You have just discovered that:
– Your parents have more or less run out of spare cash.
– They did have spare funds when they retired but with interest rates so low and the cost of living increasing as it has over the past few years, the money has just disappeared.
– They have cut down already on the quality of food they buy, social activities like a day out or a meal out and as for maintaining the property, well that stopped over 5 years – ago.
– They do not want to move into a smaller property to raise more capital, they want to stay in the home they have lovingly spent many years making it theirs.
– You don’t want them to reduce their standard of living any further. If anything you want them to enjoy their life more. That’s what modern living is all about; isn’t it?
– Neither you or your brothers and sisters can help them financially.
– The only thing left is to tap into the equity in the house they own.
You might think this is an infrequent occurrence. It isn’t, it is becoming the norm and this blog tries to help you come to terms with it.
I know, your first thought was that the Government should do something about it, there should be a scheme that helps people when they get into difficulties and money runs out.
Well there isn’t and it hasn’t been because it crept up on politicians without them seeing it coming. It’s because successive Governments for generations have simply kicked the can down the road because it’s too sensitive. Even now the current coalition government are too frightened to make concrete proposals because those proposals would not be liked and it could cost them their jobs come the next election.
So how can you come to terms with the shock that you have just discovered? Well it is quite simple really but you need to look back about 50 years to see why.
In 1960, the average house price was £2,507. Today, it stands at £233,203. That means it has grown by over 93 times in 52 years.
So did your parents know that inflation would make their house value rise so much when they decided to buy? No they didn’t. In fact, up to 1960, inflation had barely raised its ugly head for nearly 20 years. They bought their house because it was less expensive than renting.
So how much did they actually pay for the £2,500 property that is not only going to fund their shortfall in income but should still provide you and your siblings with a substantial sum after they have both departed this mortal coil? Probably £6,267 over a 25 year period. Don’t get me wrong, this was a lot of money in those days and a fair proportion of their hard earned money went on paying the mortgage. Things don’t change much, do they?
The difference between what they paid for it and its current value? £226,936.
So it’s not your parents that have provided the vast majority of the money that they are tapping into, it’s that nasty animal called inflation.
I know it’s not comfortable to see the value of an asset that you have probably sub-consciously thought of as being yours sometime in the future reducing in value, but when you realise that the current face value of that asset is mainly derived from inflation, I hope this will help you come to terms with it.
By the way, if you want advice on the best way of organising equity release, follow this link. Please don’t take the first (or even the 4th offer) without seeing all of them. That is what we do. Without exception.