B of I takes initiative with new `life loan'

Institutions have shied away from equity release products in the past because of the perceived reluctance of Irish people to dilute their equity stake and the inheritance value of their property.

It has taken the Bank of Ireland team two years of research to bring this product to the market. They say they encountered many complicated legal, credit and funding issues along the way. The "Life Loan" is designed to unlock a percentage of the value of a property without the home owner having to make regular repayments.

Qualifying new or existing customers aged 65 or over will be able to gain access to a lump sum of between £15,000 and £200,000 through this product. Since the value of property has soared in the Irish market, many older people living on modest incomes have ended up sitting on very valuable assets, but have been unable to benefit from their investment. The "Life Loan' has been structured for this category of older homeowners and the money can be used for any purpose. The product will be available from next February but as a guide, Bank of Ireland estimates the fixed rate of interest will be in the region of 7.5 per cent APR.

Depending on their age, people will be able to borrow up to 30 per cent of the value of their property at the fixed rate for 15 years. In the normal course of events, no repayment is necessary until the property is sold or the owner dies or vacates the property for more than six months. There are obvious implications for the inheritance value of the property as the loan will have to be repaid on the death of the owner.

The bank has guaranteed that it will not look for repayment of the debt beyond the value of the property. Applicants must receive independent legal advice before they are approved for the scheme. This still means that a certain percentage of people who choose this option could be left with no equity in their home to pass on to their family, in return for receiving 20 to 30 per cent of its value in their lifetime. It's a question of priorities for older homeowners. Financing long-term nursing care is a worrying issue for many older couples. Availing of this type of loan would be one way to pay for one person's nursing home care while allowing their partner to remain in the family home.

Mr John Costello, solicitor and author of Law and Finance in Retirement, has campaigned for the introduction of some kind of equity release product in the Irish market.

Mr Costello recommended that people considering this option should consult with their families to ensure the arrangement satisfies everyone.

Many older people who cannot afford to fund their childrens' deposit for their first house at present could be in a position to raise the money through "Life Loan" early next year. This would add even more pressure to the market by swelling the numbers of first-time buyers.