Q&A

Dominic Coyleanswers your questions

You and your readers are probably aware of the intensive advertising by the banks offering loans to older citizens. They want nothing in return only "equity in the home". What exactly is driving this benevolence?

I find it difficult to believe that banks have the welfare of people at heart. Where are they making their money? What are the pitfalls for those who take up the banks' offer?

Mr J.C., Dublin

Equity release schemes are not generally the preserve of the banks - at least in Ireland - but you are certainly right to be cautious about them.

Essentially, there are two forms of equity release - a life loan or home reversion.

The first is a mortgage-based product on which repayments are not made until you leave the property. You can usually borrow between 10 and 45 per cent of the value of the property - the older you are, the higher the permitted percentage, generally - but the mortgage rate is significantly higher on this product than on other mortgages.

Home reversion entails a finance company buying a portion of your property for a certain sum. You continue to reside in the property and when it is vacated, the home is sold off and the company gets its share.

The drawback here is that you tend to get considerably less than the market value of the portion of the property you are selling - between 50 and 60 per cent of market value depending on your age at the time.

The Irish Financial Services Regulatory Authority was sufficiently concerned about these products that it issued a special booklet on the subject in February festooned with warnings for elderly people to consider all options - such as renting out rooms, moving to a smaller property or even turning to family for financial assistance - before considering equity release.

It also stressed several times the need for people to take independent advice - both legal and financial - before embarking on such a path.

Personally, I am against such schemes unless there is no other access to funds and your means are such that you are struggling to achieve a reasonable standard of living.

The charge structure of either product is heavily weighted in favour of the financial institution, and once they have a lien over the property you can find yourself more restricted in how you use the property, whether you are looking to renovate or alter the property, or whether you are looking to pass on the home to a family member who might wish to reside there.

With life loans there is also the risk, if you live long enough, that the ultimate repayment could exceed the equity in the house when it falls due.

Ashamed to ask

I have a question but am almost ashamed to ask it. Like many others, I bought shares in Eircom and then forgot about them as the share price headed south. I simply cannot remember ever receiving a cheque when the company was bought by Valentia a few years later.

I moved around a bit and I have a feeling that I did not receive a cheque to pay for the compulsory purchase of the shares. Is there any way I can find out whether a cheque was sent to me and whether I cashed it. I owned about €12,000 of shares so the amount is reasonably large.

Mr S.K., Kilkenny

Notwithstanding the poor performance of the Eircom investment, a cheque for the compulsory purchase of the shares by the Sir Anthony O'Reilly-led Valentia consortium that took Eircom private the first time is not to be sneezed at given the scale of your initial investment.

Assuming your €12,000 holding dates from the original flotation, you would hold about 3,077 shares in the company. You would subsequently have received a bonus of one share for every 25 shares held for a year after flotation, bringing your holding to 3,200 shares.

At a Valentia offer price of €1.365 per share, you could be owed €4,368.

When you say you forgot about the shares, I am assuming you never accepted the Valentia offer before it went unconditional in 2001. Shareholders were required to submit their shares to Eircom's share registrar Computershare in order to receive payment. Computershare will still have a record of who did and, more significantly, who did not receive payment when the shares were compulsorily acquired. They can be contact at Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, or by telephone on (01) 2163100.

If you are in that position, you are not alone. It was estimated some time after the takeover that as many as 70,000 small Irish shareholders had not returned their shares and were between them owed about €50 million - strange when you think the share certificates were now worthless and the investors involved were already out of pocket on the investment.

Eircom did notify shareholders back in April 2002 that they would be liable to an "administration charge" for late submission of share certificates. If memory serves me, that amounts to around €10 although, by this stage, that could have risen.