Money Q & A: How can I release the equity locked in my home?

I will be 68 in April and my wife will be 63 in May. Our youngest daughter is 34 and still living in rented accommodation with little prospect of buying her own house or flat on her present salary. Our property is valued at pounds 400,000 and we wondered if we could help her by releasing some of the capital tied up in the house?

PL, Hampshire

There are mortgage products, known as equity release schemes, which are available for people in your situation. Pioneered by Bank of Scotland with its highly popular Shared Appreciation Mortgage (SAM), Barclays followed soon afterwards with the similar Protected Appreciation Mortgage (PAM). These schemes enabled borrowers aged 60 and over to release equity in their homes even if they did not have the income to cover the loan. The mortgage only became due once the property was sold.

Regrettably, the SAM is no longer available and the PAM - which is currently only available to borrowers in Wales and the South-west - will be withdrawn until further notice on 2 January.

But two similar schemes have recently come on to the market. Last month Norwich Union launched the Flexible Cash Release plan, which is available to single and joint borrowers aged 60 and over. (If you are a couple, you both have to be aged over 60 to benefit from this scheme.)

The amount that can be borrowed is tiered between 18 and 45 per cent of the property value, depending on your age. No monthly mortgage payments are due as long as one or both of you reside in the property. Once the property is sold the mortgage will need to be repaid plus interest, which is charged at a compound rate - currently 7.85 per cent.

Northern Rock has a similar scheme available for the same age bracket called the Home Equity Release scheme. The amount you can borrow on this plan is also tiered depending on your age. The tiers start at 20 per cent of the value of a property for those aged between 60 and 65 and increase to a maximum of 40 per cent for those aged 85 and over.

The current interest rate of 7.75 per cent is fixed for the term of the loan and added to the account annually. As with the Norwich Union scheme there are no monthly payments and the loan becomes due once the property has been sold.

You own a property worth pounds 400,000. So assuming you do not have an existing mortgage on this property, you are eligible to borrow up to pounds 84,000 (the loan to value is based on the younger person, which is your wife, so the maximum you can borrow is 20 per cent of the property value).

Assuming you then keep the mortgage for five years, the total amount repayable on redemption would be approximately pounds 122,002 plus fees (pounds 84,000 loan plus pounds 68,002 interest).

It is worth remembering that as you will be using this money to enable your daughter to buy a property that will be used as her main residence, she may be liable to inheritance tax if either you or your wife dies within seven years of gifting this money.

Initially you should seek assistance from an independent financial adviser to ensure that an equity release mortgage is the best solution to pass this money on to your daughter.

The fact that you are releasing equity now could have some positive implications for your inheritance tax liability, but this is also something you should discuss in more detail.

n This week's query was answered by independent financial adviser Ray Boulger, technical manager at John Charcol. Tel: 0800 718191, www.charcolonline.co.uk.

PROMOTED VIDEO
Life and Style
fashionHealth concerns and 'pornified' perceptions have made women more conscious at the beach
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmHe was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
footballA colourful discussion on tactics, the merits of the English footballer and rebuilding Manchester United
Life and Style
Sainsbury's could roll the lorries out across its whole fleet if they are successful
tech
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Travel
The shipping news: a typical Snoozebox construction
travelSpending the night in a shipping container doesn't sound appealing, but mobile crash pads are popping up at the summer's biggest events
Arts and Entertainment
'Old Fashioned' will be a different kind of love story to '50 Shades'
film
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Arts and Entertainment
Smart mover: Peter Bazalgette
filmHow live cinema screenings can boost arts audiences
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Project Manager (HR)- Bristol - Upto £400 p/day

£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

Day In a Page

Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
How live cinema screenings can boost arts audiences

How live cinema screenings can boost arts audiences

Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
Shipping container hotels: Pop-up hotels filling a niche

Pop-up hotels filling a niche

Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
Native American headdresses are not fashion accessories

Feather dust-up

A Canadian festival has banned Native American headwear. Haven't we been here before?
Boris Johnson's war on diesel

Boris Johnson's war on diesel

11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
5 best waterproof cameras

Splash and flash: 5 best waterproof cameras

Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

Louis van Gaal interview

Manchester United manager discusses tactics and rebuilding after the David Moyes era
Will Gore: The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series

Will Gore: Outside Edge

The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series
The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz