Equity Release to buy a boat

[Tranona]

If the previous 98 posts havent said that its a bluddy daft idea to sell part of your house equity and buy a toy with it, then I will.

That is only your opinion. Whether it is daft or not depends entirely on the individual's circumstances and his objectives (in this case) for the rest of his relatively short life.

So long as he is aware of the consequences and obtains a deal that suits him, it is no different from downsizing and using the released money to put into another asset. The fact that the new asset may lose value is irrelevant as he will get years of enjoyment in return.

No pockets on a shroud.

Do you think he will get extra Brownie points at the pearly gates by saying "I denied myself a few year's pleasure on a boat so that I could leave more money (and probably pay more tax)"?

 

[KellysEye]

One other thought Jane's mother's bungalow was valued and £350,000 and she did an equity release of £70,000. When she died, with compound interest, the amount owed was £200,000.

 

[jordanbasset]

One other thought Jane's mother's bungalow was valued and £350,000 and she did an equity release of £70,000. When she died, with compound interest, the amount owed was £200,000.

To understand if that was a good or bad deal we need to know was it valued at £350,00 when she had the equity release or when she died. How long ago did she do the equity release?

 

[bedouin]

If the previous 98 posts havent said that its a bluddy daft idea to sell part of your house equity and buy a toy with it, then I will.

Nothing wrong with that per se - but what is daft is to think of buying a boat if you can't even afford the repayments on a conventional loan to finance it.

 

[RichardS]

Nothing wrong with that per se - but what is daft is to think of buying a boat if you can't even afford the repayments on a conventional loan to finance it.

Although it's not quite that straightforward.

They might well be able to afford the repayments on a conventional loan ..... but what they can't afford is the loan repayments plus the costs of running a boat.

Equity release would provide the capital to buy the boat which they can then afford to run as there are no ongoing repayment costs.

Richard

 

[bedouin]

Although it's not quite that straightforward.

They might well be able to afford the repayments on a conventional loan ..... but what they can't afford is the loan repayments plus the costs of running a boat.

Equity release would provide the capital to buy the boat which they can then afford to run as there are no ongoing repayment costs.

Richard

The all in costs of running the boat will be much higher than the cost of loan repayments. If you can't afford the two together you should buy a cheaper boat that you can afford.

Also if you are young enough and healthy enough to be considering buying a boat they you are probably too young/healthy for equity release. You really only do it once and it drastically reduces your options later on.

 

[Tranona]

The all in costs of running the boat will be much higher than the cost of loan repayments. If you can't afford the two together you should buy a cheaper boat that you can afford.

Also if you are young enough and healthy enough to be considering buying a boat they you are probably too young/healthy for equity release. You really only do it once and it drastically reduces your options later on.

You have to be over 55 to be eligible for such schemes. However as I keep on pointing out they have changed substantially in the last year to become far more flexible and much lower cost, partly because of current low interest rates. Hence the appeal to a wider range of potential borrowers and the consequent increase in the amount of money being lent in this way.

The problem as clearly demonstrated by some posting on this thread is that perceptions are coloured by the old reversion schemes that were restrictive and by today's standards poor value. However people who took them out would mostly have been aware of the consequences and would have accepted them because it was the best course of action for them.

Just yesterday my cardiac consultant reminded me that if I had not taken the risk of tricky open heart surgery nearly 3 years ago we would not be having a conversation as I would be long dead. Instead that and a kidney transplant has given me a prospective further 10 years active life. Having that sort of experience gives one a very different perspective on life, and particularly making full use of the assets you have to use the time doing things you value.

Of course one has to balance out being secure and not reliant on others. I don't need to borrow against my house to afford the things I want to do, but if my finances were different and I felt I could still use a boat I would have no hesitation in using some of the asset value to do it.

Important as was raised in the original post to involve those, (partner and children usually) who will "lose" as a result of such a decision. Only the individual can make the decision in the end, and what might seem daft to some will be perfectly logical and sensible for another.

 

[RichardS]

The all in costs of running the boat will be much higher than the cost of loan repayments.

I don't want to be picky but you cannot possible assume that.

If I could just afford the monthly costs to run a boat but not the capital costs, then I could obviously not afford a conventional loan to buy it unless I take out an even bigger loan to cover the future running costs. That way lies ruin!

Equity release would give me the capital sum without affecting my ability to afford the monthly running costs.

As I've explained above, I found a much better way than equity release to generate a capital sum with no ongoing costs, but the principle is the same.

Richard

 

[Tranona]

As I've explained above, I found a much better way than equity release to generate a capital sum with no ongoing costs, but the principle is the same.

Richard

That is the crux of the matter. First accepting the principle that you want to use some of the equity in the house for other purposes while you are still able to benefit from it, and then finding the most effective and efficient way of doing it.

Many people get hung up on the first step so don't know about the options for the second. It is these options that have changed in recent times, particularly with lifetime mortgages and the difficulty/cost of downsizing (perhaps the most obvious alternative) that make borrowing more attractive.

 

[GrahamM376]

the difficulty/cost of downsizing (perhaps the most obvious alternative)

The only difficulty I see for a lot of people is the psychological one of leaving familiar house whilst knowing it's now over sized and hard and expensive to maintain. We moved area once and pulled a bundle out and then a few years later downsized to release more funds and much lower running costs. Hopefully will miss out the rest home and go direct to crem.

 

[Slycat]

While reading this thread I was thinking to myself, when was the last time I saw a thread where someone made a move like this to go sailing and then regretted it?

 

[Tranona]

The only difficulty I see for a lot of people is the psychological one of leaving familiar house whilst knowing it's now over sized and hard and expensive to maintain. We moved area once and pulled a bundle out and then a few years later downsized to release more funds and much lower running costs. Hopefully will miss out the rest home and go direct to crem.

That is not what people find. The number of smaller properties such as bungalows is very limited, particularly if you want, for social reasons to stay in the same area. The costs of the transaction including 3% stamp duty is considerable and most "new" houses like boats require further expenditure to make them suitable for new owners.

So you might have a £500k house, but find that to get something suitable will cost you £400k, plus probably £25k transaction costs, months or even years of looking, going through the collapsed sales, getting rid of furniture, buying new furniture etc to end up with maybe £50k cash and small savings in outgoings. 10 years rolled up interest on £50k at 4% is roughly £25k. Given that house prices are predicted to rise at greater than 4% the increase in the value of the home will likely be greater than the rolled up interest. OTOH the transaction cost of downsizing is lost forever.

 

[Tranona]

While reading this thread I was thinking to myself, when was the last time I saw a thread where someone made a move like this to go sailing and then regretted it?

Suspect you rarely hear from those who regret previous decisions, although no doubt most of us have regrets. This thread is about making decisions for the future.

 

[fisherman]

I have known an elderly couple who lived in a narrowboat, they had it at Gweek boatyard in 1988. It got to be a problem, bit of arthritis, damp, etc, and they had to give it up, Try upsizing at that stage.

 

[GrahamM376]

The number of smaller properties such as bungalows is very limited, particularly if you want, for social reasons to stay in the same area.

We obviously live in different value areas. In our case, south Manchester was far more expensive than N Wales where we moved to, to be close to the boat. Downsizing then from 4 bed 3 story house to 2 bed bungalow was very easy, lots around here on the Costa Geriatrica from around £150k upwards, and rates/council tax £1,400 p.a. Only problem now is that we're 70 miles from the airport to get to the boat since we moved it

 

[KellysEye]

>To understand if that was a good or bad deal we need to know was it valued at £350,00 when she had the equity release or when she died. How long ago did she do the equity release?

The bungalow was valued was just before she got the equity release, you have to value it before they agree to transfer the money. The second question I don't know, it was many years ago, I just remember being told she had done it and latterly the financial consequences when died.

 

[bedouin]

That is not what people find. The number of smaller properties such as bungalows is very limited, particularly if you want, for social reasons to stay in the same area. The costs of the transaction including 3% stamp duty is considerable and most "new" houses like boats require further expenditure to make them suitable for new owners.

So you might have a £500k house, but find that to get something suitable will cost you £400k, plus probably £25k transaction costs, months or even years of looking, going through the collapsed sales, getting rid of furniture, buying new furniture etc to end up with maybe £50k cash and small savings in outgoings. 10 years rolled up interest on £50k at 4% is roughly £25k. Given that house prices are predicted to rise at greater than 4% the increase in the value of the home will likely be greater than the rolled up interest. OTOH the transaction cost of downsizing is lost forever.

I think you must have been a financial advisor. That example is deliberately chosen to exaggerate the benefits of equity release. Most people would downsize more the £100K and anway the idea that you would only get £50K profit on £100K difference in value is crazy.

 

[Tranona]

I think you must have been a financial advisor. That example is deliberately chosen to exaggerate the benefits of equity release. Most people would downsize more the £100K and anway the idea that you would only get £50K profit on £100K difference in value is crazy.

Not a financial adviser.

Stamp duty £12k, Estate agency fees £7.5k, removals £2k, solicitors £1k - so over £20k lost before you look at doing anything to the new home.

Of course you can get away without spending a lot of money or trying to spend none at all, and you may be lucky and sell your house straight away and buy exactly what you want that needs no money spent on it, but life is not like that.

The choice is between hassle free borrowing and staying in your own home while still raising money to buy a discretionary purchase and only the individual can make up his mind which suits him. The straight money side is only part of the decision and all I am doing is pointing out the positive points of borrowing rather than changing houses. There are all sorts of permutations simply because of the wide range of variables involved.

 

[Tranona]

We obviously live in different value areas. In our case, south Manchester was far more expensive than N Wales where we moved to, to be close to the boat. Downsizing then from 4 bed 3 story house to 2 bed bungalow was very easy, lots around here on the Costa Geriatrica from around £150k upwards, and rates/council tax £1,400 p.a. Only problem now is that we're 70 miles from the airport to get to the boat since we moved it

Exactly my point. What suits you and your circumstances would not suit me. I could sell my house and buy 5 or 6 terraced houses in many other parts of the country (even more in some such as S Wales), live in one and rent out all the others. But that is not what I want to do.

The houses with inflated values and therefore for some owners large amounts of equity are in parts of the country where downsizing is just not economic because of the lack of availability and minimal price differential. Indeed there are smaller houses around me that sell for similar and in one case more than my big 4 bedroom house is worth. Fortunately I was in a position to buy my boat for cash, but if I did not have the cash and still wanted to have the boat, borrowing against the equity in the house would be a better choice than trying to downsize. But then I value living in this house and would not change just to get a boat.

As I said earlier it is about arriving at a balance within the resources you have available.

 

[dunedin]

I think you must have been a financial advisor. That example is deliberately chosen to exaggerate the benefits of equity release. Most people would downsize more the £100K and anway the idea that you would only get £50K profit on £100K difference in value is crazy.

As ever in this thread, a lot of the assumptions are based upon the poster’s own perception of the norm which may be very different from somebody considering equity release. To state that “most people would downsize more than £100k” assumes that most people are living in large homes and/or in expensive areas (eg SE England), and don’t need or want to stay close to families and friends. Big assumptions which do not apply in many cases.
And yes Tranoma is right there are big costs associated with downsizing, and possibly bigger ones relocating away from your local support