The company behind a new Irish home-reversion product, where people over 55 can sell a stake in their home for a lump sum and lifelong right of residence, has received confirmation that it will be exempt from a new 10 per cent stamp duty applying to bulk buyers of houses.
Home Plus, the trading name of a company called Residential Reversion, officially launched the first home reversion product in the Irish market, since the financial crash, on Wednesday. The company was originally set up in the late 1990s and previously traded as Sixty Plus Finance, but stopped writing new business following the 2008 crash.
Chief executive Ian Higgins told The Irish Times in July that the company was concerned that the 10 per cent stamp duty, introduced the previous month to target investment firms snapping up multiple homes, would apply to his product, making it more expensive for customers. However, he told reporters on Wednesday that the Department of Finance has confirmed this week that it is exempt and the normal 1 per cent rate on properties valued below €1 million applies.
Stake taken
Home reversion allows a home owner to sell a share in their home, typically in a range from 20 per cent to 70 per cent, in exchange for a lump sum – but at a much lower figure than the current market value. Home Plus will take a maximum 95 per cent stake in a property.
The money released by a deal can be used to resolve mortgage or other debt when a borrower is in arrears and is in danger of repossession, but ineligible for a Government-backed mortgage-to-rent solution. Mr Higgins noted, for example, that the company is currently fielding inquiries from borrowers that opted for a split-mortgage solution from their bank a decade ago, temporarily freezing payments on a portion of their loan as they fell into arrears.
The cash may also be used for customers with limited ability to secure credit to provide for at-home care, retrofit a home to improve its energy efficiency or aid mobility, or provide a gift to a family member, Mr Higgins said.
The lump sum amount is arrived at through an actuarial calculation, taking into account the market value of the property in vacant possession, expected house price inflation over the expected term, and the life expectancy of the customer.
Unlike equity-release loans, where the customer retains ownership of the home in exchange for a mortgage with rolled-up interest that must be settled – typically by way of a sale after the death of the borrower – home reversion involves the sale of a stake in a home.
Mr Higgins gave an example of a couple aged 67 and 70 who have a home worth €600,000 and a €150,000 mortgage. A Home Plus plan would involve the debt being paid off and the couple receiving a lump sum of €150,000 in exchange for a 72 per cent stake. The current market value of a 72 per cent equity stake in the same home would equate to €324,000. Still, the Home Plus stake could be reduced if the couple opted to make a monthly payment to the company.
“This isn’t a product for everybody, but certainly for people who need it, I think it’s hugely important that they know that this alternative exists,” said Mr Higgins. He added that Home Plus would “encourage” potential customers to consider if they have an option to downsize and also to discuss the home-reversion product with family members, as it is a “massive decision”.
The product is available to through the broker channel. Home Plus will only deal with customers who have consulted with a qualified financial adviser.
Home Plus said that consultancy firm EY has estimated that there is currently potential demand for €100 million of equity release products in the Republic, based off the more developed UK market for home-reversion and lifetime loans products.
