Money Q&A: Unlock the cash in a house

Click to follow
The Independent Online
My retired parents belong to an asset-rich, cash-poor generation. They own a modest semi-detached house worth pounds 160,000 outright. There is no outstanding mortgage. Their small state and private pensions pay for all essentials but there is little left for a bit of luxury and indulgence. Are there still schemes to enable people like my parents to unlock the capital in their homes? I understand that a change in mortgage tax relief has made this more difficult.

NT, Berkshire

The end of mortgage tax relief for homebuyers next April was one of the main highlights of this year's Budget. Less publicity was given to the immediate end of tax relief on the interest on mortgages taken out to buy an annuity under home income plans. Only people with existing plans or those who had an offer of a deal prior to March 9 will be able to get tax relief.

The end of tax relief has removed the value of mortgage-based home-income plans for many elderly homeowners. The fact that home-income schemes may not be viable without tax relief in a way justifies the end of tax relief. Arguably, many home income schemes were a convoluted way for hard-up retired people to get a boost to their pensions courtesy of the taxpayer - but only if they were homeowners. The traditional home-income plan can work only if the cost of borrowing money through a mortgage on your home is much less than the income from the annuity bought with the proceeds of the loan. The traditional plan may still work for homeowners in their 80s. Higher annuity rates as you get older lessen the impact of the loss of mortgage tax relief.

However, "reversion" plans are a non-mortgage-based alternative. Minimum ages for this sort of deal to make sense are 70 for a single person or a combined age of 145 for a couple. You sell part or all of your home while retaining the right to live in it. You can also move to another property if you wish. A company buys your home, or a stake in it, at a discount to its current value. For this, you receive an income for life or cash to invest. For details, contact independent adviser Hinton & Wild, Tolworth Tower, Ewell Road, Surbiton KT6 7EL.

Seeking redress

A friend took out a mortgage in 1981 when he was 53. It ends in September 2000. An independent mortgage broker said he would need an endowment policy. Since reaching the age of 65 his income has been only a basic State pension plus a Serps pension. He is now struggling to meet the mortgage interest payments of pounds 120 a month and endowment premium of pounds 130 a month. It was clearly wrong to sell him an endowment mortgage since he would reach retirement during the life of the mortgage. Is there any avenue for complaining and seeking redress?

AT, London

I doubt there's any mileage in your friend making a formal complaint. Mortgage lenders and brokers have sold high-commission-earning endowment mortgages by the bucket load, even since April 1986 when a new investor protection regime came into force. However, it has so far proved difficult to establish that those endowment policies were mis-sold even when started after April 1986.

Getting compensation for an investment policy that was sold before April 1986 is well nigh impossible.

The question now is whether your friend can make ends meet over the next year. Here are two suggestions. Could he ask the lender to suspend the monthly interest payments? Could they be added to the outstanding capital and paid off in September 2000 with the proceeds of the maturing endowment policy? This may be acceptable to the lender, especially if the endowment policy has been assigned to the mortgage lender, which was the normal practice back in 1981.

Alternatively, could your friend get a cheap loan from the insurance company to pay both mortgage interest and endowment premiums due until September 2000? If this were possible, the money lent plus interest would be deducted from the policy's payout on maturity. Insurance policy loans are usually cheaper than personal loans from banks and building societies.

Write to the personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number; or fax 0171-293 2096; or e-mail We cannot give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.