I first wrote blogs about this subject in 2012 and then again in 2015. ( You can find my earlier posts by clicking on Equity Release in the TAG CLOUD).
The use of this type of borrowing has grown substantially since then, so I thought I should take another look at it. In principle I am in favour of older people being able to use the value of their property to secure a better lifestyle for themselves. I have long advocated that people should be able to do this, as later life is not an easy option for many older people. Indeed I once went to 10 Downing Street to lobby Professor Julian Le Grand, a financial advisor to the then Prime Minister – Tony Blair. I advocated that the Government should underwrite Equity Release to enable interest rates to be lower and also to regulate some of the dubious practices in the industry.
But there is a BUT, and it is a big BUT.
Is it good value for money ??? I have rehearsed these arguments in my earlier posts, so l won’t repeat them all here. My purpose now is to see what has changed in the last five or six years.
The use of equity release mortgages in the UK has more than doubled according to The Equity Release Council ——- which is a front for major Equity Release providers —— from around £1.4 billion in 2012 to over £3 billion in 2017.
Adverts for Equity Release concentrate on image but are short on facts. They focus on providing for important needs such as home adaptations, but they also show how you can cash in on your piggy-bank of a home. The images they use are of you living the high life ——- everything from home extensions to holidays, to funds for family or education for grandchildren.
Nothing wrong with that——— why not enjoy your hard-earned wealth ?
But you need your wits about you when you take out an Equity Release mortgage. The adverts on the telly and in the press don’t go beyond the glossy images but you have to be a detective to find the hard information behind them. Why would this be if it’s all so above-board and such a good deal ?
No worries. They will send you a friendly advisor to explain the full glories of their proposition and after that I’m sure 80 year olds will have no difficulty understanding the difference between life-time mortgages and home reversion plans and provisions for draw downs. Oh, and the different interest rates offered between each Equity Release provider and how your age is relevant. And the state of your health and your partners health. And the difference between fixed and variable interest rates and whether you will repay interest or not. It’s no more complicated than that ! Just a few simple questions, which should only take an hour or two !
But, you have also got to remember there are setting-up costs like solicitor’s fees and valuer’s charges and financial advisor’s commissions and the lenders setting up fee. They all have to be paid before you get your hands on these new-found riches. But don’t concern yourself it can all come out of the loan or you can even roll it into the loan an never know you have paid it. Magic !
But, this is all very well as long as the tax man agrees …… and so long as you die suddenly before the money runs out.
Because if you find yourself needing money for care, the taxman will want to review your earlier spending and he may not think your ten holidays in Spain were essential; nor that your luxury conservatory was critical to your housing needs. Nor the brand new classic soft top car that you always wanted, with the personalised number plate was necessary to replace your old Ford Fiesta. Let alone the three colour televisions, complete with Sky Sports and Netflix and Dolby surround sound system.
Better get a ‘social prescription’ from your GP to say it was essential to combat your loneliness and depression.
I’m sure 80 year olds will have no difficulty understanding all of this but over the next few weeks I intend to look more deeply into it and then I will write a follow-up to this rather sceptical view of Equity Release.
To be continued……………