Fergus Muirhead answers your consumer questions
I'm Fergus Muirhead and I'm here to answer any questions you may have about any money or consumer issues.
I'll be dealing with a selection of your queries every other Wednesday on Scotland Live, on Reporting Scotland and here on the BBC Scotland news website.
Please drop me a line here at firstname.lastname@example.org with your questions.
You can also read more on money and consumer issues on my own blog.
My mum is retired, her house is her own, but she has no savings, and only has a small pension and the state pension to live off. She is not entitled to Pension Credit and she is struggling. She is looking into equity release to release some funds from the house so she can clear some debts and decorate, but from what she is telling me it sounds scary. She has contacted two companies now via newspaper adverts, for £12,000 it would appear that the total amount to be paid back is in the region of £60,000. Can you advise me to advise her on what is the best way forward and who should she be contacting regarding this? Jillian Latto.
Your mum needs to speak to an independent mortgage broker or financial adviser who has the special qualification needed to give advice in this area. She can search for someone in her area at www.unbiased.co.uk. Scary is maybe a bit extreme but the debt under an equity release scheme can build up quite quickly since effectively, assuming your mum has been looking at a scheme that has no payments made until death, she will be paying interest on her interest every year. So, if interest is 5% for example, and your mum borrows £12,000, at the end of year one the interest will be £600 and if it is not paid it will be added to the loan. The interest the next year will be 5% of £12,600, which is £630, and that will then be added to the loan meaning that the next year the starting point will be £13,230. And so it will go on! Experts agree that at an interest rate of around 7.5% the debt could double in 10 years. You don't say how old your mum is but if she is still relatively young you will see that the debt could build up quite quickly and she, and you, need to understand that this will have an impact on how much money she will be able to leave you and any siblings. While that might sound a bit selfish the reason many older people don't take action is that they are scared that they will 'eat away' at what they see as their children's inheritance!
Just over two years ago when my husband was 63 and with four years left on our mortgage we put our house on the market with the idea of moving to council rented accommodation. At the time the house was on the market for £100,000. This was supposed to allow us to have the cash to clear any debts and have some spare cash so my husband could move to part-time work on retirement. I changed the mortgage to interest only until the house sold. The property market has just gone haywire and our house did not sell. We are now left with a £17,000 interest only mortgage due to be cleared by June 2012 which we are trying to save for by using my husband's state pension payment of £500 a month. This means my husband is still working full time and we have no spare cash. The house would probably only sell for around £75 - £80K now. We would like to stay in our home of 34 years but don't see how equity release could help us. Any help you could offer would be appreciated. Audrey Wright.
Equity release probably won't help you because you still have a mortgage outstanding on your property and equity release generally only helps where there is no mortgage, or at the most a very small mortgage, in existence. My starting point here would be to approach your existing lender and explain your circumstances, asking if they can extend the term of your loan so that it is repaid on the sale of your house on death of the last of you and your husband. That way you know that all you have to do is keep up the interest payments on your loan, which will remain at £17,000, and the debt will be repaid on the sale of the property. It also means that you will be able to live in your house with the security that it will always be there for you, as long as you keep paying the loan. If your lender is not able to do this then you should speak to an independent mortgage broker since there are schemes out there that will help you.
Some years ago I gave two of my four children £15,000 each when they were getting married and buying houses. I would now like to give the same sum to the other two, one of whom has recently married, as it only seems fair. My income is basic state pension plus £2,500 a year from shares which are managed for me ethically by a stockbroker. If I sell shares my income will reduce substantially and so I am reluctant to do this. I bought my very small house in south west Scotland in 2004 for £76,000. I think it may be worth a bit more than that now as it has a lot going for it and I have improved it a bit. Although I could alter my will (which has things divided equally between the four of them) I don't want to do this as I don't know how long that will be and the one who's just married could do with the money now. Any suggestions you have would be much appreciated but I hope you won't use my name on telly when you do your programme! With many thanks.
You don't say how old you are but depending on your age and the current value of your property you may be able to borrow enough using an equity release scheme of some sort to allow you to make the payments you want to make to your other two children. And as mentioned above if you do release money from your property to give them now, it could mean that they all end up with substantially less in the future as the value of your estate could be decreased rather dramatically when the loan comes to be repaid on your death. If you have enough income to repay interest on any loan you take just now then you would be able to cap the amount that had to be repaid, meaning your inheritance would be protected, but again it's about sitting down with an experienced qualified adviser and looking through your income and expenditure and working out what you can afford to do. It may be that selling some of your shares would be the better and easier answer and although you say that you don't want to do that it does make sense in your circumstances to consider all options.