Q I have just found out that my mother is seeing someone regarding taking cash out of her house. I am very concerned about it. I know it is my mother’s money to do with as she wishes, but the reason I am concerned is that she does overspend.
I would guess her house is worth approximately £200,000. She said the figures she had meant she was going to release £40,000, at a rate of 5% per annum. There was, however, a cost of £2,000 for fees to complete. (I assume this is for a solicitor, but am not sure.) This seems very expensive to me. Does this seem like a standard deal? I’m sure you cannot offer advice, but your opinion on the rate and fee would be appreciated. MB
A As far as the rate of 5% on your mother’s proposed lifetime mortgage goes, it seems relatively reasonable. Of the 32 lifetime mortgages listed by Moneyfacts, only four had rates lower than 5% while about a third have rates of over 6%. It is harder to say whether £2,000 is expensive in terms of fees. If that figure is the total cost of the fees that have to be paid when setting up a lifetime mortgage – which include valuation and legal fees as well as the mortgage arrangement fee – it’s not that steep. But if the £2,000 covers only part of those fees, you are right to be concerned about the expense.
Another thing that might worry you is the way in which equity is released and paid for. With most lifetime mortgages, you raise cash by taking out a mortgage on your home which lasts until you die and/or your home is sold. Interest is charged on the mortgage but in most cases you don’t pay it during your lifetime. Unlike a normal mortgage, the interest charged is rolled up and added to the amount borrowed and repaid when the property is sold. The major downside of this is that the interest bill can add a significant amount to the size of the original amount borrowed, not least because interest is charged on the loan plus rolled-up interest. In the space of 10 years this could easily double the original amount your mother has borrowed if she decides to go ahead with the lifetime mortgage.
But what should concern you more is making sure that your mother is getting advice on equity release from an equity release adviser who is regulated by the Financial Conduct Authority and who holds the relevant equity release qualification. You can check by going to the FCA Register and you can find advisers with the necessary equity release qualification on the website of the Society of Later Life Advisers.
Since April 2014, this ensures that any regulated equity release adviser must make sure that an equity release product is suitable for a prospective customer taking into account needs and personal circumstances.
Muddled about mortgages? Concerned about conveyancing? Email your homebuying and borrowing worries to Virginia Wallis at virginia.wallis.freelance@theguardian.com
