Equity Release with no Investment Risk
There has been a lot of publicity in recent months aboout different Equity Release schemes, which have got into difficulties, as a result of collapsed banks or Investment vehicles, which have not performed very well, and in one case , stopped dealing for quite some time.The latter type of scheme had conditions that required the borrower to meet any shortfall on interest payments, if the investment failed to meet a margin on the valuation. I don’t propose to name names, but those who are in these schemes are acutely aware of the stress it has caused them.
When taken out, usually to mitigate Inheritance Tax in Spain for their survivors and to give a cash lump sum, the principles were sound (if investment values rose, which they would normally do over the medium to long period). However, one fund carried a guaranteed return of the original amount invested after 10 years, which was designed to give peace of mind that you would at least have the original investment intact.
However, this did not happen, and as the investment values fell, more of the fund was working to support the guarantee and very little was going to produce the growth. The fund has been restructured to release the guarantee, but it will take a major increase in value to get back where it should have been.
I am aware that there may be litigation in the UK against one of the lending banks, and this may take time. If successful, the outcome may work to the benefit of those joined in the action. However, if it is causing people major health problems through the worry and stress, then if circumstances are correct, they could start to consider the alternative schemes available for either the over 60′s or in the case of one scheme,over 65′s, which lend a percentage of the value of the property, on a rolled up interest basis and no monthly payments. These are “lifetime mortgages” , proper interest only loans, which continue until the last surviving borrower is no longer alive. One scheme has a gauarantee that you will never owe more than the value of the property. It is unlikey that this situation would ever arise, as the percentage borrowed is geared to the age at which you go in at, which means at 65 you will get less than you will at 75.
The only difficulty with using this product to solve one of the investment linked Equity Release Schemes problems, is that the pay out of the original investment may not happen until April/May 2010 , as there is a waiting list for redmptions from the fund. However, it is certainly something to think about come the autumn/winter, if you are in this position.
For those, who are in need of some cash, or worrried about what their families might have to pay in Spanish Inheritance Tax, then you should enquire about “lifetime” mortgages.
Please feel free to ask a question in the comments section.
