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Easing the path to unlocking wealth.

Byline: By Wales on Sunday

Because they are hardest hit by the rising prices of basic necessities, fuel bills and council tax, older people are affected more than any other age group as inflation levels slowly creep higher, says a new report.

Alliance Trust Research Centre reckons the average inflation rate for the elderly in 2006 was 56% above the headline rate of inflation - which explains why more pensioners think about unlocking the equity tied up in their homes.

Many might not realise how well-off they are. Prudential calculates that homeowners in South-East England hold an average pounds 210,000 in equity in their home and will hold pounds 308,000 in this way by 2011 - if current market trends continue.

By 2011, says the Pru, homeowners in Wales could have pounds 440,000 locked up in their homes, and those in the North East about pounds 418,000. Heavily-mortgaged Londoners, curiously enough, will hold an average pounds 259,500 in equity by 2011.

For pensioners keen to unlock this wealth - for a cruise or simply to pay council tax - life has become a bit easier.

From April 6, the Financial Services Authority (FSA), the Government's City watchdog tasked to provide a fair deal for consumers, will regulate home reversion plans, which enable owners to unlock the value of their homes without moving.

Providers of home reversion plans, says the FSA, must give 'clear, concise and consistent information' about products on offer, and best advice. If it goes wrong, consumers have more chance of obtaining redress if a complaint is upheld.

In recent years, most bricks and mortar value unlocked by pensioners was by lifetime mortgages - loans at fixed or capped rates of interest which is 'rolled-up' and added to the original loan and deducted from the value of the property when it is eventually sold. A negative equity guarantee means loans never exceed the value of a home.

Because they require no monthly repayments, lifetime mortgages cost more than those in the mainstream market. They can usually be transferred to another property if the owners move, and owners retain full ownership of their home.

However, the cost of a lifetime mortgage forever ticks onwards and upwards, like a cab meter. When they sign up, owners have only a vague idea as to final cost.

In 2006, homeowners raised just over a billion - pounds 1,080.8m - by lifetime mortgages, and only pounds 73.5m by home reversion schemes. Many owners have clearly seen home reversion schemes as selling hard-earned assets on the cheap, and some opt to trade down to smaller properties to stop a third party from taking a slice of the value of their home.

Now the FSA is on the case, home reversions could become more acceptable.
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Publication:Wales On Sunday (Cardiff, Wales)
Date:Apr 15, 2007
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