Yet only six or seven years ago many pensioners succumbed to the temptation to take money out of their homes to spend on making life a little more comfortable in their old age. Either they remortgaged their homes to buy an investment bond, which was expected to earn them enough to pay the interest on the mortgage plus a worthwhile extra income; or took out roll- up loans which paid them an income and added the interest on the mortgage to the debt they had taken out.
Most such schemes ended in tears when the housing market peaked, the capital value of their homes began to fall instead of rising, while the income they received fell even faster than the interest on their mortgages.
Investment bonds are no longer permitted, but roll-up schemes are still being offered, and the need to try and take some income out of their homes is as persistent as ever.
Four companies (Allchurches Life Assurance in Gloucester, Carlyle Life Assurance in Cardiff, Bedford-based Home & Capital Trust, and Stalwart Assurance, based in Dorking) are at present members of Safe Home Income Plans (Ship), which allows pensioners to sell an agreed percentage of their home in return for an extra income for life. The company becomes a part-owner of the property, but the pensioners retain the right to live in it for life, or to sell and move if they wish to do so later on.
The proceeds of the part-sale are used to buy an annuity which guarantees extra income for life. Couples can buy annuities which continue to pay the survivor even after the first partner dies. Stalwart will allow pensioners to take a second tranche of the loan but all insist that some equity is left in the property, which is sold to repay the mortgage when the couple have both gone.
The maximum loan is usually 65-75 per cent of the value of the property up to a limit of pounds 30,000, which is the ceiling up to which the Inland Revenue allows tax relief. The amount of income the proceeds will buy depends on the age and gender of the borrowers and whether there is one or two of them. The older the borrowers, the larger the annual income, because they will have less time to enjoy it. Women live longer than men, so they get a smaller annual income than a man for the same money.
At present rates, a woman of 70 could take pounds 30,000 out of the value of her property and get a net extra income of around pounds 740 a year, a man of the same age could get pounds 1,300. At 75 a woman could expect around pounds 1,200 and a man pounds 1,800 a year. A couple could get about pounds 760 each.
It does not sound much, and indeed it isn't. The lump sum of pounds 30,000 would buy a woman an annuity of around pounds 3,325, but even after special tax relief at 25 per cent, mortgage interest would take pounds 1,850 and part of the income would be liable to income tax. The younger the individual, the higher the proportion of the payment treated as interest and therefore liable to tax.
Most schemes set a minimum age of 70 because the annuity below that level would leave too little after paying mortgage interest and tax to justify the loss of capital. Over-80s can expect substantially better annuities but they cannot expect too much time to enjoy the benefits.
Freehold properties worth at least pounds 24,000 and unmortgaged are ideal, but leasehold properties with more than 75 years of unexpired lease are eligible, and it may be possible to extend the lease. It may also be possible to raise a lump sum to pay off a small existing mortgage on a valuable property.
Taking out a Home Income Plan inevitably reduces the value of the property to the estate. The debt is a charge on the estate and can reduce any liability to inheritance tax, but borrowers need to be sure beneficiaries of their estate understand what is happening. For pensioners who think a Ship could help, the charity Age Concern and independent financial adviser Cecil Hinton have got together to produce a 68-page book, available from Age Concern at 1268 London Road, London SW16, at pounds 4.95.