| Lifetime Mortgages
With the increase in property prices
over the last twenty or so years many elderly people
find themselves in the situation where they have little
income but are living in a valuable asset. There are
various ways of releasing this capital to provide
extra income.
Raising capital
from the property to buy an annuity
Home Reversion
Schemes
Lifetime Mortgages
This is a complex area and it
is imperative when considering these schemes to take
expert advice preferably from an adviser who holds
the Chartered Insurance Institutes professional qualification
CF7 in Lifetime Mortgages. f you are in receipt of
means tested benefits you should be aware that these
might be affected if your income increases.
Raising
capital from the property to buy an annuity
In these circumstances the loan is usually
restricted to £30,000 and the money raised is
used to purchase an annuity. Part of the annuity is
used to pay the interest on the loan and the rest
can be used to boost the client’s income.
Reducing annuity rates plus the relatively
low capital sum have led to these schemes falling
in popularity over the years. They do have the advantage
that the size of the loan remains constant because
the interest is being paid.
Home Reversion
Schemes
In these schemes the property is sold
to a company (usually an insurance company) in return
for an income for life. Should nursing home care be
required later the property can be sold and the income
will be increased to help fund the nursing home fees.
Some schemes allow for a percentage
of the value of the house to be retained by the client.
This allows for the client to pass on some of the
value of the property to their beneficiaries when
they die.
Lifetime
Mortgages
This scheme allows for a capital
lump sum or, more rarely, an income to be taken as
a loan form the property. Unlike a traditional mortgage
the income is not paid but added to the loan. Most
companies offering this scheme have agreed to abide
by the principles as outlined by the Safe Home Income
Schemes (SHIP) http://www.ship-ltd.org.
Members of SHIP have a clause which states that the
loan taken on the property will never rise above the
value of the house.
Risk Factors
The disadvantage of these schemes is
that the client looses the ownership of the property
and does not benefit from any future rises in house
prices, although some schemes do provide rising income
based on the underlying value of the property portfolio.
The value used by the insurance company
to determine the income paid is usually heavily discounted.
Although most schemes offer a fixed
rate of interest, the interest added to the loan is
compounded, which means that the longer the loan has
been held the faster it increases.
If house prices fail to rise, or suffer
a fall, the value of the equity in the property will
be eroded.
'The most common products available for this are listed
below with each link leading to a page behind where
the text is displayed.
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