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Lifetime Mortgages
By Shaun Dalton
Lifetime is a name commonly given to the type of equity release loan available to retired home owners who wish to unlock the money tied up in their house. These loans are not usually repaid until the property is sold, often due to the demise of the homeowner or the need to go into long term care. At this stage the loan is repaid from the proceeds of the property sale.

These type of loans originated in the 1960s whereby a loan normally up to £30,000 was secured against a retired person's property whereby the interest at that time was eligible for tax relief. The capital released purchased an annuity that repaid the interest on the loan and the amount left over after repaying loan interest provided a regular income. The original loan used to buy the annuity was repaid from the sale of the property. These schemes were only practical for persons over the age of 75 because annuity rates are progressively higher for older ages. Now that tax relief has been abolished these schemes are generally no longer viable.

During the late 1980s a number of new lifetime schemes were introduced by well known building societies for the home owners aged over 60. Typically loans would be offered up to 50. This resulted in thousands of property repossessions and many homeowners unable to maintain their repayments handing in their keys. The resultant downward spiral of property values caused the spectacle of a new phenomenon known as 'negative equity'. Negative equity is the term attributed to house values falling below the level of the mortgages secured on them. The future possibility of negative equity worried retired homeowners with high interest rolled up on their lifetime mortgages. This had a profound effect on the fledgling life time market and the schemes sold at the time were branded. However, the real culprit was in fact government orchestrated massive interest rates in order to curb inflation.

Conclusion
New life time mortgages have all sorts of safe guards including the facility to fix the rate of interest for life and no negative equity guarantees. The marketing of equity release products is now regulated by the FSA (Financial Services Authority) and advisers must pass appropriate examinations and fulfil rigorous conditions to be authorised.
Also equity release firms should abide by the code of conduct laid down by SHIP (Safe Home Income Plans)

These days there are numerous types of Equity release schemes such as:

Interest only repayment
Interest roll up
Fixed Interest roll up
Income schemes
Fixed interest repayment
Draw down Mortgages
Reversion plans
Part reversion schemes

Irrespective of the scheme is chosen, it is essential to take independent legal advice and use your own lawyer, not the scheme provider's solicitor. For more information about equity release and lifetime mortgages visit: www.ef-solutions.co.uk