/ Money

Is equity release worth the gamble?

More grandparents are using equity release to help their family. Yet, is it really that sensible to release money from your home when it can be such an important safety net?

Stories of young people borrowing from ‘the bank of mum and dad’ aren’t new. But a report by equity release specialist Key Retirement Solutions has highlighted a new trend: young people borrowing from their grandparents, who have released equity in their homes to do so.

Home sweet home

Equity release is a way of freeing up the money in your home without having to move.

Last year, 23% of retired homeowners who took out an equity release plan said lending to their loved ones was their motivation. And in the first six months of this year that rose to 31%. Total lending also increased from £385.7m to £446.2m.

Before the recession, the most common reason retired homeowners gave for using equity release was renovating their property, followed by going on holiday. Although home improvements remain the most popular reason (58%), now more homeowners are citing grandchildren’s university fees or helping their children get on the housing ladder.

Does equity release add up?

For many UK retirees, their home is their largest asset – so making practical use of it makes good financial sense. But it’s worth ensuring that your own financial future is secure before lending a slice of it to your family.

Even those who feel they have a comfortable pension may still find themselves needing to pay for care bills in later life – which can run to £50k a year and beyond.

For those who regard their home as a financial backstop, it may make better financial sense to gift it on to their children once they die, rather than removing the safety net before knowing whether they’ll need it.

Given the high charges, high interest rates and inflexible nature of most of the products on the market, equity release is best kept as a last resort. Is it one you’d take advantage of?

Comments
Member

Is equity release a good idea?
Well the last paragraph above just about sums it up, “given the high charges, high interest rates and inflexible nature of most of the products on the market, equity release is best kept as a last resort”
If you think about it you’ll realise that the people offering equity release will do so for only one reason, that being to make money. Now the only source of that money is you and your house so you’re certain to come a very poor second in the order of things.
Better to downsize or move to a cheaper house of the same size in another area if you need to realise the cash. A one off cost to settle with estate agents and solicitors but you get the rest, all of it, to do with as you wish, and you still have something to leave to the offspring.

Giving in to the sentimental pressure to remain under the same roof by raising the cash via equity release will result in a very expensive exercise.
It’s your house, your money and your choice by no way will I be entertaining the option.

Member

hi can anyone offer advice. i have a commercial property that is paid off. i want to release some cash from it. i will have tenants renting out the property but im finding it difficult to get any advice from banks as to how I would release some cash. can anyone help? i live in scotland. thanks

Member

Hi Mia

UK wide, Equity release is not applicable to commercial property, it is only available on your primary residence – you have to be living in the property and it cannot be your second home. So if you wanted to release some cash via equity release, you’d have to do it on the property you’re living in. You could also make money from your property by downsizing to a smaller home, or reviewing any savings or investments you have.

Member

We are considering equity release (only a small amount) as my partner has terminal cancer and we would like to do some of the things that we planned on doing when we both retired. We have no other assets that we can use.

Any advise for others would be appreciated

Thank you

Member
Anthony says:
22 February 2016

Can these equity release companys ever fully wipe out the total value of your property due to there high interest rates ? So your left with nothing atall ?

Member
Lesley Nicholson says:
7 May 2016

At 57, I am about to semi retire….take my work pension and move to another job…much lower pay but less pressure and less hours. Although I have costed this up and can mange on the money…that’s it, I will manage. I live in a house which I have no wish to leave. I have no children and, though I’m sure that friends and family would appreciate, as would anyone, inheriting my home, they don’t need it. Do you think equity release is a sensible way of using my assets or not?

Member

Hi Lesley, thanks for your comment. We have some information on equity release here: http://www.which.co.uk/money/retirement/guides/equity-release-explained/equity-release-is-it-right-for-you/

If you’re a Which? member don’t forget that you can get free money guidance from our advisers by calling the Money Helpline on 01992 822484.

Member

I have noticed many more advertisements and promotions of equity release lately and I suppose it is a result of the continually rising property values which the marketers use as an enticement. I see it as a one-way street and wouldn’t recommend anyone to go there even as a last resort – there is usually some alternative, albeit not necessarily a particularly agreeable one but better than losing control of your home.

The cost of care was mentioned in the Intro – running to £50K or more a year, and this is certainly one of the usual selling points. It is inconceivable that residential care or specialist medical support could be funded for more than a few weeks or months from the release of equity in the average home. It worries me that people have realised this so are cashing in their equity anyway and spending it on something else. Common sense tells me that people whose property enables them to exercise equity release also have the alternative option of downsizing or moving to a cheaper property.

Member
Simon Attwater says:
27 January 2017

Can anyone point me in the direction of typical Equity Release or Lifetime Mortgage interest rates? I cannot find any anywhere. They seem to be the best kept secret of any money matter I know.

Member

I do not need to speak to an advisor, I’m quite capable of deciding which scheme is best for me but the problem I’m having is finding typical interest rates for Equity Release or Lifetime Mortgage Schemes. They appear to be the best kept secret in money matters!! Can anybody give me or point me in the right direction?

Member
Member
Harry Watson says:
30 May 2017

For those of you who have solar panels supplied by ” A Shade Greener”, beware! I have been trying for about 5 months to get equity release from my house but to no avail so far. Aparently the insurance providers for the equity release funds will not do so until a deed of variation on the contract for the panels has been completed to their satisfaction. There has been no action to resolve the problem and it looks like I will have to employ solicitors to do so. This confirms the old saying ” nothing is free”. the solar panels were suplied and installed free. Any power in excess of our needs is sold to the government.

Member
michael says:
5 June 2017

is there any pros and cons of a draw down and also is there a fixed sum that they all offer on the price of the house or is it best to shop around

Member

My inclination is to talk to an independent financial adviser and have a clear understanding of what you are hoping to achieve through equity release and how it fits in with your long term financial aims and needs.

Member

I have to confess I am very sceptical about the value and advisability of equity release and how it is sold. I am aware of a couple who had savings which covered there needs who released equity form their property. It is not clear at present why they released the equity when they had the savings or how an advisor could have recommended this when it was clearly a very expensive option. The annual interest is 6.25%and the debt has escalated dramatically. The penalties for early repayment are enormous (£28,000). If you want to leave your money to the insurance company rather than your family, then equity release is the way to go.

The TV ads on this option involve smiling pensioners who only show the upside of equity release without any consideration of the role of it within their overall financial planning. I just wonder if we are going to have a scandal similar to PPI misspelling soon.

I would be interested to know the relative value of equity release compared to downsizing. Moving house clearly involves a lot of disruption and may mean moving away from an area. The majority of retirees do not move home.

The other question will relate to care during the fourth age. This is very expensive and if savings and assets have been used up during the third age the options available when you need to go into a care home are extremely limited. You will not have the assets in your house to buy sheltered accommodation.

In the case quoted above once one of the couple need to go into a care home the savings will be used to pay for this. Not only is equity release an expensive option for the releasers but also for the local authority. Money that they might have received from those in care, to pay for their care, is now going to insurance companies.