Equity Release: Last Resort or Lifeline?

Transcript

Christian Rodwell (00:02.018)
purpose of Wealth Talk is to educate, inform and hopefully entertain you on the subject of building your wealth. Wealth Builders recommends you should always take independent financial, tax or legal advice before making any decisions around your finances. Today's episode is brought to you by Wealth Builders Membership, a proven step-by-step process that helps you achieve financial security within two to three years. find out more, head to wealthbuilders.co.uk forward slash membership.

Welcome to this week's episode of Wealth Talk. My name is Christian Rodwell, the membership director for Wealth Builders, joined today by our founder, Mr. Kevin Whelan. Hi, Kevin. Hi, Chris. Good to be with you again. You know, I've got a bone to pick with you. Okay, go for it. Fulham, your football team has beat my team twice in a row, dear. Please let me have one. I need something to celebrate. dear. Well, I'll tell you what, you've got something to celebrate because you passed another exam last week, I hear.

I'm much too old to do exams, Chris. You must be having a joke. Maybe I had my eyes tested to see if I could read the number plate. Well, tell us a bit more about it. What exams were you sitting? I just need to preface this by saying, you know, we should all be lifelong learners. doesn't matter what age we are. There's always an opportunity to learn something new. And I took that opportunity recently because I saw a change in the marketplace that made me want to get better qualified to be able to talk.

more confidently about something which I think is important, carries lots of risks, but I wanted to get the knowledge so that I could, as I say, speak confidently on people who I'm speaking with. Because as a member of the Society of Later Life Advisors, you know, I often get called upon, Chris, given my, you know, aging visage, to talk, you know, as the most appropriate person to talk with experience to older people.

People, let's generally at least a minimum of age 55, but often in their sixties and seventies and even eighties. Um, and just talk about the kind of wider concept of something which goes under the generic title, but it's a bit like SAS, you know, it's not really a good title. You wouldn't really choose to have it, but nonetheless, it's legally required. Have I teased enough? I did, I did an exam in equity release.

Christian Rodwell (02:29.716)
It's a formal exam because anybody who qualifies, and we'll go into the detail of it, to access their property equity, the equity being, course, the difference between the value of a property and any mortgage or loan secured on it. So if you've got a property worth half a million and you've got a mortgage of 250,000, your equity is 250,000.

That's data simply. And in an aging population.

And with history showing property prices have increased, we're seeing many, many people, particularly in later life, who we would describe them probably as asset rich, but cash poor. And often people who've achieved a level of income and maybe they've built wealth in final salary schemes or built wealth conscientiously and deliberately in the stock market.

Generally speaking, but most people have really just done, do you remember the pillars one, two, three description we had? And why most people don't become financially independent is they've put all their growth eggs in the stock market, plus they've got a home they live in. This is the real challenge that have been faced by many people in their later life, is they see things they wanna do, but they don't really have the...

liquid wherewithal. They don't have liquidity. They don't have money they want to spend in cash. They don't have investments they want to cash in. But they sometimes see that the value of their property could give them access to some liquidity if there was a method of doing that. so equity release does that. But there are many ways of doing it. So maybe we should just talk about that. before we do, I might want to mention that somebody

Christian Rodwell (04:34.574)
said to me the other day, which is kind of quite opposite for this, which is, you know, I always talk about getting people to tell me if there's more than seven pillars and I have that standard out reach that I make, which is if anybody finds me number eight, I'll send them a very nice case of champagne and then I'll build it into my IP. So it'll be a low price to get it. And the only one that's come back recently and I thought,

It's interesting, maybe I should think about that.

is our very selves.

that we are the asset that gives credibility, gives birth to everything and that everything good in the world is created three times. Once in our head, once in a plan and once in action. And maybe putting time and energy into the brain to fuel more knowledge and more expertise is really quite valuable. And I have to say, Chris, although it sounds like a simple statement.

that you've just passed an exam in Equal Release. But if I think back at how long it took me to spend to build up the expertise, to sit down in an exam room and do an exam, but to be confident in talking about it as I will do with you today, that's probably 100 hours worth of work.

Christian Rodwell (06:02.926)
And when you think about that, you know, it's, what's our 50 weeks of two hours? That's a commitment. And I think how much time do you think the average person spends in building more knowledge that can help them achieve something in their wealth or achieve something in their life? Probably not two hours a week. mean, I know we expect our wealth builder members to give us two hours a week. Otherwise we won't take them on as members, Chris. That's an important consideration for us.

But I'm just doing two hours a week on equity release, just one thing. That to me shows a commitment and I think we need people to think about investing in themselves, not in equity release necessarily, but in at least tapping into the knowledge of people who've spent hundreds and hundreds and hundreds. And in my case with wealth generally, thousands and thousands of hours. What do they say? You need 10,000 hours to be a master of something.

Jeez, I've done a lot more than 10,000 hours, right? But there you go. And what better way than to listen to a podcast like our listeners are doing right now? Well, look, I'll try and distill the lessons that I got from my 100 hours in half an hour. And that's a tough job. But, you know, that's an important skill, I think, to say, what could you apply? What about those 100 hours could you learn from? And I think...

The essence is in order to tap into equity, in order to take a home that has a value and tap into the equity of that value, however you do that, you've got to want something you're not getting, which demands by the very nature of it that you have to learn more about what it is you want to get. So if you've discovered your pension is insufficient for your needs, you need to have thought about that, worked out all of your alternatives and then work out if

perhaps one of those alternatives and it is only one. And I'm certainly not advocating equity release at all. In fact, in truth, I think equity releases lender of last resort. It's really something you should do last. You should do everything else in your power first. One, learn more and build your assets. If it's too late for that, what can you do with, you know, tax free cash? If it's too late for that, what, cause you've already taken it and spent it. What can you do?

Christian Rodwell (08:30.606)
with other assets that you built up in your life? Or could you downsize, you know, or borrow the money from your family if they're very wealthy and you're not? And I think I remember going back way back, Chris, when we started sharing why 95 % of the population weren't financially independent. And one of those reasons is that overemphasis on the stock market, which very challenging when you've got a volatile asset to get certainty of an income from it.

should be clear, there's different ways to release equity from a property. And we're not talking about a remortgage, which some people might refer to that as releasing equity from their home. Yeah, good point, Chris. So how do you release equity? You sell an asset or you refinance an asset. That's the only two ways you can do that. So obviously, you could sell your house, you would be given an example.

You can, here's the problem. You sell a house for what did I say? Half a million. And you buy and you release 250 grand. Or even if you paid your mortgage off, you release half a million. And then you want to buy something to live in. So you want to live in something that you, you know, is reasonable. So you go from a house you love to probably a smaller place you don't for say 300 grand. You bank 200 grand. And what do you do with 200 grand? Well,

Well, you know, obviously there's a reason to enjoy your life's work. And if it's appropriate and you want to spend some money, that's absolutely fine. You know, we've got clients who've got children now in far-flung places in the world, and they want to visit them. You know, they want to see their grandkids in Australia or in America or in any other country. And sometimes if you don't have the wherewithal to do that, then you can tap into some of the value in what you built up in your biggest asset for many people anyway.

which is their property. So yeah, one, you could sell in downsize. Generally speaking, it involves quite a lot of fees and upheaval because you've got to pay stamp duty when you buy, you've got to live in a house you perhaps don't want to live in, and you're compromising. So the other way, traditionally, we've seen people do that, Chris, is tap into the equity of their home by remortgaging and then taking some of the proceeds from the mortgage.

Christian Rodwell (10:56.398)
and using that to build assets. And that can work as well. You know, we've seen that with property portfolios being built. Starting point for most people buying property is to tap into the equity in their home. I think what we're talking about here is older people, mostly mortgage free, who discovered their pension isn't enough. want to actually don't want to be frugal. They want to enjoy that. They don't want to sell their home.

but they want to tap into that. And the tapping into that is called equity release. When you do really one of two things, either you raise a mortgage, which is secured on the property. let's say you live in a, you know, you've got a retired couple.

house worth a million pounds, no mortgage on it, then all those bricks and all that mortar is just a latent asset that can't work for them. Now, if they wanna spend some of that, then with equity release, you can do that. So you can apply for a special kind of a mortgage called an equity release mortgage. You have to get advice. You cannot do it on your own. You cannot do it execution only. You cannot do it by insisting. You need...

advice from somebody qualified and now I have that qualification. And the point about that is not that I want to use that qualification very often, it's just to give people the pros and cons. So if you tap into the equity by borrowing money, usually from a bank rebuilding society, and they'll do a certain type of a mortgage. So one is raise a mortgage, okay? And that mortgage can often be

So when you're available for people over 55, it's always done if it's a husband and wife on the youngest person, because it's all done on life expectancy. So if you've got a husband 65 and a wife 60 or even older, whatever, the mortality calculation about how much you could tap into is done on life expectancy. So the older you are, the more of the value you can extract. The younger you are, the lower the value you can extract.

Christian Rodwell (13:15.054)
Now, what are the different ways of you take out a mortgage? So it's just like a normal mortgage, but instead of having to pay the capital and interest back and therefore it affects affordability, you can choose not to pay the money back. You roll it up. So in other words, if you've got a hundred thousand mortgage at 6%, you've got 6,000 pounds a year that either pay, you charge 500 quid a month for.

or you just roll it. So you go, I won't pay that. So I've got 6,000 pounds this year. And then another year, 6,000 plus the compound effect of that. You can see very quickly the danger that if you don't pay attention, then you could rapidly get to a position if money, let's say it's 7 % because the rule of 72 says the value of anything doubles divided into 72. So if you take 7%, that's about 10 years.

So 10 years later, if took 100,000 mortgage, you got 200,000 mortgage, and it's going to double every 10 years. So if you've got a long life expectancy, you could be significantly reducing the long-term value left in your home, which could affect your beneficiaries. So that's the reason you have to take advice, because it's not just ignoring the interest bill and going, I'll just roll it up.

You need to take independent legal advice. You need to take professional financial advice. And there is a requirement that, you know, a sensible requirement that you discuss it with your beneficiaries to make sure that they are aware of that. And in many cases, that's perfectly fine because, you know, younger people today, especially if they've done okay by themselves, they may want their parents who are struggling to enjoy life and others will want that inheritance. And that's the delicate balance to play in family dynamics.

between tapping into the equity, either rolling up the interest payment or you can pay the interest payment. So you borrow a hundred thousand, you still owe a hundred thousand, but you're paying. One has an affordability question, the other one doesn't. So often if people don't have a big enough income in retirement, then rolling up the interest can be a method of raising a mortgage, but without the affordability test.

Christian Rodwell (15:41.664)
going to ask about that, Kevin, what are the criteria for income when it comes to deciding on the mortgage? Well, there aren't any. If you're rolling it up, there is no affordability test whatsoever. It's all done based on the value of the property and the life expectancy of the people concerned. Some properties you can't do. It's all done based on residential property. It's not done on commercial property. It's not done on buy-to-let property. It's not done on

Short, lethal properties, they need long leases because the lender is securing it. Think about it, a lender's point of view, what are they doing? They're lending money and they're not going to get any interest back.

So they need to make sure there's enough equity in that home to get that money back. Now, when do they get paid? Well, when the second, the youngest of the two people in my fictitious scenario die or go into long-term care. Because going into long-term care means you're changing your status completely and dying, of course, is definitely one of those as well. They're called...

But bizarrely enough, qualifying termination event. So there's a termination event right there. But the, that's just me showing off with my exam results. But the, the point I'm saying though, is there is a danger, isn't it? That the danger for the lender is they've got to wait for decades. And the danger for the family is there could be no money left. I mean, you literally could be in a position where.

you or the rolled up interest is as much as the value of the home. You can't go into negative equity. That's a pre requirement because in early days in the nineties when equity release, put my teeth in, when equity release first started, there was no such thing as protection for the owner. And if their interest rolled up,

Christian Rodwell (17:48.974)
and it was more than the value of the property, then the estate would owe that money. So on death, the estate would have to pay a bill. And is this where that stigma of years gone by around equity really stemmed from? I think there are two stigmas. One is that, which is why what did come in in the recent past was something called SHIP or Safe Home Income Plans, which has now been replaced by a voluntary

trade body called the Equity Release Council and they have some very specific things in place that, you know, the legal advice must be given, the surveyors must be independent of the company lending the money. You can't be in a position where there's ever a problem with negative equity that can't happen. So it's not allowed to happen. It's part of the deal.

And it's portable. So if you want to move to another property, you could do that. If you want to pay it off because you win the lottery, you, or you win a million on a premium bonds, because you know, we don't recommend lotteries, do we? Then you could, you could repay it off. There'd be some charges and technical stuff, you know, because there always is because the lenders create products, which pay them some fees upfront and some fees if you pay it back. But, um, you know, that's beyond the scope of this, but nonetheless, you can see, so

way number one of raising money from the equity in your home when you're the youngest person is over 55 is to use it through a mortgage where you either pay the interest back, can even pay the capital back or not. And it can be a way of say someone has got themselves into difficulty with lots of loans or credit cards and so on. They could consolidate that, you know, so there are some genuinely

good reasons why someone might give this an airing. And I think giving it an airing is just sensible as you look at what the other alternatives are. Sell something you've got, downsize, see if your family can help you out if something is going on temporarily. So does that give you a feeling for equity release from a mortgage point of view? It does. And would most of the, let's say high street lenders have a product or is it quite specialist at the moment still?

Christian Rodwell (20:11.136)
It is specialist. It's mostly, there are some banks, but mostly kind of insurance companies, you know, because they're taking a long-term view. mean, their view is really, it's a property investment, isn't it? They're investing in property really. That's where their view of the capital is going to come from. So they're seeing it like that rather than a traditional mortgage, because there's no affordability. You take on a mortgage, the lender wants to know, can you afford to make the payments? You take on an equity release mortgage is, you know,

Are you going to, how long are you going to live statistically? And what's the value of the home and is there plenty of equity in it now? So that that roll up isn't going to get them to a position where the property value equals the loan value and then there's nothing left for them. I mean, obviously they'll get the loan back, you know, but that's, that's the, that's the key consideration. The second way to do it is fundamentally different, much less popular and much riskier.

but nonetheless is there and goes under a very fancy name called a home reversion scheme or actually a home reversion plan. You're not allowed to use the word scheme. It's home remission plan. And what that means is the, don't pay any interest at all. You don't actually take out a mortgage. You technically sell a proportion or all of your property to a lender and they basically take it.

and own it and you become a tenant in your own property. Completely fundamentally different way of looking at the process and a completely different way for the lender looking at the process because the lender's not banking any interest here. They're entirely banking on the difference between how much they're going to give you for the property. if your property's worth

half a million again, they're not going to give you half a million. They'll say, well, if you give us 50 % of the value of the house, we'll give you a quarter of the value of the equity. you know, so there's, it's fundamentally different. You can often raise a bit more money through home reversion than you can with the, the mortgage style, the lifestyle mortgages or the lifetime mortgages.

Christian Rodwell (22:39.276)
So you can usually get a bit more, but that's not a reason necessarily that someone would do it. But if they don't have any beneficiaries, don't have any dependents, they might be comfortable getting as much money as possible. And then there's no restriction on what you can do with the money. But just an interesting, but highly risky option, not one that I think is gonna be very popular. fact, so restricted now, there's only a handful of...

lenders do it, but nonetheless, it's there, it's still legitimately out there. So I wanted to ask how equity release impacts inheritance planning, because we talked about protecting your assets. One of the ways that we describe home ownership is to own your home as something called tenants in common, where effectively you leave a proportion of your home in trust. How would that impact taking out an equity release product?

Well, I mean, technically, when you tap into the equity of your property, how you own it is relevant. Because if you own it as tenants in common, technically, your half share, you know, if you do it jointly, your half shares still has to go through the proper process of dealing with your will. So there needs to be enough equity in the property to be able to deal with that. But I don't want to get too technical here.

What I think I want to say as far as protecting your assets concerned is a debt is still a debt on an estate. So we know we've seen the of the planned inclusion of inheritor's tax on pensions. You know, huge challenge now that especially for those who've got sizeable pension pots and didn't realize this was coming out of left field.

Well, here it is, you know, in 2027, that's where it's coming from, which means that shunting effect of the property of the value of your pension, adding to your inheritance tax bill, you know, can even shunt people massively into not understanding that the tax bill that their estate will pay will be significantly higher. So most people can leave a million quid as a couple.

Christian Rodwell (25:09.102)
Half a million pounds, 325 is what's standard, it's called an ill rate band, but it's standard. And the 175, which makes half a million per person, comes from the fact if you're leaving the home you live in to your direct descendants. So you get that extra. So that's half a million each. So a couple, finally when death occurs on both sides,

So when both parties have died, the first million essentially is deemed to be tax-free. But if the pension shunts you up, you know, and then it shunts you into a tax position, then all your property's worth a lot more because the property values are going up higher than ever before, then you could see that the combined effect of a pension increase coming into the estate and property values increasing.

It can even push people beyond 2 million. And when you get past 2 million, you're losing some of that relief, that half a million, than I said to you before. You could end up losing both lots of 175. So you can see there are very careful calculations that need to be done to plan to mitigate or minimize inheritance tax, which is about protecting your asset. So I think while I'm not suggesting it's a solution, I'm definitely not.

But raising a debt on the estate does reduce the impact of inheritance tax because a debt is a debt to the estate. So the property value would be deemed to be the equity. So if you've got a million pound house and you take 400,000 out of it, then you owe 600. And that would be the value of the asset for the purposes of an inheritance tax calculation. So I think that we'll see, I'm sure.

many people taking money out of their properties to help their children or their grandchildren get on the property ladder as property prices are getting so high, or alternatively making gifts, you know, to, because you can make gifts and survive seven years, and we've talked about that before, I think several times. Then there are opportunities to make gifts with what are called out of a warm hand instead of a cold hand.

Christian Rodwell (27:37.794)
So it's not for me to say whether somebody should or shouldn't do that, but it is an option. And it's an option that I think because of the increase in the taxes that are going to be taken by pensions will encourage more people to look at this. And I saw that coming and I thought, I need to understand this. So if anybody asks me the question, what do you think, Kevin, about equity release in my situation? I need to be able to give them an answer on what the pros and cons are.

another benefit that our members have of being able to tap into this amazing knowledge. Not just yourself, Kevin, of course, all of our coaches, our team as well that collectively are there to support. Maybe I should just mention there's been a really good, I guess, eye-opener of equity release actually to really understand it because it is becoming more popular now. Mark, it's gone up. All the statistics from the main lenders has gone through the roof.

Sorry, no pun intended, but just the amount of volume of lending is massively increasing. And I can understand it. And I think given it's heavily regulated and independent legal advice is required, family members are required to be involved. I like it. I don't mean equitably per se, but I like the fact that I can discuss it and discuss it with the whole family. Because if those people who know wealth builders, we...

encourage this idea of thinking about wealth as a family and creating it like a family business and therefore making decisions as a family. And I think I'm going to encourage this discussion so that people are aware of choices and then they make informed choices rather than either A, think back to the bad old days when equity release was really terrible. But it's the same with annuities. A long time ago, when I first started around 1990, annuity rates were 15%.

know, so a million quid would get you 150 grand a year. I'd take that, you know. I'd take 15 % on a million quid, you know, no issues. Okay. You know, there's pros and cons with annuities, but annuities went down to teeny tiny amounts, three, four percent when interest rates were at 0%. And now they're inching back again and annuities will come back again a bit. So I think you have to be aware

Christian Rodwell (30:03.296)
of the economic situation you're in if you're leaving your wealth planning to your later life. And so it becomes fundamental that you become financially aware at a time when most people are financially the least aware because they get old and they've not really been actively involved in their finances up until now. So that's why we encourage you wealth builders, the concept.

of building cashflow, not just banking on the accumulated value of anything. And that's why, you know, we can really ideally help people get to be financially independent with a handful of years, three or four decades of years, which is what happens traditionally. Even if they make it, they still feel a bit vulnerable and tapping into the equity of your home means you're probably feeling a bit vulnerable somewhere that you can't give what you want or you can't get what you want.

you can't enjoy the lifestyle that you want. There's got to be a reason why somebody would do that. And it probably starts with the negative, at least initially. You mentioned that word cashflow there, Kevin, one of my favorite words. And in fact, we were playing the Robert Kisaki cashflow game in London last week. And just want to say a big thank you to everyone who came along. was our biggest and best event yet. Absolute sellout. And we've actually had lots of reviews.

Coming in, so thanks to Barbara who said an inspiring no pressure networking experience. I first started following wealth builders and subscribed to their emails because I wanted to learn more about SaaS. And when I received an invitation to join Robert Kiyosaki's Cashflow Game at one of their networking events in London, I decided to attend and I'm so glad that I did. I was pleasantly surprised by the atmosphere. There was no hard sell of any products or services, just genuine conversations with people.

actively working towards financial success. The event was not only insightful, but also a lot of fun. Playing the game in such an inspiring environment made it an enriching experience, both educationally and socially. I had a fantastic time and I'm already looking forward to the next event. That's a lot of ROI's wrapped in there, isn't it? Return on intellect, return on interaction with the social value and creating and being in the right environment where that's supportive.

Christian Rodwell (32:24.934)
And, you know, I think it's a good thing that people are meeting together in places where perhaps their environment at home or at work is not as conducive to thinking outside the box. Now, of course it's a game, but the benefit of a game is it engages the brain, doesn't it? And as you see things in a different light and then hopefully anybody who wants to apply that in their life, not just in the game.

can do so with our help or just some of our resources. Yes. And the next game is scheduled for March the 3rd in London and we're in talks for hosting an event in the Midlands coming soon. So to find out about all of our upcoming events, both offline and online, head to wealthbuilders.co.uk. And Kevin, you're doing an online webinar next week, which is titled, How to Find Fund and Supercharge.

a profitable commercial property portfolio. What's that one going to be all about? wish I knew. No, it's really all about the combined energy in this who, not how culture we have and wealth builders of three great people. One, Suzy Carter, who's outstanding in her field, which is the field of commercial property. You know, and one deal can change your life completely. One deal in commercial property could set you up for life to be financially independent with one opportunity.

So think it's worth tuning in for that. The second is Johnny, Johnny Dunn, who's got a business which is called DNA, which is all about kind of funding in terms of the conventional funding through SaaS and through other routes. And I'll be talking as well specifically about how you can self-fund through SaaS and also how you can attract private investors. So there's lots of things that I think will be shared that will give creativity

and creativity like learning when you're an old geezer like me starts with an open mind. And all too often I meet people with a closed mind. They have heard something, they think something and that thinking is out of date. So equity release thinking is out of date. Annuity thinking is out of date. Pensions thinking is out of date. Wealth building thinking is generally out of date. So to get up to date, find an environment where you resonate with the people.

Christian Rodwell (34:50.998)
You really enjoy the way they communicate. They make complex things sound simple and you can meet with other people like-minded sharing similar values, of course, but also sharing a similar journey so that essentially, you can learn or take the easy route for people who've taken the longer and the harder route. So take advantage of my 100 hours if you've got a question about equi-release.

take advantage of my thousands of hours, if we can help you make a distinction or two to help you become financially secure and then onwards and upwards to financial independence, Chris. So I think most people can get there within five to seven years. They don't need to be thinking about equity release. If you've got yourself so certainly secure within a very short space of time, equity release would never really be an issue of a negative. It could only be a positive for you.

Yeah, well, thank you very much for sharing those insights with us today, Kevin. And if you've enjoyed listening, if you think somebody else might learn from today's episode, please hit the share button, whether that's parents, grandparents, friends, family, and we'd really appreciate you spreading the word. And Kevin, we'll be back same time, same place next week. We will. And until then, my friend, see you.

Christian Rodwell (36:12.6)
We hope you enjoy today's episode. Don't forget that we are constantly updating our resources inside the WealthBuilders membership site to help you create, build and protect your wealth. Head over to wealthbuilders.co.uk slash membership right now for free access. That's wealthbuilders.co.uk slash membership.