We are a couple in our late 60s with four children. Please advise: is there a property release or lifetime mortgage available at present?There are misleading advertisements online.
We would like to be able to help family while we are both in reasonable health. We are interested in 20 per cent equity release. We have good guaranteed income and whole of life insurance.
Mr WE, email
Equity release and lifetime loans were all the rage during the Celtic Tiger years as lenders sought more ways to persuade people to take on debt.
In many cases, it was used not for the sort of capital investment you are considering but rather to allow people take extra holidays or upgrade their car. Of course, there were others on low retirement incomes living in expensive homes for whom equity release meant a chance to escape the poverty trap.
All of it, however, was predicated on the ongoing rapid rise in property prices. The sharp slide in prices created a new debt nightmare for people who had taken out loans based on property values that were now little more than a distant memory – with little prospect of those values being recovered, especially for older homeowners.
And, as the prospect of easy money disappeared for the lenders, replaced in many cases by the prospects of bad debt that was never likely to be repaid, equity release loans quickly disappeared.
Although the ads remain online, for the most part the companies involved are no longer offering the service, at least for the moment.
The one exception I have come across is Bank of Ireland, which does seem to be offering such an arrangement, but only to existing mortgage customers.
If you do fit that bill, it might be an option. You can borrow up to 80per cent of the equity in your home as, effectively, a variable rate mortgage over terms of between five and 30 years. But it must be repaid at 70.
As you are both in your “late” 60s, the window may have closed, given the five- year minimum term. However, there might be some wriggle room. You would need to enquire directly.
It might make more sense to look to take out a standard mortgage on the property. You have guaranteed income, which would give a lender a clear sense of affordability.
On the insurance issue, I think any lender would require you to take out insurance tied specifically to any new loan. Whole of life insurance can quickly become unaffordable, especially as we age and the insurance firms ramp up the premium charges, often very dramatically, at their regular reviews of such policies.
It is not impossible to get life insurance tied to a mortgage loan in your 60s, and I am aware of several people having done so in the past, but it is expensive and not all providers will oblige.
Hopefully, in time, more considered equity release will return and it will be sold only to the much smaller group, for which it is appropriate, and more competitively. The cost of such loans in the past was crazy. But that time is not now. By Scrip or by Drip – what difference? Is the tax treatment the same for dividends received by "Scrip" and by "Drip"? If not, what is the difference?
Mr C McD, email
For some shareholders, dividend income is a key factor in determining investment in one company's shares over another. However, if that income is not immediately required, many investors look to reinvest the money back into the company's stock.
There are two main ways of doing so: either by Scrip dividend or by Drip. Each has slightly difference characteristics and, while there is no difference in their tax treatment, there are cost implications.
A "Drip" is a Dividend Reinvestment Plan. Under such an arrangement shareholders can elect to receive their dividend in the form of new shares. The company goes out into the market to acquire existing issued shares for all shareholders availing of the Drip scheme as a group. It then allocates them according to how many shares your Drip interim or end- year payment entitles you to.
Because the shares are acquired in the open market, they are subject to both commission and, in jurisdictions where it is applicable, stamp duty. But commission rates under Drip schemes tend to be much more competitive than those on offer to people simply buying new shares through a broker in the normal manner.
Under a “Scrip” dividend, the company offering the programme issues new shares to meet the demands of investors availing of the option. Because they are not buying shares already in issue, it is not considered a standard trade and no commission and/ or stamp duty applies.
Of course, the chances of your dividend dividing neatly into a round number of shares at the strike price are slim. As a result, you will generally find that you have fractional entitlements outstanding after each dividend.
How these are treated depends on the rules of each scheme. Some will issue the leftover sum in cash, but it is common that investors will be allowed to retain their fractions of shares on which they can build in future dividend payouts to add further to their holding in the company.
However, for the investor, it is not really a question of choice. Companies can offer a Scrip or a Drip option (or neither) but they cannot offer both. Also, some brokers, especially in relation to nominee accounts, may not accommodate the Drip/Scrip option, so it is as well to check with your broker before proceeding.
In tax terms, dividend income is seen as income regardless of whether it is received in cash or as new shares under a Scrip/Drip arrangement. That means it is subject to income tax at the highest rate applicable to your income.
Depending on your income and age, it will likely also be liable to Universal Social Charge and possibly to PRSI.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
