Unexpected Pitfalls of Equity Release: Buy With Care!


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What are the disadvantages? Equity release can backfire on live-in family carers, says Bob Evans, an expert on Care Matters. This is his example of how it can be disastrous in the wrong circumstances, with family members who do not fully understand how it works, or may not even know it is in place.  Always bear in mind that the property will have to be sold when the last of the original owners who signed up for it either dies or moves out of the home into care.  The longer the sale takes, the greater the amount that will have to be repaid, and there could be penalties if it is not reasonably swift.

Pitfalls of Equity Release for live in carers.

Mrs. P a sole proprietor, took out an equity release mortgage eight years ago when she was in good health. A year later, her daughter Mrs. C having endured a messy divorce moved back home with mum. Eighteen months ago, Mrs. P was diagnosed with Alzheimer’s and her daughter gave up work to be her full-time carer.

As often happens, the daughter’s own health deteriorated and mum had to move into care ten months ago, after a few weeks of respite care.

Disadvantages of equity release.

Some years past, we had arranged LPA’s for Mrs. P, with her daughter as attorney, which she used to secure hospital, GP, care home and social care records, from which we were able to put forward robust arguments to prove Mrs. P had a primary need for healthcare. The CCG at appeal agreed she was eligible for free continuing healthcare [CHC] was moved into a nursing home, and fees paid were refunded.

However, the equity release provider realising Mrs. P was in care, has now advised her daughter she must vacate the property, which will be sold to allow them to recover the amount loaned plus accrued interest. The daughter Mrs. C now faces the following problems:

[1] She is about to lose her home.
[2] She has no savings of her own.
[3] Her health has deteriorated due to the stresses and strains of caring for her mother.
[4] She has no paid employment and little prospect of getting any.
[5] She cannot use the equity in mothers house because as mothers attorney the proceeds of sale must only be used for mothers benefit.

Had Mrs. P not taken on the equity release loan, the property would not have been used for care fees, CHC having been agreed. Had she only qualified for social care the property would most likely have qualified for a discretionary disregard, she would not be facing homelessness and would have inherited the family home after mother passes away

Pitfalls of Equity Release for the client.

 

Clearly, the full value of the property is not going to be obtained, and interest will roll up and increase the amount payable when the home has to be sold.   That said, it may be possible to replace older high-interest plans with much cheaper ones in the current low-interest environment.

Can I sell my house if I have equity release?

Many standard equity release schemes allow you to move your mortgage to a new property if you decide to sell your house, provided the lender approves the property first.  In this situation, especially if you downsize in financial terms, you may have to repay some of the mortgage early, potentially triggering early repayment charges.

Is it wise to release equity?

Is equity release a good thing? Yes, it is, in the right circumstances, but it is important that you and your family really understand it fully, so no one falls foul of the pitfalls of equity release unexpectedly. Equity release can be a good idea for older people who would like to gain some extra cash in retirement. Equity release can help you make home improvements, pay for the costs of care, help a loved one who is struggling financially, or pay off other debt.