ACCORDING to research carried out recently by the Centre of Ageing Research and Development in Ireland, more than €171bn worth of Irish property is owned by the over-50s.
In the 26 counties, 87% of people over the age of 65 own their home, with the average property worth around €165,000. The research, called An exploratory study of the wealth of older people in Ireland north and south, also shows that in the south of the country, households aged 65+ have a median disposable income of €446 per week and the average value of savings held by people over-65 is €5,519. We also know 26% of people over the age of 65 — which amounts to 139,202 people — rely solely on the State pension as their only source of income, while it accounts for 67% of the total income of another 396,191 people aged over 65.
About 9% (48,185) of people over the age of 65 are still working, and I would safely say that the majority of them are working simply because they must in order to make ends meet, rather than wanting to.
The reason I refer to all of these statistics are that significant numbers of over-65s are obviously under serious financial pressure from a cashflow point of view each week and what the Centre of Ageing Research and Development in Ireland found only confirms what we as financial advisers see and hear all the time.
So, releasing equity from a property can be a good idea, but like everything else, the devil is in the detail — these types of loans are not cheap and they are complex.
Let’s start by looking at how much you can get, depending on your age and the value of your property. The minimum age requirement is 60; at this age, you can release 15% of the value of your property and this goes up by one percentage point for every year after 60. If you are 60 and your property is valued at €165,000, you can release €25,750 (€165,000 x 15%). If you are 65 and your house is worth €200,000, then you can release €40,000 (€200,000 x 20%).
How much is that eventually going to cost? Typically, the product is known as a roll-up mortgage, because no repayments are made on the amount released but an interest rate is charged against it each month, which rolls up every month (the interest rate is variable and is about 5% at the moment) — it is the same principal as compound interest on your savings where you are getting interest on your interest — this is the reverse, though, where you are being charged interest on your interest and, boy, can that add up — and the longer you live the more costly this type of loan becomes.
Let’s assume you are 65 and you release 20% from your home, which is valued at €200,000. That €40,000, when rolled up with interest, means you are going to owe €51,086 after five years and €65,254 after 10 years. And when I say you are going to owe, I don’t really mean that you are going to have to pay back that money while alive (you only have to repay the amount owing while living if the property ceases to be your permanent residence after 12 months or you move into permanent long-term care) because the repayment of this type of mortgage comes only after you pass away. And that is the big benefit to this type of loan because, while the repayment can be made at any time, more often than not it is made from the sale of the property after the person has passed away, unless the beneficiaries of the estate repays the loan by other methods.
I think this type of loan may suit some people — I don’t see any harm in single people, for example, with no immediate families who are dependent on State support and who could do with money going down this route. Their home is going to be left to a distant relative who will sell it when they die and have a great time with the proceeds — why shouldn’t that person enjoy some of that money now while they are living. It might make things that bit more tolerable for them. Releasing equity from your property is a big ask, so you need to seek independent financial and legal advice. Don’t rush into any quick decisions, even if you could do with some money quickly.
If you have children, talk to them and explain that you are struggling because they might be able to help you out — I have seen many cases where adult children were unaware that their parents were struggling financially and they had the means to help them, they just needed to ask. I do appreciate that that is easier said than done. Other children rush to their parents help when they see how much interest this type of loan eats into their future inheritance!
Liam Croke, is managing director of Harmonics Financial