A new financial product enabling older homeowners to exploit the value of their property goes on the market today - at a lower-than-expected interest rate.
Bank of Ireland said yesterday that a fixed rate of 6.9 per cent APR would apply to its new Life Loan product, 0.6 of a percentage point lower than first anticipated. The bank also said that since details of the product were first announced in October, it had received more than 5,000 initial queries from potential customers and their families. More than 400 people have requested appointments with Bank of Ireland Life Loan consultants. The Life Loan is available for houses valued from £60,000 and apartments from £80,000. There are four age bands, starting at 65, and homeowners within the qualifying age bands can apply for a loan of up to 30 per cent of the value of their property. The money is given at a fixed-interest rate of 6.9 per cent APR for the first 15 years. At the end of this period, customers are offered a choice of either a new fixed rate or a variable rate. The maximum which can be borrowed is £200,000.
In the normal course of events, no repayment is necessary until the property is sold or vacated by the owner, or the owner dies. When two people take out a Life Loan, the conditions apply to the surviving person. Ms Joan Gleeson, marketing manager of Bank of Ireland Group Mortgages, said the level of interest so far had confirmed the bank's market research which indicated a pent-up demand for this kind of product.
"This is an age group that traditionally has been unable to get loans or mortgages. Many of them are living on modest incomes in properties of significant value."
Until Bank of Ireland's announcement in October there was no financial instrument on the market for older people who wanted to realise some of the value of their home. And it was followed in December by Residential Reversions Ltd which introduced an equity release scheme which enables older homeowners in the greater Dublin area to get access to a lump sum or extra income.
The Homeowner's Extra Income Plan is available to qualifying homeowners aged 70 or over. The client can sell a stake in their home to the company in return for a lump sum, a guaranteed monthly income, or a combination of both.
Mr Ciaran Deeney of Residential Reversions said the company had received more than 300 inquiries to date. He said many applicants had made up their minds about the scheme and several applications were in the final legal stages. Residential Reversions deals with a minimum sum of £75,000 and a minimum stake of 25 per cent on properties worth £150,000 or more. The firm buys the share of the property at a discount to market value, which is typically about 50 per cent. In response to queries about the inheritance value of the property Bank of Ireland guarantees that the borrower will never owe more than the value of the house.
