Equity release

[PokerBroker]

Given the ages of your parents they will also struggle for decent re-mortgage options if that was something they were considering. 

There will be someone who will give them funds but it won't be any of the high street lenders it's likely to be someone like Earl of Shilton or The Hanley.  Don't quote me on those 2 I am using them as examples. 

[EvilPie]

The immediate thing that leaps out at me is that 4% on a £300k loan is £1000 per month in interest. Throwing £1000/m down the drain in interest to avoid throwing £800/m down the drain in rent seems a bit silly to me.

Your parents are too old to get a mortgage of £300k without a large guaranteed income so them re-mortgaging isn't an option.

Do they have any cash savings? I'd assume that with a £1M home they have a few quid stashed away somewhere.

Is there any chance of you getting a mortgage? The key is how much you earn. Are you prepared to divulge that little snippet? If you can get your hands on £30k for a deposit then a £270k mortgage will cost you under £900 per month which is less than the interest on that equity loan. Barclays (and probably others) do a family springboard mortgage https://www.barclays.co.uk/mortgages/family-springboard-mortgage. You can get one of these if your parents or siblings can offer up 5% as a deposit guarantee. The rate isn't great at 2.99% but it's still a chunk better than that equity loan.

If you don't know that there are 1% mortgages available I'd suggest that you're a hell of a long way away from being ready to make any decision of this magnitude. I'm not going to tell you where they are because you can find out yourself in about two minutes doing what you need to be doing, research!!

A few places that I suggest you spend a bit of time:

https://www.moneysavingexpert.com/mortgages/best-buys/
https://www.gov.uk/inheritance-tax/overview

If a mortgage for you is out of the question then how about your siblings borrowing money to give to you? They could help you to buy a home and in return you write off a chunk of your future inheritance. My parents did that for my dads sister years ago to help her get on the property ladder.

You have loads of options and I'd be amazed if equity release is the best of them. Having a loan secured against a property is basically a mortgage. You can give it a different name to exempt it from the rules surrounding mortgages, rules put in place to stop people getting in to trouble, but at the end of the day this 'lifetime mortgage' that you describe just sounds like a shit mortgage. You say that you don't want your parents to re-mortgage but 'lifetime mortgage' doesn't half have a mortgage type vibe attached.......

Please prove me wrong if you can I'll happily accept it if I am.

Sorry I couldn't offer anything as constructive as "ok gl" but this is all I have.

[PokerBroker]

The immediate thing that leaps out at me is that 4% on a £300k loan is £1000 per month in interest. Throwing £1000/m down the drain in interest to avoid throwing £800/m down the drain in rent seems a bit silly to me.

Your parents are too old to get a mortgage of £300k without a large guaranteed income so them re-mortgaging isn't an option.

Do they have any cash savings? I'd assume that with a £1M home they have a few quid stashed away somewhere.

Is there any chance of you getting a mortgage? The key is how much you earn. Are you prepared to divulge that little snippet? If you can get your hands on £30k for a deposit then a £270k mortgage will cost you under £900 per month which is less than the interest on that equity loan. Barclays (and probably others) do a family springboard mortgage https://www.barclays.co.uk/mortgages/family-springboard-mortgage. You can get one of these if your parents or siblings can offer up 5% as a deposit guarantee. The rate isn't great at 2.99% but it's still a chunk better than that equity loan.

If you don't know that there are 1% mortgages available I'd suggest that you're a hell of a long way away from being ready to make any decision of this magnitude. I'm not going to tell you where they are because you can find out yourself in about two minutes doing what you need to be doing, research!!

A few places that I suggest you spend a bit of time:

https://www.moneysavingexpert.com/mortgages/best-buys/
https://www.gov.uk/inheritance-tax/overview

If a mortgage for you is out of the question then how about your siblings borrowing money to give to you? They could help you to buy a home and in return you write off a chunk of your future inheritance. My parents did that for my dads sister years ago to help her get on the property ladder.

You have loads of options and I'd be amazed if equity release is the best of them. Having a loan secured against a property is basically a mortgage. You can give it a different name to exempt it from the rules surrounding mortgages, rules put in place to stop people getting in to trouble, but at the end of the day this 'lifetime mortgage' that you describe just sounds like a shit mortgage. You say that you don't want your parents to re-mortgage but 'lifetime mortgage' doesn't half have a mortgage type vibe attached.......

Please prove me wrong if you can I'll happily accept it if I am.

Sorry I couldn't offer anything as constructive as "ok gl" but this is all I have.

The internet is dangerous.  Everyone thinks they are experts on everything. 

The Barclays springboard option has a pretty tough underwriting criteria, and some quirks in the application process.  In terms of being cost effective it's not so great.  It's also a 3 year fixed rate. 

The best thing for Dakky to do would be to approach someone who does this sort of thing day in day out.  There are loads of brokers out there, some good some not so good.  Look for recs from friends or family. 

Don't waste too much time on MSM forum, there are some wahoos on there.  There are also brokers on there who won't give you any advice as they aren't permitted to.  The ones who try and tap you up by averting the rules probably aren't worth dealing with. 

To offer any proper advice there is much more information required but is all honesty I'd approach a whole of market broker have a look at a few different ones and get different opinions if you must but you ideally need to do a whole fact find. 

From what you have put here so far an option might be having one of your siblings on a mortgage with you. 

[doubleup]

Please prove me wrong if you can I'll happily accept it if I am.

Sorry I couldn't offer anything as constructive as "ok gl" but this is all I have.

My comment was obviously aimed at you as you are a complete guesser in this area of finance.  You made a comment that showed your ignorance and refused to accept this - "Pretty sure that a loan taken against the value of a house is just a different way of saying 'sell a chunk of your house'." is quite obviously nonsense.

[EvilPie]

Please prove me wrong if you can I'll happily accept it if I am.

Sorry I couldn't offer anything as constructive as "ok gl" but this is all I have.

My comment was obviously aimed at you as you are a complete guesser in this area of finance.  You made a comment that showed your ignorance and refused to accept this - "Pretty sure that a loan taken against the value of a house is just a different way of saying 'sell a chunk of your house'." is quite obviously nonsense.

So can you explain what equity release is then and make it sound like something different? I refuse to accept anything without justification.

A loan which can't be paid back until you die and at that point it comes out of the value of your house seems like you're never going to get that part of your house back. How is that different to selling a chunk of your house?

It might be obviously nonsense to you but it isn't to me so explain it rather than giving the typical IFA response of "I'm an expert so just believe everything I tell you and don't question me or I'll call you an idiot".

[doubleup]

It should be fairly obvious what the differences are.  If you "sell a chunk of your house", the ultimate payback is clearly affected by the change in the value of the house, but in the case of a lifetime mortgage, the increase in house value can be more or less than the accrued interest.  If the borrower wants to move house, a loan can be rolled over and is transparent.  And if the borrower wishes to terminate the arrangement, the repayment of a loan would obviously be transparent and not subject to potential dispute over valuation. 

As I said it's academic because I don't believe that such schemes exist although I vaguely remember they did in the past.  Which was the initial point I made and you chose to ignore.

[PokerBroker]

Please prove me wrong if you can I'll happily accept it if I am.

Sorry I couldn't offer anything as constructive as "ok gl" but this is all I have.

My comment was obviously aimed at you as you are a complete guesser in this area of finance.  You made a comment that showed your ignorance and refused to accept this - "Pretty sure that a loan taken against the value of a house is just a different way of saying 'sell a chunk of your house'." is quite obviously nonsense.

So can you explain what equity release is then and make it sound like something different? I refuse to accept anything without justification.

So in turn you just try and guess about what is what through looking at some internet pages and then pass it off as "research"

[dakky]

I know you can get a 1% mortgage, but it's for like 2 years introductory.

I. Appreciate the long posts and will look through them properly later, but I'm at work where I earn a paltry living (nowhere near enough to get a mortgage myself, coupled with a terrible credit rating)

[EvilPie]

Of course I guess at things. Unless you're blessed with 100% knowledge of everything how else can you come to an informed decision unless you start with a guess of some sort? Surely we look at what our desired outcome is, in this case release £300k from a £1M property, then dependent on our prior knowledge we look at ways of doing it and we critically analyse each one in turn until we end up with the best option?

I'm not sure how we're supposed to research anything if we aren't allowed to use the internet? Perhaps I should pick up the yellow pages and ring an IFA?

Am I supposed to just blindly follow what the IFA tells me? You said yourself that there are good ones and not so good ones. I'd listen to their advice and then dependent on how risky the outcome was decide how far to push their advice before going with it. If it's something as serious as releasing £300k from my parents' house that they've worked all their lives for you can bet your ass I'll rip the shit out of any advice to make sure it stands up to every possible downside I can throw at it.

If you tell me to get an equity release mortgage I'm going to do everything I can to convince you that it's not a good idea for me and hope that you have a solid response to shut me up at every turn. If one of those responses is anything like "ok gl" or "So in turn you just try and guess about what is what through looking at some internet pages and then pass it off as "research" then I'm looking for a new advisor who can provide something more constructive.

I haven't claimed to be an expert at all, I've just put a few ideas forward and tried to encourage Dakky to do his own research to make sure he's doing the right thing. The people who appear to be experts seem determined to shoot me down in flames and put me back in my box where I belong. I'm an educated guy but I'm not allowed to question anything without being ridiculed.

I never said to go on the MSE forum. I put a link to the MSE mortgage best buy thing so that Dakky could find one of those <1% mortgages I mentioned. I'm encouraging Dakky to do his own research although apparently looking at internet pages doesn't qualify so he'll have to settle for passing it off as research instead. Perhaps he's allowed to do a 'whole fact find' on the internet instead of research?


 

[EvilPie]

It should be fairly obvious what the differences are.  If you "sell a chunk of your house", the ultimate payback is clearly affected by the change in the value of the house, but in the case of a lifetime mortgage, the increase in house value can be more or less than the accrued interest.  If the borrower wants to move house, a loan can be rolled over and is transparent.  And if the borrower wishes to terminate the arrangement, the repayment of a loan would obviously be transparent and not subject to potential dispute over valuation. 

As I said it's academic because I don't believe that such schemes exist although I vaguely remember they did in the past.  Which was the initial point I made and you chose to ignore.

Apparently they're now called 'home reversion plans'. I managed to find one with a bit of what I used to call research but I'm now passing off as part of my 'whole fact find'.

https://www.moneysupermarket.com/mortgages/equity-release/home-reversion-mortgages/

It is indeed very different to a 'lifetime mortgage' as I now know following what I pass of as my whole fact find. This should have been obvious but as an electrical engineer unfortunately it wasn't.

[EvilPie]

I know you can get a 1% mortgage, but it's for like 2 years introductory.

I. Appreciate the long posts and will look through them properly later, but I'm at work where I earn a paltry living (nowhere near enough to get a mortgage myself, coupled with a terrible credit rating)

2 years introductory which then reverts to SVR of say 4% seems better than 4% from day 1 though surely? After the introductory period you're free to shop around again so you can look for another good deal. It may be higher than the 1% if rates have changed but it'll still most likely be better that the equity mortgage rate which I assume just tracks the base rate in some way.

Yeah looks like you're going to struggle with a mortgage from what you've said. It might just turn out that renting is actually the best option.

[Woodsey]

There are some great mortgage deal around at the moment. I'm just about to shift mine and have managed to bring the term down a bit and save about £100 a month in the process.

[EvilPie]

I just hate the idea of paying 4% for equity release for the purpose of buying a house. There has to be a better way most likely involving the siblings who potentially have higher earning taking on a second mortgage in return for being gifted a share of the £1M pad.

This needs a huge amount of what I now pass of as a whole fact find.

The decision that Dakky and family make here will have huge repercussions financially that by the time the unfortunate happens and both parents have passed away could cause swings well in to 6 figures.

You need to be so careful if you go down the equity release scheme as that interest rate really is huge on what amounts to a 30% LTV loan.

[roshambo]

Dakky,

Your parents will have 3x options basically.

1 - Roll up interest for a lifetime mortgage, can lend parents around a maximum of £345k they are free to do as they wish with the money, for this you are looking at a rate around 6.24% and it will take around 10 yrs as an average to double and then another 10 to double yet again. This product comes with a free valuation and product fee of £599. Although this is a high rate you have to take into account that your parents property will go up in value which helps to reduce it.

2 - Regular monthly Interest Payment, they can pay the interest on the loan until 2nd death at which point you would still owe the initial loan, best available rate is 3.79% but they would have to show a income of around £60k pa - this can be made up of any source (can include pension income).

3- Adhoc Voluntary Interest Payments  - They can take a payment of £300k with the option of paying  adhoc payments for the interest (this could be yearly if you wanted when they recieve a statement of how much interest has been added for the year), best rate at the moment is around 5.74%, this would mean £17k of interest Per year or £1500 per month.

With any Equity release make sure you use a Equity Release Council approved lender / Broker as this means that regardless of how long your parents live they will never owe more than the property is worth . Your parents are both entitled to stay in the property until either 2nd death or 2nd person placed in permanent care, it can reduce inheritance tax liability as the Equity Release Debt will be deducted from the estate before IHT is calculated.

There are two very different schemes available a Life Time Mortgage (Equity Release) or Home reversion plans, with these you effectively sell a fixed % of the property so once its sold the company own that amount.

If you have any questions send me a msg -- yes i do this for a job

[Doobs]

I know you can get a 1% mortgage, but it's for like 2 years introductory.

I. Appreciate the long posts and will look through them properly later, but I'm at work where I earn a paltry living (nowhere near enough to get a mortgage myself, coupled with a terrible credit rating)

You've got a terrible credit rating and think it is ok for your parents to chance their arm with a 300k loan that you need to make some payments on or the interest will balloon before they die?  And good luck to them when they start losing their minds.

Sounds absolutely disastrous for them on the face of it. 

Move somewhere where 100k can get you a flat or think of a plan B.