Pensioners are offered cash on the house to

Hard-pressed elderly home-owners can swap equity for income. Clifford German reports way of putting it to work

HOUSE prices have fallen almost everywhere over the past five years, but they have at least stabilised, and many hard-up pensioners still have substantial profits or positive equity in their homes. For them, the prospect of taking some income out of their homes without having to move is very appealing.

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.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
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

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Day In a Page

The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003