Fruits of home sweet home: Caroline Merrell on ways the elderly can use their houses to increase their income
Sunday 25 July 1993
It was the latest twist in the multi-million-pound scandal surrounding income schemes through which elderly people raised mortgages on their homes and invested the proceeds in bonds. Many of these did not deliver the expected rates of growth and the mortgages, meanwhile, swelled with rising interest rates.
Many elderly people would still like to release capital from their homes, especially now that falling interest rates have reduced income from deposits.
Cecil Hinton, of Hinton & Wild (Home Plans), an income plan specialist, has set up Safe Home Income Plans (Ship) to promote safe ways to do this.
Ship's members - Allchurches Life, Carlyle Life, Home & Capital Trust and Stalwart Assurance - offer two main types of plan.
The first, from Allchurches and Carlyle, involves mortgaging part of the property to release cash, which is invested in an annuity. The annuity provides a fixed income for the rest of homeowner's life, or in the case of a couple, until the last surviving partner dies. Part of the cash can be taken as a one-off lump sum.
The maximum that can be raised this way is usually limited to pounds 30,000, the most for which tax relief is available. The interest, fixed at 8.25 per cent for the life of the plan, is deducted at source from the income provided by the annuity.
When the plan-holder dies, the house is sold, the remaining loan paid off, and any balance paid into the estate. The minimum age for this plan is around 70. The level of income depends on the age, sex and tax status of the individual.
Joan Briggs, an 83-year-old widow from Teddington, Middlesex, initially took out a plan from Carlyle Life in 1985 when she was 75 and her property was worth pounds 78,500. She needed the income to supplement her pension, which currently stands at just over pounds 50 a week.
The amount raised through the plan was pounds 30,000 - Mrs Briggs chose to take an initial lump sum of pounds 1,000, while the rest was used to buy an annuity that paid a net income of pounds 1,704, or pounds 142 a month.
Three years ago Mrs Briggs decided to raise some more money against her property, which had gone up in value to pounds 150,000. People over 80 can find it worthwhile to raise more than pounds 30,000 because annuity rates are higher for them, making the lack of tax relief less onerous. With an extra pounds 20,000 released from her property, she was able to raise a further pounds 1,244 a year, or pounds 103 a month.
The other type of plan is home reversion, offered by Home & Capital, Stalwart and Carlyle. These release cash against the value of the property, which can be taken as a lump sum or exchanged for an annuity to pay an income.
Under these schemes, the home income plan provider takes over ownership of all or part of the property that has been used to provide the cash. All the value of the property can be used.
The plan-holder is allowed to continue living in the property at a nominal rent until he or she dies. If only part of the property's value is used for the plan, the remaining part passes to the estate, together with any increases in value. As a tenant, the plan-holder is usually responsible for the maintenance and repair of the property.
Bunty Burns of Bromley, Kent, took out a home reversion plan from Stalwart in 1990 when she was 70. She released pounds 71,000 of the value of her property from a total of pounds 116,000. She opted to have this paid to her as an income, which currently gives her an extra pounds 214 a month on top of her pounds 5O a week state pension.
Using Your Home As Capital, by Cecil Hinton and David Bookbinder is available from Age Concern England, Astral House, 1268 London Road, London SW16 4ER and costs pounds 4.50. Hinton & Wild can be contacted on 081-390 8166.
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