Equity Release to buy a boat

[JimC]

I know quite a few people who sold their houses and moved into mobile homes or caravans. Some of these are on sites where they have to vacate them for a couple of months in the Winter, they just abscond to warmer countries and rent apartments cheaply. They seem to thrive on it.

 

[alant]

I know quite a few people who sold their houses and moved into mobile homes or caravans. Some of these are on sites where they have to vacate them for a couple of months in the Winter, they just abscond to warmer countries and rent apartments cheaply. They seem to thrive on it.

Wait until they need a care home.

 

[GrahamM376]

what exactly do you mean by equity release. Refinancing the mortgage on your home to release capital to buy a boat is quite a different thing to the link above. And in my mind, is a perfectly sensible way of financing a boat cheaply provided you are in your thirties and have at least another 20 years of work left in you.

Problem is, most borrowers in their 20s & 30s have never seen high interest rates. I dropped out for 18 months to do a self-build house in the late 70s, with 100% bank loan which on completion was replaced by a mortgage. Bank interest at that time on the build was 21%. I suspect that a large percentage of younger people have not considered what will happen if/when interest rates rise by only a few percent over the next few years - maybe lots of negative equity again.

 

[JimC]

Wait until they need a care home.

I have heard this discussed, a typical response: "well they won't be able to force us to sell our house to pay for our care because we shan't have one".

 

[savageseadog]

Equity release is normally a rip-off. There are other costs such as having to maintain the property to the satisfaction of the new owner, the property is subject to periodic surveys. It also becomes impossible to move or sell. I would suggest downsizing if at all possible or engaging the family in a release of funds as already suggested.

 

[lw395]

Isn't that arrangement "a gift with benefits"?
If so, the tenants (your parents) apparently have to pay a commercial rent, or used to under IHT regs.

Also, will the house value, always outpace your mortgage interest payments?
I am interested, because it could be an 'investment' for my kids & lots of cash for their parents to enjoy.

No it is not a gift, the kids are not being given a share of the house, they are buying it at the market rate.
I dunno how that works with stamp duty though.

Alternatively the kids could loan the money, secured on the house.

 

[Poignard]

No it is not a gift, the kids are not being given a share of the house, they are buying it at the market rate.
I dunno how that works with stamp duty though.

Alternatively the kids could loan the money, secured on the house.

Isn't it simply a trust where the parents have the enjoyment of the trust property until both are dead. Then it becomes the property of the beneficiaries, ie the children, is sold and the proceeds shared out in accordance with the deed of trust?

 

[RichardS]

I dunno how that works with stamp duty though.

I assume that each offsprings share would be well below £125k?

Richard

 

[Wandering Star]

There's no reason why children should expect to inherit a large sum; indeed many would prefer their parents to spend the money on themselves.

I alway had a suspicion the hospital handed someone elses babies to my wife. Is there any upper age limit on the adoption rules, my boys are 48, 38 & 31 - is that too old to put them up for adoption?

 

[jordanbasset]

As Bedouin says, I suggested a much better way. We get the house valued and then we three Sons all purchase a percentage of the house depending upon how much we can afford. A solictor draws up the 4-way agreement that when both parents die the net proceeds of the sale of the house are shared out in the same percentages. The percentages could be equal, like 3 x 5%, or unequal depending upon how much is needed. The agreement is worded such that the risk is all ours ........ but whoever lost money over the long term on property?

Part of the money was also used to improve the house so that also increased the value our investment. If the money was used to buy a boat that might pass to the children eventually, if not sold, so some of the money gets "re-cycled" in a similar way.

Total cost of arrangement ...... £200!

Richard

No it is not a gift, the kids are not being given a share of the house, they are buying it at the market rate.
I dunno how that works with stamp duty though.

Alternatively the kids could loan the money, secured on the house.

That's how I saw it but am struggling to see the advantages for the children. For example if the house is valued at £200,000 and each child, for the sake of simplicity, pays £50,000.
Yes when ever the house is sold they would get 25% of the value of the house back, which is likely to have increased, but that could be 10, 20 or 30 years time. In the meantime the money is tied up in the house with no return on investment. Okay appreciate the parents will maintain it and may improve it, bt my experience is that one persons improvement is not necessarily seen that way by buyers.
If you have that sort of money to invest would have thought a buy to let with a mortgage would be better. You still get capital growth but also rental money each month.
Unless I have misunderstood it

 

[mjcoon]

I alway had a suspicion the hospital handed someone elses babies to my wife. Is there any upper age limit on the adoption rules, my boys are 48, 38 & 31 - is that too old to put them up for adoption?

Are they house-trained yet?

Mike.

 

[lw395]

That's how I saw it but am struggling to see the advantages for the children. For example if the house is valued at £200,000 and each child, for the sake of simplicity, pays £50,000.
Yes when ever the house is sold they would get 25% of the value of the house back, which is likely to have increased, but that could be 10, 20 or 30 years time. In the meantime the money is tied up in the house with no return on investment. Okay appreciate the parents will maintain it and may improve it, bt my experience is that one persons improvement is not necessarily seen that way by buyers.
If you have that sort of money to invest would have thought a buy to let with a mortgage would be better. You still get capital growth but also rental money each month.
Unless I have misunderstood it

I would imagine it would only appeal to people who were more affluent than their parents.
If my Mum needed cash, and I had spare then no question, I would give her some cash.
If she's sat on a property asset that I can have a share of in exchange, everyone is happy.

If I just gave her the money and she ended up in a care home, I might never see it back. I suspect this last point would concern her more than me.

Another issue is if you have a more complex family where the younger people subsidisng the elders might not be the same ones who inherit the property.

 

[RichardS]

That's how I saw it but am struggling to see the advantages for the children. For example if the house is valued at £200,000 and each child, for the sake of simplicity, pays £50,000.
Yes when ever the house is sold they would get 25% of the value of the house back, which is likely to have increased, but that could be 10, 20 or 30 years time. In the meantime the money is tied up in the house with no return on investment. Okay appreciate the parents will maintain it and may improve it, bt my experience is that one persons improvement is not necessarily seen that way by buyers.
If you have that sort of money to invest would have thought a buy to let with a mortgage would be better. You still get capital growth but also rental money each month.
Unless I have misunderstood it

I don't think you've misunderstood the mechanics but seem to have misunderstood the motivation behind it. I did say that the risk is all on the children and the benefit is all on the parents .... but that is the whole point. My parents took all the risk and expense in having me so, in their old age, it was only fair to repay the gesture.

Having said that, as long is the term is long enough, the risk to the children is very small .... and avoids the more likely risk that care home fees swallow the lot anyway.

Richard

 

[jordanbasset]

Understand now

 

[alant]

No it is not a gift, the kids are not being given a share of the house, they are buying it at the market rate.
I dunno how that works with stamp duty though.

Alternatively the kids could loan the money, secured on the house.

Unless they are seen to be buying at a realistic value, then it could be considered a gift.

 

[RichardS]

Unless they are seen to be buying at a realistic value, then it could be considered a gift.

That's true .... but that's why you need the valuation. However, you just ring an Estate Agent, say you're thinking about selling, and they call round and give you a free written valuation.

Richard

 

[Tranona]

Equity release is a catchall term that covers a whole range of different schemes. The basic principles are the same, though and that is turning part of the equity in your house into liquid funds. In the original question the proposal was to then turn the funds into another asset (a boat) which is usually a depreciating asset rather than an appreciating one.

There are so many variables involved that it is impossible to say whether it is a good idea so the individual needs to look at the options available to them and then decide whether they want to effectively use some of the equity in their house to fund their boating.

Some of the newer schemes are much less restrictive than older schemes. For example it is possible to have effectively a draw down scheme where you do not take it all at once, or you can pay the interest as you go rather than have it roll up until the end. Most schemes limit the amount to less than 50% of the value of the house and even if the interest rolls up the total will always be less than the value of the house. However all these schemes have higher interest rates than a straight mortgage but lower than other forms of borrowing. There can be inheritance tax benefits for some in using the schemes as they reduce the capital value of the asset.

Anybody contemplating raising money in this way needs to take advice on the alternatives available.

 

[longjohnsilver]

Whatever the question Equity release is never the answer. (Well almost never).

To use equity release to buy an asset that is itself expensive to run is a non starter. Downsize or take out a mortgage - if you can't afford to do either you can't afford the boat.

Uh oh, I feel a little faint, I'm agreeing with every word of a post written by Bedouin.

I worked in financial services all my life and NEVER recommended equity release. There is always a better way!

 

[Cactus Sailing]

Anyone done it

I was thinking after a friend said to me " at your age a pound not spent is a pound wasted "

Is it ok for pensioners to do this sort of thing ?

What will the children think ?

as a financially astute person i would avoid equity release schemes like the plague, there are far easier ways (and safer more cost effective ways) to release money from your home, if indeed that's how you want to finance a boat..

just re-mortgage, taking out a larger loan and freeing up the cash (or equity as people call it), every bank does it, cut out the "middleman" selling a scheme at inflated costs, your mortgage repayments will always be less than the rent you will pay these crooks, and you still own your own home etc.

so age is no problem, kids have to fend for themselves somewhat, it would be quite selfish for them to think otherwise, everyone has dreams after all, and you're not being selfish fulfilling them!

but equity release..... please at least talk to a financial adviser as its just the same as claiming PPI - why give a company a cut for doing absolutely nothing?

 

[alant]

That's true .... but that's why you need the valuation. However, you just ring an Estate Agent, say you're thinking about selling, and they call round and give you a free written valuation.

Richard

Right, I always believe estate agents.