Cash for the trip of a lifetime
Mark Anthony continues our series on how to raise cash in an emergency. This week: the sick woman who longed for a holiday
Wednesday 27 August 1997
Meg Campbell was initially shattered when her illness was diagnosed as critical. In her late sixties, she was advised that she had only a limited time to live. Instead of waiting for the inevitable to happen, she decided to fulfil one of her remaining ambitions: to visit Victoria Falls in Zimbabwe and Zambia.
Because of the spray thrown upwards - which from a distance looks like smoke - before it roars hundreds of feet to the Zambezi below, the locals call this natural wonder The Smoke that Thunders. When Dr Livingstone stumbled across the Falls in 1855, he was more poetic: "On sights as beautiful as this, angels in their flight must have gazed".
Meg had the determination to make the journey, and the blessing of her doctor. What she did not have was the means to pay for the trip. She telephoned a local independent financial adviser (IFA) and asked him to visit, so that she could discuss her problem.
During the conversation he learnt that Meg had no living relatives. She had made her will some time before. Apart from small bequests to friends, the main beneficiaries were a couple of charities Meg supported. Her house was valued at pounds 130,000. She wanted to borrow pounds 12,000.
The IFA's immediate solution was for Meg to borrow against her home. A building society was approached. It agreed to advance a minimum of pounds 15,000 on fixed interest only, over a 25-year term. However, Meg felt uncomfortable with this solution, as she would have been hard pressed to pay the monthly interest.
The IFA then suggested a Bank of Scotland loan. The way the bank's shared appreciation mortgage works is that in return for the borrower agreeing to share any future increase in the value of his or her home, the bank offers the mortgage free of interest. The shared appreciation percentage is three times the amount of the loan, divided by the value of the property, known as the "loan to value" (LTV) percentage. The valuation is made by an independent valuer and there is an appeal scheme in case of dispute about the property's value.
If a home is valued at pounds 100,000 and the loan is for pounds 20,000, the LTV is 20 per cent and the bank will share 60 per cent of any increase in value. When the borrower decides to leave, or leaves the scheme, the bank will instruct a valuer to determine an exit value. The borrower will then repay the amount borrowed, and any percentage increase in the value of the property. Should the property's value remain static, or fall, there will be no shared appreciation to pay.
The only costs in these circumstances are the valuation fees (pounds 150 for a pounds 100,000 property, up to pounds 500 for one valued at pounds 500,000), plus a pounds 500 arrangement fee; the legal costs of taking a first mortgage; a pounds 300 fee when exiting the scheme and an early repayment fee, equivalent to 1.5 per cent of the initial loan if the mortgage is repaid within three years.
Loans are not considered on leasehold property, or, currently, on homes in Northern Ireland. The maximum loan is 25 per cent of the valuation, subject to a minimum of pounds 15,000. Loans above pounds 125,000 are considered individually.
The scheme may not appeal to those who wish to retain the entire value of their property, but may be attractive to those who need more capital at their disposal. One would certainly be able to achieve one airline's old advertising slogan: "Travel first class, or your heirs will."
Meg borrowed pounds 22,000 and received pounds 21,000 after the bank's arrangement fee and legal costs. The IFA waived his fee. She flew business class to Victoria Falls to stay in a top-class hotel. Some of the remaining funds will be used to ensure that she is financially comfortable in her remaining months.
Details of shared appreciation mortgages from Teviot House, 41 South Gyle Crescent, Edinburgh EH12 9DR.
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