Falling property prices and equity release – a trap?

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    • #52735

      With the slowly falling property prices in Andalucia and upwardly mobile interest rates we are seeing today – am I walking on thin ice going into an equity release scheme now?

      I’d be grateful for any comments…

    • #70208

      I would say the ones advertised locally on the coast by questionable “financial Advisors” are very dangerous to your asset. Basically the property is remortgaged (interest only, high set up fees) for a five years. You would keep some of the cash, say around 20% and the rest is handed over to the financial advisor to invest in numerous dodgy schemes. In theory teh money invested would pay your mortgage payments and at the end of a 5 year term would pay off the mortgage but we all know whats happened to investments on this coast!

    • #70311


      Yes, I do know what risks are involved in these equity release schemes. My question here was actually – should I assume that these risks are further amplified with the current trend in prices and interest rates?

    • #70314


      The risks surrounding releasing equity (either equity you put in as a deposit or any that has accrued, albeit on paper as the market has risen) from a property are dependant on your view of where the market is going. Also what you intend to do with ready cash you’ll receive in exchange for debt and debt servicing costs, secured on the property.

      You have to weigh up if prices are going to continue falling and if so how far, how fast and for how long. Also what is a reasonable time frame and under what conditions will the market firm up and capital growth resume. Bear/buyers markets have a habit of gaining their own momentum (just as bull markets do) and once sentiment in a market has turned it takes a while to swing back.

      What I would ask your self is how tough is the market now (at both a rental income vs costs and realistic spot price for the property levels)? With the chance of UK and Euro i/r increasing again before the end of 2007 how will that further impact sentiment in the market (especially for discretionary buyers). Obviously anyone who takes out too much equity (assuming the lender is willing to lend) in a falling market risks going into negative equity.

      Pablo Silver or Lead?

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