While releasing some of the equity in your home may seem like an attractive option if you are in need of cash, such schemes are not suitable for everyone, writes Claire Shoesmith
Another option for obtaining cash later in life is to release some of the equity in your home. Whereas in the past the only way of doing this was to sell up and move to a smaller property, it is now possible to access some cash without having to move out or sell the property on the open market.
While these schemes do not suit everyone, there is no denying the fact that property values have risen significantly over the past decade and, as a result, many older people are sitting on virtual gold mines.
According to a recent survey by equity release company Seniors Money, the typical retiree in the Republic has an additional 27 years worth of State pension tied up in their home, compared to just 15 times the State pension a decade ago.
"Although there has been much commentary on the recent cooling in the property market, this does not negate the increases property values have experienced over the last decade," says Peter Mitchell, chief executive of Seniors Money.
Still, the Irish Financial Services Regulatory Authority has cautioned that anybody considering using such a product should take independent financial and legal advice.
"Before committing to one of these schemes, you should consider other ways of using your home to raise money, including renting out one or more of the rooms, selling your home and buying a cheaper one or transferring ownership to a family member in return for the cash you need," it says on its website.
Equity release schemes in the Republic take two main forms. The first is known as home reversion, where an older person sells between 10 and 90 per cent of their property for a steeply discounted price to an equity release company, receiving a lump sum in exchange.
The home reversion company then co-owns the property, which means that when it comes to be sold, the company will receive that percentage of the proceeds.
The other type of scheme, known as a lifetime mortgage, involves homeowners borrowing part of their home's value (usually between 10 and 45 per cent) and taking the money as a lump sum, as regular instalments or mixture of both. No repayments are due on the loan until the homeowner sells the property, dies or moves out of the home permanently, at which point the balance plus interest will be due in full.
These products are offered by companies including Seniors Money, Shared Home Investment Plan (Ship), RRL and Bank of Ireland.
While this option may sound simple, there is concern that such products do not fall under the jurisdiction of the financial regulator. Cases have been reported of older people who have taken out equity release products being forced to sell their homes after they were left vacant for an extended period as a result of illness.
The providers insist that the circumstances of each case will be dealt with as issues arise, but when a pensioner is unwell and struggling to cope financially, the last thing he or she will want to do is argue the merits of a particular situation with a financial institution.
The research from Seniors Money showed that the average Irish pensioner takes a cautious approach to equity release, with just 11 per cent of the value of the home being drawn down on average.
"Home equity release products can provide consumers with another financial option, but they are not suitable for everyone," the financial regulator says.
"Deciding whether it is suitable for you involves weighing up your current need for cash against future needs that are very hard to determine. It can be a difficult decision, with serious issues to consider."
More information can be found on the financial regulator's website, www. ifsra.ie, at www.itsyour money.ie or by calling 1890-777777.
