A company trading as Home Plus is planning to launch a home-reversion product for the first time in the Irish market since the financial crash, where older people can sell a stake in their home in exchange for a lump sum or monthly payment and a lifelong right of residence.
The business's registered name is Residential Reversion, which was originally set up in the last 1990s and previously traded as Sixty Plus Finance, before being taken on recently by chief executive Ian Higgins.
Mr Higgins, who previously worked on resolving difficult loans with Certus, a loan-servicing business that wound down Bank of Scotland (Ireland)'s loan book, and Irish Bank Resolution Corporation, said Home Plus has lined up €250 million of global pension money and wholesale funding. It has also found a backer in Patron Capital, the company behind Retirement Bridge, the UK's biggest administrator of home-reversion plans.
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. However, this is usually for a much lower figure than its current market value.
Mr Higgins says the product is expected to be suited to resolving cases where homeowners are in arrears and are in danger of going down the repossession route. A lump sum could be used to pay off the lender, either a mainstream bank or distressed-debt fund, with the borrower retaining the right to remain in the home and a minimum 5 per cent stake.
“Home Plus allows a homeowner to solve their financial problems, without relying on the State, selling their home or moving from their locality,” said Ian Higgins.
Actuarial calculation
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.
A stake sale for customers opting for a lump sum would be lower than those who go for a monthly payment option, assuming they still have equity in the home after a debt has been resolved. That’s because the lump sum is based on a so-called net present value, where a discount is applied to take into account that an amount of money is typically worth more now than in the future.
Based on Central Bank data, Mr Higgins estimates that there is more than €3 billion of mortgage debt in the State where borrowers are over 65 and at least 90 days in arrears. "That probably constitutes about 15,000 loan positions that need help," he said.
The Competition and Consumer Protection Commission published a note on its website in March highlighting the pros and cons of equity-release and home-reversion schemes.
Mr Higgins said it was “disappointing” that Home Plus is captured by the 10 per cent stamp duty that was introduced by the Government last month to target investment firms that are bulk-buying homes. “We are being forced to incorporate a 10 per cent stamp charge in our underwriting, which ultimately is a cost to the consumer,” he said,
