Equity release

[nirvana]

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. 

Bit blunt, but I was thinking pretty much the same - i'd give my kids a loan for a deposit -maybe even up to the point they could obviously afford the payments on a repayment mortgage but the rest would have to be up to them. I'd also happily suggest they move 20 miles north of here to find more affordable housing. If they weren't prepared to move for affordability or hadn't shown any propensity to look after their cash and be somewhat responsible with money then a simple 'all the best' would have to suffice.

[neeko]

Rolling up interest at 6.24% is as bad it sounds. Total debt each year will be

300
318k
338k
359k
381k
405k
430k
457k
486k
516k
548k

So after 10 years, it property prices stay the same, the equity in the house is down a quarter million. If interest rates go up (which they will) then this will get much worse.

[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)

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. 

Err well for starters

A)  This was their idea
B)  If you read my first post I said that I didn't know if it was a good idea or not
C) I don't want to move out of London. I was born here and my family, friends and work are here. Why should I?
D) I have paid my rent on time, generally, for the last 15 years. Month after month.
E) they aren't "chancing their arm" as it should, in theory have no affect on them (their accountant and financial advisors will discuss any issues about if they have to go into care)

Also fwiw the figure they have been told is 4%.

[dakky]

Rolling up interest at 6.24% is as bad it sounds. Total debt each year will be

300
318k
338k
359k
381k
405k
430k
457k
486k
516k
548k

So after 10 years, it property prices stay the same, the equity in the house is down a quarter million. If interest rates go up (which they will) then this will get much worse.

I'm well aware.

[PokerBroker]

Just to add your not getting a mortgage at under 1%

RE: Credit Rating don't pay much attention to your rating the lenders don't look at the "score" they are more concerned with the raw data on the report. 

So long as you have no defaults, no CCJ's etc and have kept your payments up-to-date you should generally be ok. 

Your post of not moving out of London though is lol.  If you can't afford to live somewhere then that is the reason why you should move. 

If I were you though and my rent was £800 a month for a studio I'd be off s fast as I could.

[acegooner]

Just another thing to add to the equation, have the long term care plans of the OP's parents been taken into account. Given the value of the property it would appear that no assistance will be available from the Government in that regard. If their finances are not robust then taking £300k away from the property could cause more problems than it solves.

IHT ramifications have been mentioned, but in my opinion the £300k would be a potentially exempt transfer and also create issues that would not exist if the money was retained within the value of the property. Normally transfers between spouses are free of IHT, but by giving £300k to the OP it would reduce the nil rate band if both of the parents died before 7 years, I accept this is unlikely but any Financial Advisor worth his/her salt would point this out. Not forgetting that from April 2017 that property passed to children will start to become exempt from IHT where the value is less than 1m (phased in until 2020).

I really would say that a Mortgage Advisor would not be well enough qualified to look at all of the issues that arise from Equity Release (IHT, Retirement Planning, Long Term care needs etc). OP would be better off talking to a Financial Advisor who is authorised to advise on Mortgages.

What others say about equity release seriously eroding the equity in your parents property is true. If they live another 20-30 years there won't be a lot for you to inherit.

[EvilPie]

Just another thing to add to the equation, have the long term care plans of the OP's parents been taken into account. Given the value of the property it would appear that no assistance will be available from the Government in that regard. If their finances are not robust then taking £300k away from the property could cause more problems than it solves.

IHT ramifications have been mentioned, but in my opinion the £300k would be a potentially exempt transfer and also create issues that would not exist if the money was retained within the value of the property. Normally transfers between spouses are free of IHT, but by giving £300k to the OP it would reduce the nil rate band if both of the parents died before 7 years, I accept this is unlikely but any Financial Advisor worth his/her salt would point this out. Not forgetting that from April 2017 that property passed to children will start to become exempt from IHT where the value is less than 1m (phased in until 2020).

I really would say that a Mortgage Advisor would not be well enough qualified to look at all of the issues that arise from Equity Release (IHT, Retirement Planning, Long Term care needs etc). OP would be better off talking to a Financial Advisor who is authorised to advise on Mortgages.

What others say about equity release seriously eroding the equity in your parents property is true. If they live another 20-30 years there won't be a lot for you to inherit.

I'm sure you know this but for clarity it's the total estate not just the property. IHT is increasing from £325k to £500k (so £1M assuming a married couple) but the additional £175k is for property only.

That's my best guess anyway.

[acegooner]

Yes that's what I was trying to say without reverting to jargon,or confuse anyone who isn't from a financial background.

The point's I have made are still valid, it seems crazy to take something that could be tax exempt and expose yourself to a potentially significant amount of tax on it. Although Long Term care has been mentioned, it's a more important part of the equation than the OP may realise. It costs well in excess of £30k p.a.(more in London) to put an elderly person in a home these days.

[EvilPie]

Yes that's what I was trying to say without reverting to jargon,or confuse anyone who isn't from a financial background.

The point's I have made are still valid, it seems crazy to take something that could be tax exempt and expose yourself to a potentially significant amount of tax on it. Although Long Term care has been mentioned, it's a more important part of the equation than the OP may realise. It costs well in excess of £30k p.a.(more in London) to put an elderly person in a home these days.

I'm not certain they make the IHT liability any worse though do they? They take £300k in cash but that would be covered under the existing nil rate and the bit leftover on the property would fall in to the new rules.

In any case the parents aren't too old. They could probably just about squeeze in a life insurance policy held in trust to cover the slight possibility of that big tax hit.

[dakky]

Just another thing to add to the equation, have the long term care plans of the OP's parents been taken into account. Given the value of the property it would appear that no assistance will be available from the Government in that regard. If their finances are not robust then taking £300k away from the property could cause more problems than it solves.

IHT ramifications have been mentioned, but in my opinion the £300k would be a potentially exempt transfer and also create issues that would not exist if the money was retained within the value of the property. Normally transfers between spouses are free of IHT, but by giving £300k to the OP it would reduce the nil rate band if both of the parents died before 7 years, I accept this is unlikely but any Financial Advisor worth his/her salt would point this out. Not forgetting that from April 2017 that property passed to children will start to become exempt from IHT where the value is less than 1m (phased in until 2020).

I really would say that a Mortgage Advisor would not be well enough qualified to look at all of the issues that arise from Equity Release (IHT, Retirement Planning, Long Term care needs etc). OP would be better off talking to a Financial Advisor who is authorised to advise on Mortgages.

What others say about equity release seriously eroding the equity in your parents property is true. If they live another 20-30 years there won't be a lot for you to inherit.

There financial advisors are all on board and think its a great idea apparently.

The interest should be paid down hopefully, it's looking like 3.77% and I am looking for two bedroom properties and getting a lodger, so between us that should cover it. That is the only way I will do it however. Not interested in getting a one bed and potentially leaving interest to roll up and erode that equity.

The care question has been asked and answer by the financial advisors but I personally don't know the implications.

I'm pretty on board with it now. Getting together with my parents and siblings to make sure everything is sorted so any questions or issues about their inheritance are clear (even though no one really wants to talk about it)

[EvilPie]

Effectively paying 3.77% for a 100% mortgage is actually really good I suppose so it might not be as bad as I originally thought.

As long as the equity release is really tight and they can pay it back in full in the future if they so desire then it could be a great plan. You don't want to be tied in to anything until your parents depart this mortal coil but if it's a 5 to 10 year plan perhaps then it makes sense.

Would your long term plan be to save up and try to go it alone at some point? I guess if the loan against the parents house is staying at the same level then at some point in the future you'd hope your new place would appreciate in value to a point where you could take out a mortgage on it at a decent LTV and pay off the equity loan.

It all comes down to the quality and flexibility of the equity loan really. Whilst the interest rate is currently competitive vs anything else you could get it won't always be so you need a 'get out' option. You don't want to be paying 3.77% (or whatever the future equivalent may be) when your future circumstances mean you could've been on one of those 1% deals and therefore paying off some of your property rather than just the interest.

Be interested to hear what you eventually decide and also hear about how it's worked out in a few years time.

Very best of luck with it all