Equity release loan: ‘The rates didn’t work for me’

The main form of equity release in France that suits older people wanting to release funds from the value of their home is the prêt viager hypothécaire.

Retired farmer Penny Stevens, 80, who has lived in Brittany since 1998, said that as she has no children she was initially looking for a way to avoid leaving her home in a will to someone who would have to pay 60% inheritance tax on it.

She had looked into an en viager sale – allowing her to continue living there until her death – but it was “absolutely impossible in Brittany unless you have a very nice house and are at death’s door”.

She then researched equity release. In theory, the prêt viager hypothécaire is the kind most suited to her case as it is aimed at senior citizens. It is currently only offered by Crédit Foncier (though as of mid-February 2019 it will cease to offer it to new customers with the product being taken over by other banks in the Banque Populaire Caisse d’Epargne group).

The money is given as a lump sum, minus set-up costs, as a loan repayable with interest from your estate after you die. If the debt to the bank on your death is more than the value of the property, the difference is taken on board by the bank, whereas if there is money left over, it goes to your heirs.

Ms Stevens’ house, in a Breton village, near a forest and with sweeping country views, has been valued at €180,000.

She said she went to find out about the loan at the Crédit Foncier in Lorient – more than 60km away – 10 years ago but gave up after being offered a maximum of €15,000 at an estimated cost to her estate likely to be several times the amount by the time she died.

She made inquiries again recently, obtaining information on costs compiled by Notaires de France. (It is now possible to do it via some local notaires, although the loan is still from Crédit Foncier.)

“With Brexit and the fall in the pound, my pension has gone down and I was struggling. I’m probably what Theresa May calls ‘the just-about-managing’, but I wasn’t managing.

“But it’s no better now. It is really only suitable for people who are wealthy and have no children and who want money to buy a smart car or a yacht.

“What it’s not suitable for is anybody who wants extra income, because it costs too much. It would have cost €11,000 just to set it up, then, as an 80-year-old, I would have been eligible for a loan of 44%, then there is compound interest, worked out at 8.5% [payable on sale of the home]. It’s huge.”

Ms Stevens said the loan is only available to people aged 60 or more and the amounts obtainable rise with age.

“I want to remain in my house as long as possible but there will probably come a time when I can’t cope. Because of these costs, I feel I’ll have to sell the house and move into a flat.”

A spokesman for Crédit Foncier said the rate had dropped since Ms Stevens researched it and is now 4.8%.

He added set-up costs vary depending on the details of each case but they cannot be compared to the costs of obtaining an ordinary mortgage because the bank has more risk – it does not know what the home will be worth when the person dies, or how long they will live.

If you have taken out a prêt viager hypothécaire and found it proved practical, tell us about it via news@connexionfrance.com