Older people will be able to borrow up to 30 per cent of the value of their homes through a new financial product being launched by Bank of Ireland.
Designed to unlock a percentage of the value of a property, the "Life Loan" as it is known, will give homeowners aged 65 and over access to a lump sum of between £15,000 and £200,000. The monies can be used for any purpose.
Some customers may choose to use the loan to give money to their adult children as a deposit on their own home. The product's main drawback is that the inheritance value of the borrower's property could be significantly eroded over their lifetime. This is because the interest on the loan is mounting up and must be cleared in one payment.
However, this may not be an issue for those who are less concerned about what they leave behind them and more concerned with having access to money for their own security and well-being.
There are an estimated 195,000 households in the State where the owner occupiers are over 65. What makes this initiative unique is that, in the normal course of events, no repayment is necessary on the loan until the property is sold or the owner dies or vacates the property for more than six months.
Bank of Ireland has allocated an initial tranche of £30 million to fund the new product which will be available to existing and new customers from next February.
The "Life Loan" will be available to married couples and partners as well as single or widowed people and is aimed particularly at those who are asset rich but poor in income.
The loan will be offered at a fixed rate for the first 15 years. The rate will be fixed in February but the bank is using the current equivalent APR of 7.5 per cent for indicative purposes.
Bank of Ireland figures show that a person aged 65 living in a house worth £200,000 who borrows the maximum 20 per cent or £40,000, would owe £118,393 after 15 years. This would be a sizeable proportion of their estate, even if the property appreciated in value.
At the end of the 15-year term, the loan is either fixed at a new interest rate for a further term or switched to a variable rate.
With this product it is also possible that some borrowers who live beyond the 15-year term could find themselves without an asset to pass on to their children. Bank of Ireland has given a guarantee that if a situation of negative equity arises, the bank will not look for repayment on the debt beyond the security, which is the value of the property.
The loan can also be repaid before the 15 years elapses, subject to certain conditions.