Starting an Equity Release Business

[Sussesxguy34]

Hi

I had an idea about starting an ERB.I have a certain amount of money to which I could lend people. I also have contacts who might be interested in investing money.

My plan is to lend people over the age of 65 and maximum of 30% of the value of their home. Then when the house gets sold, I would get a certain amount back.

Example:

If a house is worth 200k I would lend them the maximum 30% which is 60k. I would want 100% of the house in return.

If they wanted say £25000, I would lend them this amount and I would want three times amount back. £25k times 3 = £75k which is 37% of the equity once the house gets sold.

What I want to know is do I need to be registered as a finance company or can I do it as a sole trader. I am not a finance person but have researched this idea in depth.

Regards

 

[businessfunding]

I have no direct experience of this sector but would suggest that you are likely to be regulated by either or both of the FSA and Consumer credit (OFT)

from a business perspective the issue is that you are reliant on your customers either dying or going into care, which is pretty much unquantifaible, so you have no cashflow whatsoever.

I assume you have investigated what existing schemes offer and are broadly competitive??

 

[Sussesxguy34]

Yes I have looked at a few companies doing this, I just wondered if I could go it alone, as all it is, is me giving someone money in exchange for their house. It is all done through a solicitor and above board. This would be a long term investment for me as yes i would be relying on the dyeing or going to a home.

There are many investments out there and I thought it might be good being a person helping people out instead of a company.

 

[Moneyman]

You are bound to need regulation and you will be jumping into an ethical time bomb.
What happens if you lend £50k and want £150k back and the person dies a week later?
What happens if the same person lives on for say 30 years or even 40? (1 in 6 chance to make it to 100.)
What happens if circumstances change for you and others and you need your cash back? You could concievably be on the dole waiting for someone to die before you can extract yourself.
I could give you dozens of cases where a "nearly dead" person has just gone on and on and on and ones where a perfectly healthy 65 year old just keeled over. These schemes can only work on a large scale where things tend towards the average (like insurance). If you only have 5 properties the chances are that you will be one way or the other by a mile (unless you are another harold shipman). This sort of deviation from a "normal" situation is a mathematical function and people can calculate it (the same quants who did the calculations that the financial situation we are now in could never happen except once in a million years.)

I think you could get very messed up by this. What happens if they marry at 70? That would mess up any reposession.
Very very dangerous.

 

[adventurelife]

It is regulated and the regs are getting tougher. There has to be better ways of investing than this:|

 

[captaincloser]

I could give you dozens of cases where a "nearly dead" person has just gone on and on and on and ones where a perfectly healthy 65 year old just keeled over.

Moneyman... I feel this thread shifting sands to the undead !

 

[tony84]

i would say let this be a pipedream.

firstly, to become a lender you would need to get registered with the FSA - best doing this as a ltd company as it will save you if it goes tits up.
Secondly you would i think need a consumer credit license.
Basically there is a LOT of behind the scenes stuff that needs doing and the fact your thinking you can do this as a sole trader makes me think you need to a lot of research into this.

Also, whilst i am a mortgage advisor i dont do equity release, i havnt done my exam for that. But i THINK what you are offering is pretty poor in comparison to what your competition is offering - eg offering 30% of a property value and expecting 100% of it in return is rediculous...especially as in the long run house prices will most likely increase in value (bar this blip were in at the moment).

 

[Rufford]

Hi

I had an idea about starting an ERB.I have a certain amount of money to which I could lend people. I also have contacts who might be interested in investing money.

My plan is to lend people over the age of 65 and maximum of 30% of the value of their home. Then when the house gets sold, I would get a certain amount back.

Example:

If a house is worth 200k I would lend them the maximum 30% which is 60k. I would want 100% of the house in return.

If they wanted say £25000, I would lend them this amount and I would want three times amount back. £25k times 3 = £75k which is 37% of the equity once the house gets sold.

What I want to know is do I need to be registered as a finance company or can I do it as a sole trader. I am not a finance person but have researched this idea in depth.

Regards

This forum gets funnier all the time..

 

[Rufford]

Moneyman... I feel this thread shifting sands to the undead !

LOL!.. me too.

 

[QuickHomeBuyers]

So you are proposing a strategy which will effectively allow you to buy the property for only 30% of the market value?

If they have already turned down 70% to a cash buying company, why would they want 30% unless I have missed something ofcourse.

 

[JamesHall174]

Yes I have looked at a few companies doing this, I just wondered if I could go it alone, as all it is, is me giving someone money in exchange for their house. It is all done through a solicitor and above board. This would be a long term investment for me as yes i would be relying on the dyeing or going to a home.

There are many investments out there and I thought it might be good being a person helping people out instead of a company.

are you for real..............?? try looking at existing equity release schemes and you will see how ridiculous you are being! Add to that the fact that this is one of the most regulated sectors of financial services and your suggestion is well ......................

 

[Sussesxguy34]

Ok First of all, from an ethic point of view if someone died tomorrow after taking the loan from me, then its down to bad luck. Just like if someone lives for another 20 yrs. Any money put in by me would be money that I can afford to gamble with, without running out of money.

Also, to my knowledge and I maybe wrong but I do not think any company would offer 70% of a the value of someone house, just in case the value of it went down.

I think 30% is a good deal, so someone owning a 200k house will get 60k from me. So if it takes 10 or 20yrs for me to get my money back, me getting the house should be classed as reasonable as I would have to wait quite some time.
Also, there is no monthly rent to pay or interest rate on top of getting the loan and I would only want the full market value of the property if they took out the full 30%.

As for being regulated, i'm sure there is some rules I would need to adhere to but really I won't be doing this on a large scale as I don't have an endless amount of money to do this like big companies have. All I want to do is invest some of my money this way and have maybe 2 or 3 properties left to me.

At the end of the day i'm sure I could go to a retired couple round the corner and offer them a deal and if they agreed we could use a solicitor to make sure it was above board. I do not think I need to tell the FSA or anyone like that.

The only people I need to inform is the tax man.

 

[businessfunding]

Also, to my knowledge and I maybe wrong but I do not think any company would offer 70% of a the value of someone house, just in case the value of it went down.

In your opening post you claim to have researched this in depth. I haven't but within 30 minutes I could find what deals are on offer in the market - in fact there was a link next to this thread taking me to an equity release broker.

As with your other insurance thread, being a sole trader or visiting a solicitor doesn't exempt you from what is pretty severe legislation. In the unlikely eventuality that you actually got customers, you will be risking severe penalties, possibly including a prison sentence (it will keep your overheads down).

Having idedas is good - listening to advice from people within the industry is better.

 

[JamesHall174]

In your opening post you claim to have researched this in depth. I haven't but within 30 minutes I could find what deals are on offer in the market - in fact there was a link next to this thread taking me to an equity release broker.

As with your other insurance thread, being a sole trader or visiting a solicitor doesn't exempt you from what is pretty severe legislation. In the unlikely eventuality that you actually got customers, you will be risking severe penalties, possibly including a prison sentence (it will keep your overheads down).

Having idedas is good - listening to advice from people within the industry is better.

You need to take note of this.... spot on!

Equally importantly, your proposed scheme would me a disgusting rip off preying on the elderly and desperate. Have a look at some of the schemes on the market to see how far off the mark your proposal is, for example research the current offering from Aviva, I am in no way endorsing it or saying it is the best, but it gives you an idea of what a proper equity release scheme looks like.

 

[tony84]

You do need to be registered with the FSA, not doing so will open you up to all sorts of problems. You wou
But as someone has said about what your offering is a joke. If i found out one of my relatives were in financial difficulties and you had "helped" them...i wouldnt be happy, and that is putting it VERY mildly.

Infact the more i think about it, the less i want to help you.

Im sure to some extent you have good intentions for the both of you but what your proposing is offensive, bordering on theft and is definately praying on the vulnerable. If you did this im not sure how you would be able to sleep at night.

 

[Sussesxguy34]

There is nothing sinister about this plan. Everything i'm talking about is not meant to offend anyone and everyone has the choice of whether they want to take me up on this offer.

The percentage that I would offer is what I want.People do not have to accept it if they don't want to. They can discuss it with family members or whoever, but at the end of the day if the customer wants me to help them out, then it is their choice. I would not care whether anyone else was happy about it except the customer. This isn't a con or trick, everything is transparent.

If you do not want to help or advise then simply do not reply to this message.

There is a big difference between being a mortgage adviser and starting a business like this by yourself. Anyone can get a mortgage certificate and convince people to take up other peoples money. But when it comes to running a financial business yourself, you can't really have a say, coz you have never done it.

Some of you accuse me of praying on the elderly. Every equity release company does this. Some may charge more than others, but basically the principles are the same. They are waiting for the elderly customer to die so they can get their house to make them money.

So I am going to look into this anyway regardless of any unhelpful comments that I may get here.

 

[Banned]

There is nothing sinister about this plan. Everything i'm talking about is not meant to offend anyone and everyone has the choice of whether they want to take me up on this offer.

The percentage that I would offer is what I want.People do not have to accept it if they don't want to. They can discuss it with family members or whoever, but at the end of the day if the customer wants me to help them out, then it is their choice.

I believe loan sharks use the same defence.

 

[Sussesxguy34]

Loan Sharks do not do equity release and do not use solicitors.

 

[captaincloser]

"Equity release" ! What a cosy phrase.. 2 words

Wolf. Sheep.Clothing, 3 words.

 

[Morraine]

Loan Sharks do not do equity release and do not use solicitors.

Seriously mate just go and tell this to your local solicitor and after they’ve finished laughing at you, start looking at something real.
Why don’t you just invest your money in property development, buy to let or something like that if your interest is having a few properties in a few years to retire on? But trying to buy people’s homes of them with a financial product that lets you have it at 30% of the market value without any FSA membership (they don’t give fsa membership to loan sharks) is a joke.
Do you really think people are that naive and if they can’t think for themselves no contract you sign them up to will hold up in court.

 

[businessfunding]

Loan Sharks do not do equity release and do not use solicitors.

Yes they do; the kind of crap solicitor who would countenance a deal like this.

Based on your responses I have reviewed my opinion from seeing you as a well meaning but naive to being a bit of an idiot - and potentially a criminal idiot.

Fortunately you are never likely to be able to fund your sillier/dodgier ventures but I do hope that no-one falls into the trap of doing business with you.

 

[captaincloser]

Equity release manager for OAP'S

 

[JamesHall174]

There is nothing sinister about this plan. Everything i'm talking about is not meant to offend anyone and everyone has the choice of whether they want to take me up on this offer.

The percentage that I would offer is what I want.People do not have to accept it if they don't want to. They can discuss it with family members or whoever, but at the end of the day if the customer wants me to help them out, then it is their choice. I would not care whether anyone else was happy about it except the customer. This isn't a con or trick, everything is transparent.

If you do not want to help or advise then simply do not reply to this message.

There is a big difference between being a mortgage adviser and starting a business like this by yourself. Anyone can get a mortgage certificate and convince people to take up other peoples money. But when it comes to running a financial business yourself, you can't really have a say, coz you have never done it.

Some of you accuse me of praying on the elderly. Every equity release company does this. Some may charge more than others, but basically the principles are the same. They are waiting for the elderly customer to die so they can get their house to make them money.

So I am going to look into this anyway regardless of any unhelpful comments that I may get here.

No.....equity release companies do not do the same thing, they used to and that is why product providers are now heavily regulated. It is just the adviser selling the scheme that is regulated, the provider is to.

You asked for advice and people are actually just pointing out the pitfalls in what you are talking about.

Compare what you are offering to a SHIP member scheme. A typical equity release scheme offers a % of the value of the property based on the age of the home owner, charges a sensible rate of interest which is rolled up so that the person doesnt make a monthly payment. On death the loan is repaid and the estate receives the balance of the value of the property. There is also no negative equity guarantees to protect the estate but the key difference is that if somebody borrows 30% of the value and dies a year later the estate only has a about 30.5% of the value of the property back, rather than 100% in your scheme.

By all means pursue your venture but you will be creating a mass of problems for yourself, including a police investigation.

Dont ask for advice on here if you dont want people who know what they are talking about to give you the facts!!