safe Home Income Plan) and also check out an independent site such as Help the Aged which has a very good website and leaflets that explains things clearly - setting out the pros and cons and what to look out for.

 

The FSA state that only advisers qualified (by examination) to handle Equity Release and so not all IFA offer them. You can buy direct but to my mind this is risky.

 

I personally would like to see the advertising of them banned if the advert mentions "having a holiday" - that is really NOT what they are for.

 

The interest on these things is compound and at about 7.5% the amount doubles every 10 years.

 

So take out £50K today and the debt is £100K by 2018 and £200K by 2028.

 

But to put that into some kind of perspective my first house cost £11K 30 odd years ago - so even if I had taken out an Equity release on the whole value of the house back then at 7.5% - £11K debt would now be £88K 30 years later (10 yrs = £22K, 20 yrs £44K, 30 yrs £88K)

 

Value of that house now? (I do not live in it anymore) but estimated value circa £220,000.

 

So as long as House Prices keep going up (they will recover!) you break even if the average house price increase matches the loan interest rate.

 

If house price values outstrip that percentage - you will not disadvantage your kids.

 

Type of schemes - my advice is to ignore those that give you income - far better to take capital and invest that for income yourself. If you die the capital can be written in Trust to benefit your kids or whoever you want.

 

Why take out an expensive scheme (these Equity Release Schemes are expensive in relative terms) then let the provider hang onto your capital and give it out to you like pocket money??

 

What to do with the money? - If you place it on deposit - after tax on the interest you will get about 4 or 5% - so if you take 5% as income and inflation is 2.5% - you are losing buying power every year.

 

So best to look at things like a cash Fund, Fixed Interest Funds that include Government Gilts Bonds etc., a good cautious managed fund and a %'age in a property fund(s) - (good time to buy now) - If you access these via a thing called an Investment Bond, you can take 5% of the original investment tax deferred (tax free for the basic rate taxpayer) This 5% income is deemed to be return of the original capital by the Inland Revenue and that means this "income" is not classed as income at all.

 

It is return of the original capital in the eyes of the revenue.

 

This is important when you consider the possible future need for Long Term Care. If you have income earning assets then the LA takes these into account when assessing how much help they give you. So if you have more than £16,000 on deposit you get no help at all.

 

But have monies in an Investment Bond and the LA can not take that sum - whatever the amount is - into account.

 

So be careful and take advice on what you do with the capital you release.

 

 

One other advantage for your kids - if you have an Equity Release loan - it stops the LA putting a charge on your house in case they want to recover their LTC costs by selling your house.

 

 

Yet another advantage is if your estate has an IHT liability - if you take out an Equity Release loan and place the monies in a derivation of the Investment Bond called a Capital Redemption Bond - you can name your beneficiaries on the plan so that when you die, the capital is theirs and if you have lived for 7 years then the entire sum is outside of your estate.

 

 

We did a large number of these prior to Darling being forced to allow the transfer of a dead spouses IHT zero rate band to the surviving spouse. It still works of course but whereas there are lots of houses worth circa £300K, there are less at £600K so less need to try to thwart the taxman.

 

 

In summary – Not to be set up for a few thousand quid because you want a new car or a holiday.

 

But as part of a structured financial plan designed to protect you and your kids from the taxman and the LA assessors, as well as give you a secure income without any loss of security of your home – then a SHIP registered plan can be a sensible option.

 

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A further caution to Clive's regarding house prices, and the chance of break even if average prices rise in line with interest rates.  Do be aware that neither rises in house prices, nor the moment you/your descendents, need to sell is within your control.  However unlikely it may be, if the need to sell arises in the short term, and that coincides with a downturn in house prices, an actual loss could result.  There's risk in them there averages!
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Thanks for your help, and the time and effort shown so comprehensively with some of the replies. I still plan to look further in detail re. equity release, but unless i,m absolutely sure its right for myself and my family then i,ll be inclined to follow the advise given here that such schemes should be treated with extreme caution before any commitment is made. Thanks.

 

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michele - 2008-04-02 12:50 AM

 

Howie ,

Dont do it my old fart i love you x :D

Comments duly noted and carefully considered reply will follow. Don,t want anything that might embarrass or come back to haunt you now do we. ;-)
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howie - 2008-04-02 12:35 PM

 

michele - 2008-04-02 12:50 AM

 

Howie ,

Dont do it my old fart i love you x :D

Comments duly noted and carefully considered reply will follow. Don,t want anything that might embarrass or come back to haunt you now do we. ;-)

 

Well done Michele - getting Howie to accept that he is an old fart is a step in the right direction!

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Tracker - 2008-04-02 3:12 PM

 

howie - 2008-04-02 12:35 PM

 

michele - 2008-04-02 12:50 AM

 

Howie ,

Dont do it my old fart i love you x :D

 

Well done Michele - getting Howie to accept that he is an old fart is a step in the right direction!

Do I detect just a hint of jealousy there Richard. Most unbecoming for a man of your advanced age I must say. Serious now, so straighten that rug and do try to concentrate please.

Having women throw themselves at you would be totally alien to you of course, but as a old and valued friend, i,m hoping you might help in replying to the above posting. Having someone declaring their undying love on a open forum is not something you treat lightly and such a delicate situation requires tact, diplomacy and a sympathetic understanding, which is why i,ve turned to you for help.

I would appreciate your advice on this matter, but please remember that Michele,s feelings must come first and foremost at all times.

 

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howie - 2008-04-03 10:45 AM

 

Tracker - 2008-04-02 3:12 PM

 

howie - 2008-04-02 12:35 PM

 

michele - 2008-04-02 12:50 AM

 

Howie ,

Dont do it my old fart i love you x :D

 

Well done Michele - getting Howie to accept that he is an old fart is a step in the right direction!

Do I detect just a hint of jealousy there Richard. Most unbecoming for a man of your advanced age I must say. Serious now, so straighten that rug and do try to concentrate please.

Having women throw themselves at you would be totally alien to you of course, but as a old and valued friend, i,m hoping you might help in replying to the above posting. Having someone declaring their undying love on a open forum is not something you treat lightly and such a delicate situation requires tact, diplomacy and a sympathetic understanding, which is why i,ve turned to you for help.

I would appreciate your advice on this matter, but please remember that Michele,s feelings must come first and foremost at all times.

 

I say, steady on old chap, don't get too excited!

 

The Great Goddess of love, aka Michele, only said that she loved you on that particular day and she made no mention of undying or ongoing love!

 

I know Michele has a big heart and a lot to give but you must not be greedy or you will have Mrs Howie to contend with!

 

A man of your advancing years must know by now just how fickle these ladies can be and perhaps it is just wishful thinking on your part, but I must advise caution given your frail mental and physical condition!

 

Too much excitement in any one day can endanger your well being and heaven forbid, but if you did get over excited and pop your clogs you would never be able to forgive yourself, the Great Goddess herself would feel guilty, and Mrs. Howie would no doubt have mixed feelings!

 

My advice to you Howie is to take a lukewarm shower, as a cold one is far too dangerous for you in your condition!

 

Au contraire to your belief, I do have considerable experience of these matters as I spent many months interviewing lots of potential, but generally unsuitable, navigating officers before eventually finding a suitable one that can't read a map, can't tell right from left, and talks to me in 'blonde' - a strange extra terrestrial language that is is very difficult to learn because the meaning of many words changes daily like some sort of Enigma code!

 

Hope this helps and always remember Uncle Rich is always here to help and advise you everyday except Monday to Friday and weekends.

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My Mum looked at the various schemes a couple of years ago and she took independant financial advice. They advised here to borrow an amount, (20K), from a building soc. just pay the interest monthly and the building soc gets the initial advance back when she dies or sells the house. It worked for her because she got the money but it didn't take much from the overall value incase she needed to move or so she could leave money for my brothers and I. The payments were well within her comfort zone too.
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Very good point Tomo - a simple interest only loan can and does work well. We arranged one once where the interest was then paid by the children because they wanted to make sure Mum & Dad were OK.

 

And it can and does work well. But do be aware that interest rates can go up and this can lead to problems with a simple "Mortgage".

 

Some lenders will not lend to the elderly either - so often the only way to do this is to get the children to take out the loan.

 

But you are right - the interest rate is lower and so it can be cheaper - but you do have to pay the interest each year and this is usually a variable rate. In contrast the Equity Release Schemes provide a fixed rate and the interest is not paid back during the life of the loan- it accrues and is added to the capital owed - all to be paid back on the sale of the house.

 

Not a big fan of Equity Release - I think this is why most of them are sold direct rather than being "advised" via IFA's.

 

As I said earlier - I think they should not be advertised on the TV as a way of having a few extra holidays. Every possible alternative should be considered before Equity Release.

 

BUT! - Be careful about signing over ownership of part of you home to your children in return for their taking out a loan on your behalf. In the event of your kids marriage breaking up - such an arrangement can get dragged into THEIR divorce settlement!

 

And believe me that can be a nightmare!

 

How do you fancy having part of your home owned by someone who USED to be your son/daughter in law???

:-(

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Howie,

 

Equity release is a good thing you could treat me as well as the wife .

Make sure you wine me & dine me first though no pink socks ok .

Yours forever :D

Turkey legsx I am only ever a two dayerso let me know if it comes tommorrowx after that the deals off you can take your pink socks to mel

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Will you stop interrupting woman. Absorbing information has never been my strong point, and just as i,m starting to grasp what the others are saying up you pop with turkey legs and pink socks. Between you and 'Uncle Rich' i,m never going to get my head aroung this 'equity release' thing. 8-)
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just dont doit. it would be like giving all your lives work away to a perfect stranger, try thinking of your children of when they were young babies even and what you thought of them then. i know its hard but when they were babies you would have done anything for them. selling yourselve would never have entered your head.
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