Watch Out For Vultures Consuming Lifetime Mortgages

ELDERLY homeowners struggling to make ends meet while living in a fast-appreciating asset are easy meat for those who make their livingby flogging lifetime mortgages, according to Scotland On Sunday.

Sales are booming. In Scotland alone they rose by 61% in the three months to the end of June, compared with the quarter in 2005. Butwherever there's a boom, scavengers congregate to feast on the spoils -in this case, the generous commission paid by lenders which inevitablyincreases the temptation to sell inappropriate products when better(but less lucrative) options exist.

The Financial Services Association announced last week that a mysteryshopping exercise had uncovered "an unacceptable level of mis-selling"of lifetime mortgages. Advisers "consistently failed to explore indepth the impact of lifetime mortgages on clients' future options", itsaid (absolutely vital, as it is virtually impossible to unwindagreements once made).

One in three paid insufficient attention to eligibility formeans-tested benefits and grants (equally important, as extra benefitscould change the whole basis of the advice); and some recommended "thecreation of arbitrary, sometimes excessive, 'rainy day' funds, often with no clear record of the rationale for doing so".

Unsurprisingly, advisers with little experience of the market didworst, lenders selling their own products did better, and specialistadvisers did best of all. But, says the FSA, "more still needs to bedone".

One of the problems with a lifetime mortgage is that the longer it'sbeen going, the faster the debt grows because of compound interest. Butif you have no close family and can't bear the idea of moving to asmaller property, you may find the advantages outweigh thedisadvantages.

While it obviously makes more financial sense to trade down andpocket the difference, quality of life is also important. It's onething if trading down means moving to a pleasant three-bed semi up theroad, but it's quite another if you already live in that three-bed semiand have to swap it for a grotty one-bed flat miles from where you'velived for 30 years.

If you decide a lifetime mortgage is worth considering, don't gonear an adviser or lender, however knowledgeable, until you've doneyour homework. The FSA, Safe Home Income Plans (Ship) and the Council of Mortgage Lenders all offer free factsheets and questionnaires to getyou started.

Always demand the cheapest rates on the market, as interest is fixedfor life (it's amazing how many advisers recommend more expensive deals). Seek out providers, such as the Prudential, that allow you todraw down money when you need it, rather than paying interest on thewhole lot from the start.

And finally, don't be rushed into doing anything - plans are getting cheaper and more flexible all the time as competition hots up, so the longer you delay, and the more people you talk to while you wait, the better your chance of getting a good deal.

Remember: make sure you've considered all the alternatives first.

University of strife

ARE you a parent? Are you worried about student debt? If so, here's the solution. Start saving the moment they leave the womb.

It's that time of year again when financial companies publish thefindings of pointless "surveys" and "interesting" facts about studentdebt in a transparent bid to peddle long-term savings products.

Last week F&C didn't even bother to use the underwhelming results of a non-survey to justify a "student debt" headline. Stoppingonly to ask whether we knew that the average student debt was nowestimated to be £13,500, it cut straight to the chase. F&C has achild trust fund that offers a choice of 14 investment trusts, it said.Bang. The end. Welcome to the Ronseal school of tell-it-like-it-ispublicity.

A press release from the Association of Investment Trust Companies(AITC) had the results of quite a detailed survey in which the averageparent was found to expect total debt to average just £7,080. Sillythem, eh? As we know, because F&C has told us, average debts arealready running at almost twice that, and today's new students willobviously end up owing more than that because of things like higherfees, inflation and (for all we know) the launch of an eye-wateringlyexpensive Super-iPod that's guaranteed to work for longer than sixmonths.

The average amount predicted by the students was not only even lowerthan their parents were expecting but, weirdly, was actually £1,000less than the amount predicted by their counterparts last year.

The AITC followed this with news that a further 16 universities planto run Money Doctor courses, as piloted by Roehampton University thisyear. This FSA-backed course apparently aims to help students "confrontdebt, take control of their money and plan for the future". Let's hopeit's less woolly than it sounds.

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