How SHIP could shape your future

One of the most remarkable consequences of the spiralling property market of the past few years is that large numbers of older people have found themselves sitting in houses that are worth much more than they could ever have imagined. Una McCaffrey reports.

The problem of course is that these same older people are unable to get hold of the value that they know their properties could contain. In extreme cases, this can see once-beautiful houses fall into disrepair for want of investment as their owners lack the capital to renovate them. In other, less serious, situations, it can simply mean that apparently wealthy property owners are unable to live according to the means that their homes might suggest.

One answer to this potentially problematic situation is equity release, whereby a financial institution will advance a lump sum based on the level of equity (or ownership) a homeowner has built up in the property. In most cases, this will be done in return for some form of mortgage repayment on the part of the customer.

In the case of older people however, the process can move on a step, with the capital payment advanced in return for a stake in their property rather than as part of a conventional mortgage.

A very small number of companies offer this type of facility on the Irish market, with Shared Home Investment Plan (SHIP) among the best-known since it entered the market last year. At that point, SHIP was offering to pay a lump sum to outright homeowners aged over 70 who were prepared to hand over a share a property worth more than €200,000. The tax-free payment was calculated with reference to the market value of the stake but was reduced slightly to reflect the fact that the original owner would still occupy the property.

One year on, SHIP is continuing to offer the same service it always did, but it has also updated the offering a touch to make it slightly more appealing.

Under the new "variable share contract", couples aged over 70, or single people who are aged at least 68, can still "unlock" some of their home's value but, rather than SHIP paying a good bit less than the market value for a stake, the company will pay almost the full price. This equates to 97 per cent of the market value, with 3 per cent going on a "set-up fee".

SHIP will do this in return for receiving a larger part of the equity in the home for each year where it continues to be occupied. Thus the percentage of the home that is owned by SHIP when the occupier dies or decides to sell the whole house depends on the age of the SHIP agreement at that time.

In practice, this would see an initial 20 per cent holding taken by SHIP in a house owned by two 70-year-olds growing into a 32 per cent stake within 10 years. Within 15 years, it would stand at 40.1 per cent. Another example would see a 25 per cent stake in a house owned by two 75-year-olds growing into a 40 per cent holding within 10 years and a 51 per cent stake within 15 years.

The minimum sum that SHIP will "release" under its plans is €35,000, with the amount of equity to which this equates depending on whether clients choose the original plan or the new version. The company will also apply a maximum to the lump sum extended with, for example, the two 75-year-olds above offered no more than 31 per cent of their property's value.

What SHIP clients choose to do with the money they receive under the plans is up to them, with the company leaving this aspect of the transaction entirely up to the customer. Suggestions are provided, with "leisure activities, home improvements, travel and medical treatment" among the ideas. The company does make one important recommendation however: clients are advised to consult their solicitors and/or accountants before taking the SHIP plunge. It will also be advisable (if not essential) for homeowners considering SHIP to discuss the matter fully with their families or other parties who might consider themselves heirs to the property - this will ensure that no shocks emerge at a later date. Nominated heirs will always be given the right to buy back the SHIP stake when the home is eventually vacated.