Money for Old Bricks!
Did you know it is possible to obtain money from banks or other lenders to use for whatever purposes you choose? Of course, there is no such thing as a free lunch or indeed free cash. However, it is likely that if you have a house worth £50,000 or more, your income could be substantially increased or you may be offered a tax-free lump sum.
But, before you go running off to your lender for “free” cash, there are a couple of things you should be aware of. Firstly, you will have to be aged 60 or older. You will have to decide on the type of scheme you wish to use. There are quite a few on the market. This month’s article is going to discuss the types of schemes and hopefully, if you are considering a Home Income Plan or Equity Release Plan, then you will have a better idea of which is best for you.
S.H.I.P.
These initials stand for Safe Home Income Plan. This is a body where all members have to make certain guarantees. This is probably one of the first things you may look for. One of the main guarantees offered, is that the loan, plus any interest due, would never have to be paid by the beneficiaries of the estate. This is relevant if inflation were to increase to levels above 8% pa. However, other companies restrict the amount of loan, so that accumulated interest and initial loan will never overtake the value of the property. So, having first selected your company, who may be a member of SHIP, you now need to decide on the type of scheme.
How do they work?
Reversion schemes. These schemes are probably best suited to borrowers who have no beneficiaries. I say this, because, no interest is ever charged on the money borrowed. Instead, the lenders will provide a sum of money in exchange for a percentage of the value of the house. They calculate that if interest were rolled up, then the initial loan, plus interest would be equal to whatever the percentage value of the property they decide at the outset. As this can be up to 100% of the value of the property, any expectant beneficiaries would receive no benefit. So, for those people with no beneficiaries, this scheme is ideal. It is also the case that these schemes allow for greater sums to be raised.
Mortgages and Equity Release Plans
These are schemes that we are all more familiar with. A lender will provide a sum of money to a borrower. This can be in the form of a lump sum or indeed as a regular income. The borrower has two options now. They can elect to pay interest due on the loan, or they can have the interest “rolled up” over the period of the loan and added to the loan value. The debt is usually repaid on death or on second death if the loan is held jointly with husband and wife.
The lender will sell the property on death, with any residual funds belonging to the estate.
We will consider this scheme, whereby the money is loaned, like a mortgage and interest is “rolled up” until the loan is repaid on death. If the example was for someone borrowing £30,000 on a house worth £120,000, the following would apply assuming the loan was being repaid after 10 years. The figures assume an Annual Percentage Rate, APR of 7.9%.
| Property value increase each year | Property value | Loan and interest | Amount left to estate |
| 0% | £120,000 | £62,119 | £57,881 |
| 2.5% | £153,610 | £62,119 | £91,491 |
| 5% | £195,467 | £62,119 | �133,348 |
One should bear in mind that the above table is only one example and of course, your age, property value and amount of loan will have an impact on the final figures. However, it can be seen from the table that the initial loan, plus accumulated interest is not more than the value of the property, over 10 years.
Whilst I am not saying this is the answer for everyone, it is possible that if you own a property, and are wondering how to make ends meet, there may well be reasonable sums tied up in your home. After 3 years of falling stockmarkets, pensions for many people are looking decidedly worse than they were. Of course, property values have more or less always risen. Even in Dunoon, we are seeing substantial increases in property values, at last. It might be time to consider enjoying your retirement, when you thought it was too late! You should contact your financial adviser for further details of schemes available and of course, your solicitor.
Back to article list