BS: Reverse mortgages UK - advice please

Subject: BS: Reverse mortgages UK - advice please
From: jacqui.c
Date: 29 Oct 07 - 11:57 AM

My daughter's parents-in-law are both in their 70s and own their house. They are thinking about freeing up some of the capital in the house to give them some cash to spend on the things they would like to do but don't know what this would entail or where to go for the best deal.

What they would really like is a lump sum right now. Has anybody out there done one of these, or have any info that might be helpful?

Subject: RE: BS: Reverse mortgages UK - advice please
From: jonm
Date: 29 Oct 07 - 01:13 PM

Basically, most banks and building societies will operate equity release on unmortgaged properties. They own part of the property in perpetuity in exchange for release of funds on a lump-sum or monthly payment basis.

The whole thing falls due on the death of the homeowner (better make sure it is the second decedent!) - the main drawbacks are that the property must be sold in order to clear the debt and that the inheritance is therefore reduced (however, if it is the main property, I believe its full value is still liable for inheritance tax).

Subject: RE: BS: Reverse mortgages UK - advice please
From: Jean(eanjay)
Date: 29 Oct 07 - 01:14 PM

There has been a lot of bad publicity about equity release recently. Things are improving but I would certainly research before going ahead.

Subject: RE: BS: Reverse mortgages UK - advice please
From: Cattail
Date: 29 Oct 07 - 04:51 PM

These people have advertised on U.K. television fairly recently and
I noted their web address, which is:-

http://www.cavendishequityrelease.co.uk/

Their site may give you some insight into what these companies do.

Best wishes.

Cattail !

Subject: RE: BS: Reverse mortgages UK - advice please
From: Sandra in Sydney
Date: 29 Oct 07 - 08:01 PM

we've had warning voices in Oz, too, here's one from the independent consumer organisation, Choice.

transcript of radio program on (Austalian) reverse mortgages

Perhaps you can try Choice's UK sister organisation Which to see if they offer any similar advice.

sandra

Subject: RE: BS: Reverse mortgages UK - advice please
From: Big Phil
Date: 30 Oct 07 - 12:14 PM

One big downside is that the company, whichever one, is in it to make money, not to help any individual. Give it a lot of thought before going ahead, in the long run the company will come out on top.

Phil*

Subject: RE: BS: Reverse mortgages UK - advice please
From: jacqui.c
Date: 30 Oct 07 - 01:04 PM

The thinking is that if they leave things as they are most of the value of the house is going to be used up in paying for care home charges so it aint going to benefit either them or their family in the long run.

Taking a lump sum would allow them to visit family in the USA, buy a more suitable car and maybe just have enough to enjoy themselves before they get too old or infirm.

Thanks for the advice, anyway.

Subject: RE: BS: Reverse mortgages UK - advice please
From: John MacKenzie
Date: 30 Oct 07 - 01:30 PM

Well it's certainly something we intend to do in time. It's not as dodgy as it once was, and many reputable companies and banks are now involved in the practice.
Giok

Subject: RE: BS: Reverse mortgages UK - advice please
From: PoppaGator
Date: 30 Oct 07 - 03:20 PM

I don't know if reverse mortgages are more or less regulated in the UK than in the States, but they do not seem to be all that risky here in the US.

As far as I can see, it's a pretty safe deal for retirees who can get a guaranteed monthly income for life, along with freedom from housing payments (no rent or "frontwards" mortgage to pay).

And of coure, it's a good deal for the banks, or they wouldn't be doing it. Even if the residents of the house live unexpectedly long lives, and the total payments they receive begins to exceed the value of the home at the time the deal was made, the bank will already be well on the "plus" side of the ledger thanks to the magic of compound interest.

The only ones who get screwed are the potential heirs. When Mom and Pop pass away, the kids don't get the house; the bank gets it ~ assuming that the old folks lived long enough to use up all the equity.

If the retirees both suffer untimely deaths and receive little or no proceeds from the reverse mortgage deal, the bank does not necessarily get everything; the estate retains some relatively-reasonable share of equity in the house in such a case. I'm not sure exactly how the figures work; the bank still makes money on the interest they earn while holding the property as an asset, plus whatever addtional fees they can invent. However, when the bank has not yet paid the value of the property in the form of monthly annuity checks, the estate will be entitled to repayment, calculated as a percentage of ownership.

Subject: RE: BS: Reverse mortgages UK - advice please
From: Linda Kelly
Date: 30 Oct 07 - 04:36 PM

be careful of the small print-some equity release mortgages charge a straightfoward % rate compounded and releasable on the death of the last to die (for joint cases). The interest because not payable during life of mortgees but compounded is higher than on a normal mortgage. Norwich Union provide products like this-generally you need to pay your own legal fees. The other type is more sinister a % of the equity in the property is payable -you borrow 25% and the repayment is 45% -in a growing market this can result in huge repayments at the end equivalent to an unrealistic interest rate.

Subject: RE: BS: Reverse mortgages UK - advice please
From: Wolfhound person
Date: 30 Oct 07 - 05:20 PM

If the house is big enough for them to consider downsizing, that might be another way to free some capital without paying lots of commissions to insurance companies, banks, whoever.....

Paws

Subject: RE: BS: Reverse mortgages UK - advice please
From: Bonnie Shaljean
Date: 30 Oct 07 - 08:56 PM

BE CAREFUL! There was a Panorama report on TV recently (BBC?) showing how some people had been horrendously ripped off by even quite respectable well-known high street banks (not to mention the dedicated equity-release companies) in these schemes. In one case the man wound up losing his house altogether and had to move into a mobile home. The banks didn't do anything illegal, but the terms of the agreement meant the advantage was all on their side, to the loss of the homeowner and especially their inheritors (i.e. presumably your daughter's husband). And none of it was against the law. I was horrified.

See if you know anyone who might have taped this programme, or if there's any chance of a re-broadcast (Panorama must have a website), and do try to watch it if you can. And tell the in-laws to get excellent legal advice before releasing any equity in their property.

Subject: RE: BS: Reverse mortgages UK - advice please
From: Bonnie Shaljean
Date: 30 Oct 07 - 09:08 PM

Wooops, I seem to have got the name of the programme wrong - Panorama's show was about sub-prime lending. Maybe it was one of the ITV reports? But it was definitely broadcast, within the last month or so.

Subject: RE: BS: Reverse mortgages UK - advice please
From: Bonnie Shaljean
Date: 30 Oct 07 - 09:11 PM

Here it is:
http://www.itv.com/News/tonight/episodes/Ilostmyhouse/default.html

Subject: RE: BS: Reverse mortgages UK - advice please
From: GUEST,sparkles
Date: 31 Oct 07 - 06:04 AM

Its a form of legal robbery. If they need money tell them to get a straightforward loan, they'll be much better off. A mortgage has to be paid back and the trouble is house values change and that means over time they go UP. The interest will go up with it and so will the debt. They or their heirs will be paying far in excess of the original value of the loan. Dont do it.

Banks are in the business of making money. They are not charities. Its the pound of flesh thing.