Equity Release Scenarios

Some further typical equity release scenarios…

Mother helps son

Constance is a 67 year old widow with a grown up son. She has lived in her home, now worth £375,000, since she married in 1970 and has no desire to move. Her son, Michael, has recently divorced and hasn’t enough money left from his marital settlement for a deposit on a new home. Constance decides to give Michael an ‘early inheritance’ and gift him the £40,000 needed.

Both Constance and Michael have discussed the impact of rolled up interest and how this will reduce the inheritance Michael will eventually receive. However, as Michael needs the money now and no acceptable alternatives are available, they are both happy to go ahead.

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Paying off an endowment mortgage shortfall

David and Linda are in their sixties and live in a semi detached house worth £270,000. They have no children. They took out an endowment mortgage 20 years ago but still owe £32,000 due to a shortfall in the endowment policy. Mortgage repayments are becoming a problem because David was made redundant recently and Linda does not work.

They value the home they have built together and they love the village they live in; they have friends close by. Downsizing to repay the mortgage is not an option. As they have no children, leaving an inheritance is not a question for them.

David and Linda decide to release £32,000 from their home on a rolled up interest basis to pay off the mortgage and free their disposable income.

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Charles is a bit of a goer…

Charles is single and lives in a leasehold flat worth £350,000. He would like a new car and a holiday abroad each year for the next 4 years. Charles looked at other forms of lending but decided he didn’t want to make monthly payments as this would reduce his disposable income each month. He has no children and no plans to leave his flat as an inheritance. Charles is very happy where he is as he lives close to local shops and his friends; so does not want to sell his flat to release capital.

Having considered other lending options, Charles decides to release £10,000 as an initial lump sum to purchase his car and holiday and to have a further £60,000 in reserve on a drawdown option. This way he can take further amounts as he needs them, with a minimum of £2000 each time, for subsequent holidays or unexpected bills. Because rolled up interest is only charged on the actual amount taken Charles’s roll up costs will accrue more slowly than if he had taken the money all in one go.

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Debt relief for the elderly

Donald and Jean have worked all their lives and retired 8 years ago. Their bungalow is worth £295,000. They built up savings towards their retirement but, even though they have been careful the money has dwindled and they now have to live on basic pensions plus only a small amount each month from private pensions.

As they have struggled make ends meet, they have used their credit card occasionally for unexpected bills and also took out a small loan 6 years ago for a second hand car. Debt totals £8,000 and they are worried and anxious as they cannot really afford the monthly payments. They consulted a debt counselling service to look at other options available but, on this occasion, little could be done. Despite their feelings about their situation, Donald and Jean plucked up courage to speak with their children to see if they could help them out. Neither of their children could help but they did suggest equity release.

Donald and Jean decide to release £8,000 equity from their home to pay off the debt and also take a further £3,000 to buy a new second hand car as their old car costs too much to run.

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Arthur helps a favourite niece

Arthur is a healthy and active 82 year old, widowed last year after 50 years of marriage to Ethel. He still lives in the marital home, valued at £200,000, and hopes to spend the rest of his life there. Arthur’s only niece, Alice, is very close to him and often calls in. Alice’s beauty business has been struggling and she desperately needs £60,000 to refurbish the salon and stave off unreasonable bank demands. High business loan rates have meant she is unable to borrow from the banks and there is no other way she can borrow the money.

Arthur decides to help out Alice by way of equity release. He doesn’t like the idea of rolled up interest and so decides to sell a 50% share in his home to a home reversion company. This way he raises £60,000 for Alice but also ensures he stays in his home until he dies or goes into long term residential care at which time the home would be sold and Alice would still inherit 50% of the property’s value (with the remaining 50% being paid to the home reversion company).

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