A house, just like anything else, is only worth what someone will pay for it and I have been made painfully aware of this over the last week or so because I have been trying to arrange the transfer of my parents' equity release mortgage over to a cheaper provider, with a view to releasing them some more equity in the process.
The house was valued at £240,000 around 15 years ago. Putting this figure into the Lloyds House Price Calculator produces an estimated value of £540,000 so we did think there must still be a fair amount of equity available. The guy from the equity release advisory service I spoke to agreed and he arranged a provisional transfer agreement for them which would pay off their existing loan and give them access to another £75,000 worth of equity should they require it, along with reducing the interest rate they are paying from 7.9% to 6.2%. For a halcyon few days it looked as if all my parents' troubles were over and they would be able to relax and forget all about money. They are well past the point of wanting to spend on holidays and fast cars (they are both 80) but a new telly wouldn't go amiss and neither would not having to worry about the exorbitant fuel costs their rambling old house generates (they're currently paying £380 per month to Ecotricity - a long story).
But this was all dependant on the valuation and when this came back it was a total shock. The mortgage company valued the house at £200,000 (£250,000 when essential repairs are done). The house is over 300 hundred years old, a 4 bedroom detached with a large garden. Admittedly there is a lot that needs doing to it - new bathrooms, kitchen and central heating - but the general fabric and roof of the building are solid and the land alone must be worth more than that! The valuer wrote that the house is "in a rural location with few facilities" - true, which is why the other houses in the village have all been bought up and renovated by "Escape to the Countryers" with outdoor hot tubs and floodlit decking. The location is rural but the motorway is less than 5 mins away. Perfect for commuters.
You and I would find out roughly how much our house would sell for by looking at what the neighbour or people up the street got for theirs (or by getting Zoopla to work this out for us) but this does not work in my parents' case as there is very little data to give them a baseline. Houses in the area rarely come up for sale because there are so few of them and they tend to sell at auction when they do. That's the real difference. The auction environment determines "value" in quite a different way from the highstreet. Value becomes a far more fickle thing, dependent on the immediate play off between interested parties and therefore more attached to emotion, there is no clearcut "price".
To a large extent my parents see the value of their home in much the same way - priceless. They've lived there for the last 50 years and have never seriously contemplated leaving. As my Mum said when I last asked them if they would please(!) think about selling and moving to somewhere more comfortable, nearer the shops, easier to keep clean and heat, "No, We love it here and we won't be moving". The value of the house to them isn't quantifiable. It's just a real shame that, because he had to prioritise the need for a quick, risk-free sale and reliable price, the mortgage valuer saw things much the same way but from the opposite side of the scale and the two couldn't somehow meet in the middle.
So, we're back to where we were a couple of weeks ago. If we do take the recent valuation as accurate then I am pretty sure that the house will (hopefully) go into negative equity by the time they both die. Any equity release mortgage taken up in recent years does have a "no negative equity" clause but this is a very old agreement with a company who do not belong to the Equity Release Council - the situation isn't completely clear. In actuality it matters little as my parents have no other assets that could be thrown into the mix anyway.
It has been a difficult and painful experience because the perfect solution was flashed in front of us but then whipped away, and I do feel guilty about getting their hopes up only for them to be dashed back down again. I'm going to give myself a few days and then start thinking about "Plan B" - hopefully there is one.