GrumbleSmiles

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.

I have long argued that most older people have the financial solution to a better old age in their own hands.

(See my earlier blogs related to this by clicking on “EQUITY RELEASE” in the TAG CLOUD).

People of 65 own nearly £1 trillion in the value of their homes and nearly 80% of older people are home owners.

BUT,    and there are lots of buts :-

• BUT   most people want to stay in their homes;
• BUT   moving is traumatic in later life;
• BUT   I can’t get at my money;
• BUT   why should I pay for care;
• BUT   I want to leave a legacy for my children;
• BUT   where can I move to that is better;
• BUT   I am ok for the moment;
• BUT   I don’t know how much I need in future;
• BUT   I cannot insure for care ;
• BUT   the Government says it will cap care costs;
• BUT   the Government says I can keep my home;
• BUT   Equity Release is expensive.

It is all these BUTS that are creating a blockage in the social care system for older people.  Failure to solve the reservations mean that people hang on at home until a crisis occurs – usually ill health.    At that point, other people take over :-

• Relatives maybe who care, cope for a while;
• a GP who applies sticking plaster prescriptions;
• Hospitals who may cure your immediate health condition;
• Social Services who only, if they have to, will pop in for a few minutes a day;
• The final step is your home is sold from underneath you to pay for care.

Best not to travel that path, though many do, falsely pressured by politicians’ promises that you and your house are safe in their hands.  Politicians won’t tell you the truth for fear of losing your vote, but the final BUT is that as an 80 year old home owner, you are on your own.

Better to be proactive and use the value of your home to secure yourself a better future.

But is Equity Release an answer ?

See my next blog.