Equity release or downsize

[brightncheerful]

[Having scoured the boards I can't find where this subject should be posted so alighted here for some general advice (or the mods can decide, whatever)/]

Mrs Bnc wants us to move to Dorset. (Ignore my phrasing: by the time comes, I'll be wanting to as well). Initially, we thought we would need to downsize to release some capital but then I remembered equity release. However, Dorset is more pricey so there's a value for money differential. (Currently we have detached house, 4 bed, ensuite and separate bathroom, 3 rec, kitchen, utility room, conservatory, double garage own drive with parking for another 6 cars, etc. A similar spec in Dorset would cost a lot more.)

If we buy a property for less than we sell at then we could keep the change. However, what's priced at less wouldn't give us such a good spec as we have now so would take us down a couple of notches. So what I'm thinking is that we should buy within the price range we sell at and after buying go for equity release.

According to Aviva's on-line calculator, if we bought a flat then the amount of equity release would be about £20,000 less than a house of the same price. i guess that's because there is more demand for freeholds so values hold up better?

I have a feeling the decision on which is better (pay less and capital release or about the same and equity release) will depend upon what we could find for a lower price in the context of the spec we could live with. If we pay less then after allowing for selling/buying costs and stamp duty, the net proceeds aren't that much. That wouldn't stop us going for equity release as well but if we are going along that route then we may as well go for as much as we could afford (allowing a bit for customising and equipping the purchase, etc).

I'd welcome your comments.

tia
Bnc

ps - Equity release downside doesn't bother us.

[gryffron]

A few thoughts:

If you're getting older, you probably won't want such a large house and garden. Many people think they have to keep the huge house so the family can visit. But a large house and garden have a huge heating, cleaning and maintenance overhead. It may well be that in your later years you would be more comfortable in a smaller property. A bungalow?

Are any of your children in a position to help with equity release? If they are, it's likely they'd rather lend you the money themselves, or part own the property now, rather than you give away a huge slice of (ultimately) their equity in interest payments. At least talk to them about it before you sign up.

Will this be your last ever move? Unlikely if you're thinking about a property that big. How will you move again in future after signing up for equity release?

Gryff

[swill453]

I have a feeling the decision on which is better (pay less and capital release or about the same and equity release)

Taking that at face value you seem to be conflating two completely different subjects.

If you sell and buy at the same price, then you're no better or worse off (give or take costs/stamp duty etc.*). So why is a decision on equity release relevant to the purchase at all? Would you need to do equity release (to get your hands on some cash) whether or not you moved house?

If so then it might make more sense to ask the questions separately.

* - Or is the equity release intended to pay the costs and stamp duty?

Scott.

[UncleEbenezer]

According to Aviva's on-line calculator, if we bought a flat then the amount of equity release would be about £20,000 less than a house of the same price. i guess that's because there is more demand for freeholds so values hold up better?

Can't comment on your question in general (and besides, others already have). Except to echo gryff's reservations about equity release.

But that particular comment doesn't quite make sense to me. Property values on which they base equity release will be equally reflected in your purchase price. I suspect what you saw may have been something based on demographics of flat-buyers vs house-buyers, and look different in a personalised quote.

[bungeejumper]

Equity release had a terrible sharky reputation 25 years ago, but various regulatory and marketing changes since then have all but wiped out the worst offenders. (Not entirely - I won't bore you with the details, but a few households do still do things the bad old way.)

My wife and I are seventy-ish, give or take a bit, and we might need to face the same decision one day. About 25 years ago we bought a shambling wreck of a 19th century vicarage, half-derelict, on the cheap, and we have spent the intervening years first sorting it out (authentically!), and then getting the 19th century garden back into shape. Nowadays it's worth a fair bit of money on the open market, but we've put so much of ourselves into the old place that we couldn't imagine wanting to live anywhere else.

Would we downsize? Only through absolute necessity, TBH. Although we don't underestimate the maintenance cost implications of growing too old to be able to shin up a 25 foot ladder or lop a forty foot tree.

There is, of course, another way of looking at the issue. To the housing market, we are selfish boomer bedroom-blockers, with three spare bedrooms and two/three receps that we criminally under-use. But somehow I don't think that will change our minds. If it came to it, we'd rather take the equity release, spoil the grandchildren, install a Stannah and let the undertakers carry us out of the house feet first when the time eventually comes.

BJ

[UncleEbenezer]

There is, of course, another way of looking at the issue. To the housing market, we are selfish boomer bedroom-blockers, with three spare bedrooms and two/three receps that we criminally under-use.
BJ

Some people in that kind of situation turn part of the building into a flat they can let out. My dad's oldest friends did that (with a family-sized house in London). I've been on the other side of that: rented flats in a landlord's house, in rural locations. Typically the work done to divide off a section of house is done in a manner designed to be easy to reverse: this is not the same as a property developer converting a house to flats.

[brightncheerful]

Thank you for your comments so far.
No children/no issues. We would consider a bungalow.
Yes, you're right, i'm muddling the issues. Equity release would come later regardless.

As well as what sort of property (house, bungalow, flat), the challenge is the number of rooms and their sizes. We have expanded to fit the rooms we have currently: downsizing requires us to contract but there is still a minimum. I do need 2 rooms for my work. Mrs Bnc would also like a room of her own. I'd still like to have a garage and own driveway: the thought of just a parking space doesn't appeal. What we have currently is the largest house I've ever owned so something smaller isn't scary.

Re the garden, a neighbour recently complained that our bay tree (which is almost the same height as their property's roof ridge and has been for at least the couple of years) is shedding flowers and berries into their garden (not at the same time!). i offered to prune the overhanging offending branches there and then but was told no hurry. So i said i'd get our man to prune it. Which I did except our man is busy so it's on his list. Meanwhile, neighbour has hacked off the overhanging branches. (which of course they could've done without asking our permission first). Anyhow our man will doing the job this week but inspired by the neighbour's objection and our plans to move he'll be lopping it to a much lower height. And whilst he's at it remove a chunk of our wisteria and honeysuckle that is also overhanging the neighbour's garden but to which there was no objection because according to the neighbour his wife likes it!)

[nimnarb]

BNC, sure you have read up all about Equity Release. I have never done this, nor would I do so. Fwiw I wouldn't go there. Just saying. Purchase something within your needs and means without any additional concerns going forward.

https://www.which.co.uk/money/pensions- ... jqy4d36xlv

[bungeejumper]

BNC, sure you have read up all about Equity Release. I have never done this, nor would I do so. Fwiw I wouldn't go there. Just saying. Purchase something within your needs and means without any additional concerns going forward.

Property is BNC's professional orbit, of course, but I'd agree that nobody should ever go into equity release without being absolutely clear about the pros and cons. Even in a situation where there are no children, there are interests that need to be taken into account.

As the Which? review says, there are several models out there, and it's a bit concerning that the report only focused on two of them. However, I'm sure that BNC is old enough and ugly enough to do his own research.

For some people, having a substantial debt at the tail end of an inheritance might not actually be such a bad thing - IHT would have been likely to grab 40% of whatever they left in any case (above their first million), so maybe it isn't so bad that you owed it? It's a tricky balance between having your (tax-free) cake now and leaving it all to your heirs, if any. OTOH, having equity release can play silly buggers with your liabilities if you end up needing full-time residential care @ £40,000 a year.

In short, no two people are likely to come to the same conclusion. FWIW, I rate Age UK's account of the matter at https://www.ageuk.org.uk/information-ad ... y-release/ . It doesn't duck the pitfalls either. But the cross-refs to the Equity Release Council (https://www.equityreleasecouncil.com/home/) are useful.

BJ

[nimnarb]

Bungee.............I like the substantial debt part re inheritance but that's about it. And as you said, not having control as such of your own money and then having to go into a nursing home, which by the way for a decent one is going to costs far more than 40K per year. One really just never knows what can happen in life from one minute to the next.

You have built up a lifetime controlling what is yours and later on in life to basically say....here is my house, it's yours, I'll take the money now and see what happens...............perhaps, big perhaps 25 years ago but in later life, for me absolutely no, but as you said, we are all different and have different factors to take into consideration.

[tjh290633]

I echo the various reservations about equity release. One thing you might like to consider is that single level living becomes more attractive as you get older. Coming down stairs gets more difficult, let along going up. A stair lift would solve that, of course. Decent care homes seem to run at over £1,000 per week these days. Cheaper to have care at home.

TJH

[yorkshirelad1]

[Having scoured the boards I can't find where this subject should be posted so alighted here for some general advice (or the mods can decide, whatever)/]

[snip]

equity release is the next mis-selling scandal IMHO (you know it is when it starts getting lots of advertising on day-time TV)
Have you read the T&Cs of a policy (e.g. how you're supposed to keep the house in good condition etc etc to the satisfaction of the company doing the equity release)

On the up side, as mentioned elsewhere, there's also the angle about any debt on the house being used to reduce any IHT that may fall due on death. But interesting angle on care home fees and assets: if you have a large house, but a proportion of it is owned by the equity release company ...

Requires a bit of careful thought...

[gryffron]

For your situation then, the big issue it seems to me, is that if you take equity release, you are selling your future independence.

Right now, you have the choice to go anywhere you want, to buy any type of property anywhere. As indeed you are considering right now. AIUI Once you sell a chunk of your equity, you would lose that choice. Because as soon as you sell up you lose a great slice of your asset. So you're stuck forever. Unless you want to end up in a city centre council flat. What if you don't like the area you move to? What if the neighbours from hell move in next door?
Is that right? Is equity release a per-property contract or a per-lifetime contract (thus allowing you to move)?

I'm not saying equity release is a terrible idea for everyone in every circumstances. But it seems to me it is appropriate only at the very end of your life. When you are CERTAIN you will never want to move again. If you're still working, it doesn't sound to me like you are nearly there yet. I absolutely agree with the earlier posters that it is being hugely oversold to people in totally inappropriate circumstances.

Gryff

[brightncheerful]

(e.g. how you're supposed to keep the house in good condition etc etc to the satisfaction of the company doing the equity release)

I think you'll find that's also a condition of an ordinary mortgage.

[bungeejumper]

AIUI Once you sell a chunk of your equity, you would lose that choice. Because as soon as you sell up you lose a great slice of your asset. So you're stuck forever. Unless you want to end up in a city centre council flat. What if you don't like the area you move to? What if the neighbours from hell move in next door?

Is that right? Is equity release a per-property contract or a per-lifetime contract (thus allowing you to move)?

I don't know whether that used to apply, but nowadays having an equity release in place doesn't stop you from moving either up, down or sideways. (If you think about it, the government has no logical interest in making if difficult for oldies to move.)

https://www.saga.co.uk/magazine/money/p ... ving-house

In most cases you should be able to transfer your equity release debt to your new home as long as your equity release provider is happy that the property you’re moving to offers enough security for the money you have borrowed.

Your point about losing a great slice of your asset is fair enough, except that the proportion of the house being sold is replaced by a great slab of tax-free money up front.

It is, of course, also correct to say that the equity release company will not give you the full market rate for your slice of the equity: for every £100,000 it advances you, it may want £150,000 worth of your equity (at current market valuations). But there are two obvious reasons for that. Firstly, the lender needs to insure itself against the possibility of a property price crash. (Not an impossible scenario in some areas.) And conversely, it'd have to pay a chunky amount of tax on any capital gains that it made, whereas you wouldn't have. That shifts the mathematics quite a bit.

Just to repeat, I have no personal axe to grind here, because I wholeheartedly agree that equity release is completely unsuitable for many people, and every damn clause of every agreement needs the close inspection of a good legal eagle. But I suspect that some of us might be looking at the issue through a 25 year old lens? The cowboys of old have been (mostly) driven out of town.

Here's Deloitte's update on new FCA activity: https://blogs.deloitte.co.uk/financials ... rther.html

BJ

BJ