Safe income for the old
Sunday 23 April 1995
These plans, specifically designed for older people, release home equity to provide income or lump sums. Pensioners were promised a future free of worries if they took out roll-up or investment bond-based loans on their houses to finance the equity release.
In reality, the opposite was often true. Old people up and down the country have had their final years blighted by uncontrollable debt, and the prospect of gradually losing the remaining equity in their house.
The financial advisers who sold these plans have gone out of business and will not be reimbursing their clients. Some victims who invested before the establishment of the Investors Compensation Scheme in 1988 have been left with no compensation. Others have been offered only limited amounts from the ICS and are taking their battle for a better deal to the House of Lords.
Popularity has waned as the public and independent financial advisers have found it difficult to distinguish between safe and unsafe plans. In spite of the bad publicity that now surrounds home-income plans, some relatively secure ones do exist.
Betty Powell, head of public affairs of the Securities and Investment Board, says people should not get into anything they do not understand. "If in any doubt, they should take a solicitor along to advise and share responsibility for the decision."
Neither the SIB nor other regulating bodies make specific company recommendations. Age Concern says it finds it easier to recommend plan providers if they belong to the Safe Home Income Plan campaign (Ship).
Ship is a self-regulatory group that insists its members offer fair, simple and complete presentations of the facts, freedom to move house, and fully secure income payments. It also insists that the customer's own solicitor oversee the transaction.
Age Concern stresses that older home owners should explore other options such as moving to a lower value house, rented or sheltered accommodation - before opting for an income or lump-sum release plan.
There are two relatively safe home income plans - mortgage annuity schemes and home reversion schemes. Both usually involve selling the property on the death of the individual or the later surviving partner, so it is advisable to discuss the details with any heirs. Individuals must be in their late sixties, and the combined age of a couple has to be between 140 and 150.
With mortgage annuity schemes, borrowers raise an interest-only loan on their property, repayable at death, of up to £30,000 (more is permitted in some circumstances). This loan is used to purchase an annuity, providing a regular income, as well as interest payments, which attract tax relief at 25 per cent.
Home reversion schemes, on the other hand, involve actually selling part or all of a home to the reversion company at a discount. The discount is heavy - ranging between 50 and 70 per cent, depending on the age of the individual.
q Free Age Concern fact sheets are available from Astral House, 1,268 London Road, London SW16 4ER. Ship is contactable through Hinton and Wild (Home Plans) Ltd, 374/378 Ewell Road, Surbiton, Surrey KT6 7BB.
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