Equity Release to buy a boat

[Tranona]

I think equity release is like selling your house for half of its value.
Personalky I would not do it.
But if it makes you happy go for it.
It makes me laugh to see equity release adverts suggesting you use the money for home improvements. I havent seen any adverts suggesting you blow it in boat but I think it's a great idea.

Not sure you fully understand what ER is about. You are not selling the house for any specific amount - you are borrowing against the security of the house and either rolling up the interest charges until the hose is sold and the loan repaid or paying interest for the duration of the loan and paying back the capital out of the proceeds of the house. The fear is that even though the loan may be less than 50% of the value of the house now if the period of the loan is long the capital and accrued interest may exceed the eventual sale value. However pretty sure that all current offerings have a guarantee that the repayment will never exceed the value of the house. That is one of the reasons why the current interest rates are around 2 percentage points above a normal mortgage to reflect that additional risk.

Not surprising they use home improvements in their advertising as that is what many use the money for to improve their quality of life in their existing home to avoid moving. I did similar 10 years ago but without the need to borrow by reconfiguring our house so that we can live downstairs. Based though on just one of us needing to do that, but if both of us end up having difficulties with stairs i shall have a lift installed. Anything to avoid a forced downsizing or moving to one of those awful rip off retirement homes.

You may be right, doubt many would use this method to finance a boat, but really little different from blowing it on a cruise of a lifetime. It is good that people have the choice about how they arrange their financial affairs in later life.

 

[Momac]

Not sure you fully understand what ER is about. You are not selling the house for any specific amount

Yes I do understand
You wrote it yourself
You get half the value of the house at the date you release equity and potentially give away the other half, also potentially give away any increase in house value over time.
But you get the cash to spend on whatever you wish.
But if you don't spend the cash then that's such a waste.

 

[ashtead]

I don’t know if the Snowgoose has any not so young snow chicks but if considering ER schemes worth advising them of your intentions - some beneficiaries might be expecting a reasonable inheritance. As a said do consult for advice on which product suits you -the role up of interest is considerable but if there are no offspring then for the retired to enjoy their golden years it offers benefits -clearly the return offered depends on age . Many cash strapped 70year olds plus have benefitted where otherwise in absence of any final salary pension there standard of living would have been severely reduced - higher value Properties tend not to feature so much -the risks are greater for the funder I guess but if you want to research more look at legal & general or Just maybe. There are various legal hoops to jump though to ensure sound mind etc along with usual lending criteria as to value of asset. It might be simpler at your stage of life to charter?

 

[MoodySabre]

Yes I do understand
You wrote it yourself
You get half the value of the house at the date you release equity and potentially give away the other half, also potentially give away any increase in house value over time.
But you get the cash to spend on whatever you wish.
But if you don't spend the cash then that's such a waste.

You are wrong. We borrowed a lump to extend and put bifolds across the back of our house and a new kitchen . We have improved the value of the house. We pay the interest monthly which is very small in relation to our income. The house continues to go up in value. If we move will just repay the loan. It is a fixed loan it is not a percentage of the house. The interest rate is fixed for life.

 

[Mark-1]

Probably not for the younger generation but more for the longer toothed sailor who is asset rich but cash poor.

Perhaps in his 70's with his life partner gone , his ideal boat comes up with bow thruster and other goodies that could extend his sailing career a few more years than the norm.

Anyone done it and what scheme did you go for ?. Perhaps even some sailing financial advisers on these fora .

TA

Equity release is financial madness. Buying a boat is financial madness.

Anyone who knows anything about algebra will tell you they cancel each other out, so go for it.

 

[Blueboatman]

Another way to ponder perhaps?

Rent out the house

Buy and live on a boat

When it stops being fun sell boat

And /or house
( and buy a motor home)

No locked in deals with third parties in a world where peoples word is perhaps not set in small print as we might wish..

And the house hedges itself against inflation and the depreciation of the floating ‘asset’ whilst retaining full scope of options for later life downsizing or nicer care homes, why
Of course you still need to be able to fund the boat purchase initially.

 

[seeSimon]

I find it extraordinary that anyone would even consider this. The comments on downsizing say it all, very sensible solutions but equity release is, IMHO, an abomination that is only considered by totally financially unwashed victims. Please do the sums properly, with decent outside help if necessary, and then I cannot believe that you will seriously consider this.

Agree.

Im no businessman/financier, but....Paying compound interest to fund a depreciating assett....eeeeeeek!

But then if you’ve no-one to inherit...other than HMRC, of course?

 

[Momac]

You are wrong. We borrowed a lump to extend and put bifolds across the back of our house and a new kitchen . We have improved the value of the house. We pay the interest monthly which is very small in relation to our income. The house continues to go up in value. If we move will just repay the loan. It is a fixed loan it is not a percentage of the house. The interest rate is fixed for life.

So you remortgaged the house .
That's not really equity release .

 

[Tranona]

So you remortgaged the house .
That's not really equity release .

There are now so many forms of ER that it is difficult to know where the boundary is between "normal" mortgages and what is termed ER. One of the differentiating factors is that ER does not require an independent repayment plan, fixed repayment date nor any evidence of income. The amount loaned is determined solely by the value of the property and the age of the borrower. The percentage of value is restricted (and significantly less than 50%, usually nearer 20%) to reduce the risk of the value of the loan plus accumulated interest exceeding the final value of the home when the loan is repaid. That is rather different from the early days of ER when such restrictions were not so onerous.

In addition to the "traditional" ER there are now offerings that are interest only and allow repayments often called lifetime mortgages so are more like conventional mortgages but without a fixed repayment date. I suspect this is the sort of plan MoodySabre used for his home improvements.

"Equity Release" is a social construct and its meaning varies depending on when it is used and by whom. Those who dismiss it as the work of the devil maybe ought to look into it further. It is a way for many older people to maintain their standard of living and even enhance the value of their assets. There is no reason why it should not be used to buy a boat - really little different from using it to maintain day to day living expenses, or pay care home fees. Of course it can reduce the final value of an estate but for some that can be a benefit to reduce or avoid IHT.

 

[GEM43]

Agree.

Im no businessman/financier, but....Paying compound interest to fund a depreciating assett....eeeeeeek!

But then if you’ve no-one to inherit...other than HMRC, of course?

But in effect we're all paying compound interest on depreciating assets already because investing in a boat has an opportunity cost, we're losing compounded investment returns by not being invested

 

[westernman]

The important question you need to answer before considering most ER schemes is are you sure you want to stay in your house for the rest of your life?

The answer for me is going to be no. I want to be able to move else where. So I would prefer to down size or rent out my property to generate capital or income (or both in certain circumstances).

 

[ingenious]

For me, downsizing was the sensible option. In some ways I was lucky in that we had the cottage in Norfolk that my wife bought as a hobby/investment/rental earner with money left by her dad. I intended to live in it while I sold the family home then buy something else but the something else has turned into the boat and another rental house in France. As it turns out I've spent more time on the boat and only a week in the French house but that will change over winter. Depending on how I get on I might relocate permanently

 

[ashtead]

Depending on scheme and values it should be possible to move by way of downsize but it’s all down to debt at point of downsize plus LTV on replacement - whether a particular lender will allow downsizing is something to clarify but most in this market stay fixed in their property and are raising the funds to maintain the property or enjoy their Saga cruise in later life. Lenders historically were perhaps more optimistic as to value increases and in recent years as they need to securitise the loan book the criteria have tightened.

 

[Jmacd]

Surly the only good financial advice is "Dont by a boat"

 

[GEM43]

Surly the only good financial advice is "Dont by a boat"

Ah, but the return on capital from a boat might be intangible but it is definitely real and beneficial. I take the view that it is an investment in our well being. At least that was certainly the case when running the business and now, post business, it is a beguiling summer engagement.

 

[Stemar]

Ah, but the return on capital from a boat might be intangible but it is definitely real and beneficial.

An additional advantage is that it keeps an older person active, both mentally and physically. OTOH, there is an argument that buying a boat proves a degree of mental deficiency in the first place

 

[seeSimon]

But in effect we're all paying compound interest on depreciating assets already because investing in a boat has an opportunity cost, we're losing compounded investment returns by not being invested

Good point!

Perhaps i could have put it a little better?...having bought that depreciating assest (boat) with a compound interest loan, we're then also committed to substantial ongoing, and to some degree unavoidable, running costs. Different to spending the cash on holidays?

However, I must admit that over the past years roller coaster ride (Trump etc...it feels like gambling!) with my SIPP "investments " I've wondered if I might as well cash in and buy a bigger boat!
It's the thought of paying all that "income" tax that limits me.
Having retired, I now stuff what I can into UK cash ISAs, but looks like that opportunity will soon be removed by our current government.
Even as a lost ISA investment, my opportunity cost is only 5%...I think?

 

[GEM43]

Good point!

Perhaps i could have put it a little better?...having bought that depreciating assest (boat) with a compound interest loan, we're then also committed to substantial ongoing, and to some degree unavoidable, running costs. Different to spending the cash on holidays?

However, I must admit that over the past years roller coaster ride (Trump etc...it feels like gambling!) with my SIPP "investments " I've wondered if I might as well cash in and buy a bigger boat!
It's the thought of paying all that "income" tax that limits me.
Having retired, I now stuff what I can into UK cash ISAs, but looks like that opportunity will soon be removed by our current government.
Even as a lost ISA investment, my opportunity cost is only 5%...I think?

Your opportunity cost is whatever your capital might yield elsewhere. If you're heavily in to cash ISAs then about 4% maybe, if in equity index funds then maybe 7%.

Yes you are correct that buying a boat has attaching costs but that has nothing to do with the capital.funding cost which is where this thread originates.

How we employ our capital is an entirely personal decision, but it's important not to forget that all capital deployment has a cost, we just need to deploy capital in the most beneficial manner possible. That's why ER, used sensibly and with due understanding and forethought, is an excellent product to extract capital from property and deploy elsewhere if that is our own personal need/choice.

 

[Tranona]

Your opportunity cost is whatever your capital might yield elsewhere. If you're heavily in to cash ISAs then about 4% maybe, if in equity index funds then maybe 7%.

Yes you are correct that buying a boat has attaching costs but that has nothing to do with the capital.funding cost which is where this thread originates.

How we employ our capital is an entirely personal decision, but it's important not to forget that all capital deployment has a cost, we just need to deploy capital in the most beneficial manner possible. That's why ER, used sensibly and with due understanding and forethought, is an excellent product to extract capital from property and deploy elsewhere if that is our own personal need/choice.

Well put. Wealth is a means to an end not an end in itself and the time we have to make use of it gets limited as we age in both years and our capability. However for many people who struggle to acquire wealth often tend to be reluctant to use it. This is particularly true when a high proportion of that wealth is in the family home.

 

[Snowgoose-1]

It was mentioned that perhaps expectant family members might be a but .miffed if you blow their inheritance on things like boats cars and holidays.
I recently gave my two children a copy of my will and mentioned the above.

They both said that they are more than pleased for me to do what I like . It's difficult to tell if they really mean it but they seemed sincere. They are both well established but I would like to help some of the grand children to get on the housing ladder and I am making provision for that.