A variety of options exist for home-owners who want to liquidate some portion of their property. But, as with all moves financial, it is crucial to be prudent, writes Laura Slattery

Precious little money is kept hidden under the mattress these days. Instead, most people's wealth is tied up in the four walls of their family home.

At a time when the value of many people's pensions has gone through the floor, older people will be looking at the roof over their heads to generate supplementary household income.

There are a handful of finance plans available to asset-rich, cash-poor people over a certain age which allow them to raise money on the back of their property without having to trade down.

These can be broken into two categories: equity release loans and home reversion schemes.

Bank of Ireland is the only institution to sell an equity release loan to older people in the Republic.

Customers can borrow up to a certain percentage of the value of their home, and no repayments have to be made until the property is sold, owners vacate the property or the owners die.

At this point, the beneficiary of the property can repay or sell up.

Two companies, Residential Reversions and Shared Home Investment Plan (SHIP), offer home reversion schemes, where they buy a share in property owned by older people, to whom they will guarantee a lifelong right of residence.

The cash payment may be much less than the actual market value of the share. The details of these plans differ significantly.

All play on the fact that, to many older people, downsizing to a smaller, more-modest home - perhaps in a new area - just doesn't appeal.

Staying put in familiar surroundings, even if there is more than one spare room gathering dust, means that social ties and daily routines built up over decades can be kept intact.

But the price of sticking with what you know can be very high for those who opt for home reversions or equity release loans.

Signing up means that family members will have to repay a substantial loan or buy back the share in the property if they want to hang on to the home.

Even if they want to sell up, the value of their inheritance will have shrunk once the financial institution offering the scheme has recouped its investment.

Long before the next generation's interests are considered, equity release or home reversion customers could live to regret spending part of the equity in their property.

"There's nothing wrong with the products, provided you know exactly what you are getting into," says Mr Paul Murray, head of information at Age Action Ireland.

People who opt for the Residential Reversions scheme or SHIP's fixed-share contract need to realise that they will get considerably less than the market value of the share they are selling, he warns.

"You might get €80,000 for a 25 per cent share of your house. You might need to go into a nursing home later, but you will only own 75 per cent of your home.

"And the 25 per cent share of the home that you have sold will be worth more than the €80,000 you got for it."

Mr Murray has similar reservations about SHIP's new variable-share contract.

Here the cash payment handed over is close to the market value of the share, but the percentage of the property that this share represents increases the longer the homeowners reside in the property.

"People need to remember that SHIP, Residential Reversions and Bank of Ireland are not charities," he cautions.

"The property is something that, in the earlier part of their lives, older people would have paid a huge amount of interest on. They should know that they might need the money at the end of their lives."

All of the products require customers to seek independent legal advice, which Age Action endorses.

Homeowners should remember that family members are not disinterested parties, Mr Murray advises.

"They may say 'don't do it', on the basis that this is their inheritance. Or they may say 'do it', because they think they might get a share of the cash."

It is possible for homeowners and their children to negotiate an arrangement that doesn't involve any property firm or bank, according to Mr John Costello, head of the private client department at Eugene F. Collins solicitors, and author of Law and Finance in Retirement.

"There are different options available. I would leave the financial institutions until last," Mr Costello says.

For example, one single older woman in need of capital sold her property to her neighbours, subject to her legal right of residence for the rest of her life.

The price was set at a discount relative to the market value of the property, according to actuarial estimates based on her age.

In another case, a couple sold a half-share in their house to their son, who would pay for it through annual instalments.

"The annual sums were sufficient for the parents to live on and it suited the son, because he was saving," he says.

In both cases, no company takes a slice of any rise in property price, nor will any interest accrue.

If children are buying a share in their parents' property, all family members should know what's going on, Mr Costello adds.

"It could be a recipe for disharmony if an arrangement was made with one or two of the sons and daughters and the others don't know about it."

If parents need money to pay for nursing care, one alternative to home reversions or life loans might be a deed of covenant.

"Children can get tax relief through a deed of covenant if they help the parents pay for nursing care," notes Mr Costello. "That might be a better way around it."

Deeds of covenant give tax relief on up to 5 per cent of annual income to a person who makes a regular payment to an incapacitated person, or to a person over 65, for more than six years - as long as the recipient has unused tax credits.

Adult children in a position to extend their mortgages could also get a loan in their own names and make an interest-free gift to their parents, says Mr Costello.

A child can give a parent up to €45,644 before the gift becomes liable to capital acquisitions tax.

The child might be able to secure a cheaper and more flexible variable-rate mortgage than Bank of Ireland's fixed-rate Life Loan, where no progress is made on reducing the outstanding balance during the 15-year term.

Renting out a room and downsizing are two other options available to cash-strapped, retired property-owners.

"There is nothing wrong with downsizing per se, but people do sometimes forget the cost of moving: estate agents, solicitors, stamp duty and even furniture removal," according to Mr Murray.

"And when you move to a new neighbourhood, it can be traumatic," he adds.

"We have said to people 'can you consider renting?' If your house is big, you could rent a room in it and can get tax relief on it."

Up to €7,620 in income from letting out a room in a person's main residence is eligible for tax relief.

In the meantime, the number of older people looking to convert their homes into cash seems set to increase. This property-owning generation is being targeted as a commercial market from which profits can be made, Mr Murray says.

"People are moving in, putting it brutally, on older people's property."