Saturday, 28 March 2015

What's it Worth? - Putting a Value on Bricks and Mortar.

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.


  1. It's "worth" what someone is willing and able to borrow for it. Decades of renting have left my wife and I with no sentimentality to a house, we see it as a fungible essential. If I make it to a time I am old and knackered I do not want to be in some oversized monstrosity I cannot afford to live in!

  2. Hi Underscored,

    That's completely rational and much as I see it too but my parents have developed a strong attachment to their home over the years.

    Thanks for dropping by and commenting

  3. I can understand their attachment to the house. It is where they have lived the best part of their life and it is full of memories and as you get older you don't want change.
    A friend's parents are the same, the house is too big for them now but they refuse to downsize, it is full of memories and don't care how expensive it is to run. I hope a good plan B can be found that will help to resolve this for both you and your parents.

    1. Thanks sparklebee. That's exactly how they feel - being able to stay there is more important to them than all the other considerations.

  4. Many people who use such online house price calculators are in for a shock then - it's a shame that you and your parents were on the receiving end as it was a solution to resolving the debt situation. I hope you are able to come to some agreement with a lender.

    £380 a month to Ecotricity? There must be some sort of mis-selling there! Or at the very least, a possibility of getting out of that deal and onto something cheaper!

  5. Hi weenie. The house calculator probably works OK for most people, it's just that my parent's house isn't as easy to pin a value on as most - plus I still think that it would sell for more than it was valued at if it actually went on the market.

    The high fuel bill is down to the fact that Ecotricity let them run on estimates for over a year when they first signed up and then they got hit with a reading that left them over £1000 in debt which they have now agreed a payment plan to reduce. (Some of this was their fault as they didn't read the meter and send the readings in). I don't think the arrangement is actually unfair as they do owe the money and Ecotricity are taking the debt back by a small amount a month but it does taking a large chunk out of their monthly income. (They only have electricity - no mains gas and it's a big old house so heating is tremendously expensive anyway.). As they are paying off a debt I'm not sure how changing providers would work but I think it's probably worth another look. Thanks.

  6. Crikey... that is some differential in the valuations! :(

    Hopefully you can come up with a decent Plan B... again I wish I had some more advice I can give you apart from the well wishes but I'm certainly no expert on this type of mortgage arrangements.

    All the best!

  7. Thanks TFS. I still haven't worked out how a house could be "worth" more 15 years ago than it is today but there's nothing to be done about it except find another way to deal with the situation.