Controversial equity release loans for older people are back

Equity release involves older people mortgaging part of their home before their death, but the loan product has proved controversial in this country in the past, as taking one out can lead sometimes to unforeseen problems.

Spry Finance, the new retail division of Seniors Money Mortgages, said that it is now open to new clients.

What it called a lifetime loan allows over-60s to begin borrowing from Seniors Money against the value of their homes, with all payments suspended for the remainder of their lives.

Spry said its role is to provide information and guidance to those thinking of applying for a lifetime loan.

The loan will then be provided by the lending division, Seniors Money.

The company said older people will be able to borrow against the value they have built up in their property without the need to sell it, trade down, or make monthly repayments.

Instead, interest is added to the loan balance, which grows over time, and the loan is not repayable until after the borrower dies or moves out of the property.

Anyone thinking of taking out an equity release product is strongly advised to take legal and financial advice, and to have their children involved in all stages of the process.

Spry Finance charges an interest rate of 5.5pc fixed, a multiple of conventional mortgage rates. Funding is being provided to Seniors Money by Deutsche Bank.

There has been huge controversy over equity release loans in the past, with a number of sons and daughters of those who took the product before the banking collapse horrified to find that their parents’ estate hugely in debt.

This is because no repayments are made during the term of an equity release loan. Compounded interest gets added to the capital throughout the term of the loan. This situation means the amount owed can double within 15 years.

Older homeowners are often “asset-rich but cash-poor” and would not have access to traditional re-mortgage products due to their age.

A lifetime loan enables them to borrow against the value of their home while still retaining 100pc ownership of it and without having to move out of it.

The banking crash forced Seniors Money to suspend offering equity release loans in 2008.

Seniors Money had more than 3,000 lifetime loans on its books before the financial crisis, of which more than 900 have since matured and been repaid in full.

Bank of Ireland also provided lifetime loans before the banking crash.

Residential Reversions and Shared Home Investment Plan were also in the market for this type of product.

The Central Bank of Ireland removed a major hurdle recently by exempting equity release lending from its restrictions on mortgages that exceed three-and-a-half times’ a borrower’s income.

This restriction made it hard for elderly homeowners on low incomes to qualify for equity release mortgages.