The concept of equity release is new to older Irish home owners, with the emergence of the first two financial products aimed at the age group in the last six months.
Residential Reversions Ltd was first to set out its stall with the Home Owner Extra Income Plan in December 2000.
Initially the deal, which allowed home owners aged 70 or over to sell a share in their property, was only available in the greater Dublin area. Last week, Residential Reversions announced that members of the Irish Brokers Association would distribute the product throughout the State. So far, the typical person applying for the plan has been aged 71 or 72, possessing a property worth £200,000 (#253,948) to £400,000 (#507,8950) and looking for a 50 per cent reversion. The vast majority of them have asked for the cash rather than a guaranteed income for life and the average transaction has been worth £75,000 (#95,230).
Residential Reversions aimed to secure deals with 300 clients in the first year and managing director Mr Ciaran Deeney says they will comfortably make that target.
"People are very quick to take the concept on board because they seem to have been waiting for something like this to come along. We have had some clients who approached UK companies looking for an equity release arrangement up to 10 years ago." In less than four months since the launch of Bank of Ireland's Life Loan more than 500 customers have availed of the new product. Ms Olive Moran, product manager for Bank of Ireland mortgages, describes the demand for the roll-up mortgage as phenomenal. The initial team of "Life Loan consultants" has been increased from 20 people to 70. The average loan being taken out by homeowners aged 65 or over is £45,000 (#57,138). With a loan limit of 30 per cent of the value of the property, the Life Loan is obviously appealing to owners of middle-market homes. Bank of Ireland allocated an initial tranche of #30 million (£23.6m) to fund the Life Loan and this is likely to be refreshed before the end of the year.
These new financial offerings have been presented as a golden opportunity for older people who are asset-rich but cash-poor to cash in on the property boom. So who has been taking the plunge?
The first person to draw down a Bank of Ireland Life Loan was a widow in her 70s living in Roscommon on a small pension. She didn't want any publicity as she didn't want her daughter-in-law to know about the arrangement.
Another Life Loan customer who was living alone in a large house in north Dublin worth more than £500,000 recently borrowed £120,000 to pay for her long-term care needs. Under the terms of both the Home Owner Plan and the Life Loan, the client is entitled to live in the house until they die, or sell or vacate the property. It is not possible to secure a loan or a reversion without getting legal advice and potential applicants are strongly advised to discuss their intentions with family. According to Ms Moran, Bank of Ireland has not set sales targets for Life Loan because it does not want the product to be missold.
Older people who want to realise some of the value of their home now have a choice between these two new financial instruments and more products are likely to follow. It is vital that anyone entering into an agreement such as this fully understands the mechanics and the implications of what they are doing.
