Back to the future with reverse mortgages

The news this week that “reverse mortgage” lender, Seniors Money, is eyeing a return to the Irish market is a real sign that our latest property boom is getting “boomier”, as its predecessor’s father might have said.

Seniors Money racked up a near €250 million Irish loan book in the last property boom by giving loans to people over the age of 60, secured on their homes. There were never any annual repayments on these equity release loans.

The borrowers or, more accurately, their next of kin, would instead arrange to have the loans repaid from the estate of the borrower after they died. However, the interest compounded over time. So borrowers would effectively end up paying interest on the interest.

The longer the borrower lived, the more expensive the loan ultimately became.

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Lifetime loans

These so-called “lifetime loans”, aimed at the asset-rich but cash-poor, became reasonably common just before the height of the last property boom. People rarely said as much, but many of the loans were believed to have been taken out by older parents helping their adult children with house deposits. Then the 100 per cent mortgage came along, and people stopped pretending.

Seniors Money stopped writing new business in Ireland during the recession, when it was no longer able to source funds to lend.

A company director told The Irish Times this week, however, that it is in talks with potential funders about throwing open its doors again. He believed there would be sufficient demand.

The demise of the 100 per cent mortgage, together with the Central Bank’s stringent loan-to-value lending limits and requirements for chunky buying deposits, have opened the door for this potential return to the market. Property prices are also sky high, and affordability is once again a major issue.

Buyers will take help from wherever they can get it, even if that means the Bank of Mum and Dad releasing their inheritances early.