“Equity Release Conundrum”

This follows from my previous blog.

Equity Release should be an answer to people’s prayers.  Having saved all your working life to buy a house, you should have a nest egg if you need it later in life.

But unfortunately it is not that simple.

On the face of it, it should be easy to raise money against the equity in your house, and equity release companies will tell you that it is.  You can have cash and stay in your home.  Even better you have nothing to pay until you sell your home or die.

The trouble is that if it sounds too good to be true, it usually is.    Most companies will only lend you a small percentage of the current value of your home – around 40% is the best you can get, because they rely on the remaining value to pay their fees and the cost of the loan.    These are generally twice as high as a normal fixed rate mortgage.   Currently 6.3% compared to 3.3%.    The higher cost is to cover the fact that there are no repayments and the uncertainty of when and whether they will get their loan fully repaid.

The other big catch is the “early repayment charge”, which is triggered if you decide to sell your house – typically if you go into a care home.    These charges can be very high, without any obvious justification.

Equity release acquired a bad name 20 or 30 years ago for miss-selling and little has been done to improve the situation since then.    It still seems like an expensive option.  Nonetheless, last year equity release lending reached a record high of £1.4 billion according to the Equity Release Council, up 29% from 2013.

Many older people who use equity release are asset rich and income poor and if they need additional money, it may be their only option to raise cash.    Sadly lenders seem to be taking advantage of this.

The equity release market is opening up rapidly with the number of new financial products nearly doubling in the last year.    That should be good news for the consumer.

It could release billions of pounds for better care or it could be a new scandal in the making.

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1 Response to “Equity Release Conundrum”

  1. It is very difficult, and just a thought for today, What is one going to do when one is 75+
    Swimming with man eaters and sharks, and with all that emotional baggage of a lifetime, with or without a partner and friends one may have to contemplate moving from ones home of many years to a new environment of a Retirement Village, A retirement complex, a residential retirement home, a nursing home or just a flat near ones family and friends.
    From my personal observations, when one retires one looks forward to those golden years, with maybe a partner, friends or indeed family! One reaches 70 approaching 75 one may still have these dreams? However I note that people of 75+ but under 80 find a move to a new environment stressful, and need or indeed require support. For those approaching the late 70’s and 80 find the transitions to a new form of habitable life, maybe with or even without a partner very, very, stressful, and extremely emotional, with all those emotional ties and memories one has to release within the house or home one has to move from.
    There is no easy answer other than to enjoy the golden years, but keep a weather eye open for those years beyond 79, and as one did in younger life do a little forward thinking??? It is over to you to swim with sharks and ‘man eaters’ at years of 75+ I would image is no fun, and they are only thinking of a bonus or their own younger family and how to feed, cloth and house them? Have you not been through this hoop, and one still must consider ones self and one partner and family?? Must one not?? At retirement age one has a lot to consider, and enjoy in life: A little thought to the future may go a long way, when one is faced with stark choices.

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