Pensioners could cash in on homes

13 April 2012

MILLIONS of pensioners could be encouraged to boost their income by cashing in part of the value of their homes under radical Labour proposals.

They would be given incentives to release equity from their property and in return receive a weekly payment to top up the state pension.

Labour policymakers believe it could become the party's 'big idea' to rival Margaret Thatcher's landmark policy of allowing council tenants to buy their homes.

Millions of homeowners are already turning to equity release to free up capital. But many experts consider the current schemes poor value for money. Most allow people to draw on a maximum of 20% of their home's value.

If those who have paid off their mortgages could cash in up to 40% of the value, they could generate more substantial weekly payments.

For instance, a homeowner with a £200,000 property taking out an £80,000 loan paid out over 15 years would receive around £100 a week. The loan, plus interest, would be repaid when the property was sold.

The Labour Party's policy forum agreed at the weekend that more ' cost-effective' equity release schemes should be made available. But last night Labour dismissed claims that ministers were planning to introduce a state-run equity release programme. 'This does not reflect the current position,' said a party spokesman.

Any such move would be likely to run into opposition from Chancellor Gordon Brown.

One incentive that could be offered to encourage more people to take up private schemes is to give an assurance that benefit entitlements would not be affected by the extra cash.

The Tories condemned the idea as a 'dangerous' quick-fix to a problem of the Government's own making - the pensions crisis.

Millions are facing poverty in retirement because there is a multibillion-pound shortfall in the amount workers need to retire.

Tory work and pensions spokesman David Willetts blamed the Chancellor's taxation of pensions for the closure of many final salary or defined benefit schemes in the private sector. Encouraging people to rely on equity release 'is not the answer to the pensions crisis', he said. 'It's dangerous to encourage people to think they can avoid saving for their old age by relying on the value of their house.'

Once, equity release was considered the last resort of the financially desperate.

Now more and more retired homeowners are turning to the commercial schemes already available. They are using the money to fund improvements to their properties, holidays or to make ends meet.

A record £1bn was borrowed through equity release schemes last year, nearly double the amount for 2000 and up from just £77m in 1991.

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