Last-resort lending for older homeowners

You know the housing crash is well and truly over when you see companies entering the market offering cash to older homeowners, either secured against their home or in exchange for a stake in the property.

Companies offering equity releases (a lifetime loan against property) or residential reversion (sale of a stake in your home) were among the first to abandon the Irish market when prices collapsed in the wake of the financial crisis in 2008. Now they're back.

Residential Reversion, trading as Home Plus, formally launched on the Irish market on Wednesday. Set up in the 1990s, it traded here previously as Sixty Plus Finance until the 2008 crash.

True value

As its name suggests, it will allow older people free up cash by buying a portion of their home. However, it will pay just a fraction of the property's true value. In an example of how it works, chief executive Ian Higgins said the company would pay a couple aged 67 and 70, 25 per cent of the value of their home in return for a 72 per cent stake.

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So the couple releases a quarter of their home’s market worth but loses control of almost three-quarters of the property.

Swallowed home

Spry Finance/Seniors Money, which entered the Irish market at the start of the year, operates on the lifetime loan model – equity release. Here, you still own your home but interest on the loan – which is settled when you die – is higher than normal mortgage loans and, because borrowers make no payments during their lifetime, it could an end up swallowing the entire value of your home.

More importantly, if you should need nursing home care at a later stage, equity release could prevent you accessing a Fair Deal loan to help fund your share of the cost.

For those who cannot access cash any other way and who need or want to improve their standard of living, they do serve a purpose. But these are last-resort options for elderly homeowners who have exhausted all others, regardless of how tempting the glossy brochures may appear.