For many over-50s, homeownership is part of their DNA. Whether it’s upgrading to a dream forever home, relocating to be closer to family, or simply downsizing to a more manageable property, achieving that next step on the property ladder can often feel challenging or out of reach.
A standard or Retirement Interest-Only mortgage may not be readily available or affordable. Using your savings might not bridge the financial gap or could leave you exposed to unforeseen expenses at a later date, with little prospect of replacing them. This is where a Lifetime mortgage can provide the funds required.
What is a Lifetime Mortgage?
A Lifetime mortgage is a type of equity release loan secured against your property. Unlike traditional mortgages, there are a range of plans which allow you to choose the amount you pay and for how long, or to make no payments at all and still retain the option to do so at a later date.
There are hybrid Lifetime mortgages which require a commitment to make monthly payments while you are working (to a maximum age of 75), which then revert to interest roll-up with the option to make flexible, voluntary payments when you choose. These can accommodate varying degrees of income, while also considering the age of the youngest borrower and the property value for the available loan amount.
Otherwise, with a regular Lifetime mortgage, the loan accrues interest at a fixed rate over time. In all cases, the debt is typically settled when the property is sold, upon the last borrower’s death or move into long-term care.
Using a Lifetime Mortgage for Your Property Purchase
While traditionally used for existing homeowners seeking to access cash from the equity within their property for home improvements or to help support their family, Lifetime mortgages can also be used to facilitate a property purchase; to make up the difference between the capital they have and the cost of their new home.
They allow you to combine the proceeds from selling your current property with a Lifetime mortgage to buy a new one, just the same as with a standard mortgage.
Eligibility and Suitability
To qualify for a Lifetime mortgage, you must be a homeowner aged at least 50 years old with a property value of £70,000 or above to qualify.
Your property’s value and your age will determine the maximum loan amount you can borrow, while your income or commitment to monthly payments is a factor for hybrid or interest-serviced Lifetime mortgages.
If you’re buying with a partner (joint application), the loan amount will be based on the age of the youngest.
Certain specific health conditions might be beneficial to the loan amount or interest rate. Be transparent about your health with your adviser. Your GP may be contacted but you will never be asked to take a test.
Moving to a new property, especially downsizing, can affect your lifestyle. Consider potential changes in access to amenities, social networks, and transportation.
Assess your long-term plans and financial needs. Will you need additional resources for care or unexpected expenses later?
Thoroughly investigate all available options, including traditional mortgages, downsizing without equity release, and utilising other savings before committing to a Lifetime mortgage.
Practical Steps
Seek independent advice – Always consult with a qualified financial advisor for Lifetime mortgages. They will delve into your financial situation, explain the complexities, and guide you towards the most suitable option.
Research – Ensure to get personalised quotes from your adviser to understand the specific financial implications. Your specialist mortgage adviser can provide you with an estimate of any potential loan and property criteria for a successful application. This will allow you to commence your search for a new home aware of your budget and with confidence.
Leasehold of Freehold – Lifetime mortgages are available for both leasehold and freehold, with certain specific criteria such as a minimum unexpired lease. Always review your prospective new type with your adviser if you need finance.
Negotiate and apply – Once you’ve found your dream home and agreed on a price, your Lifetime mortgage adviser can complete the necessary advice process and submit your Lifetime mortgage application.
Completion and legal formalities – Your current property will be sold, and the proceeds of your Lifetime mortgage will be used to cover the remaining balance on the new home purchase. Borrowers on an Equity Release Council-approved Lifetime mortgage must take independent legal advice before proceeding to completion of their loan. This is a checkpoint for their protection and will be in addition to regular purchase conveyancing.
Beyond the Basics
Ownership – With a Lifetime mortgage, full ownership is maintained. The lender places a charge on the title, the same as with a standard residential mortgage, but no other loans can be secured on the property. The Lifetime mortgage lender may consider a further borrowing application if additional funds are required in future.
Equity protection options – Some Lifetime mortgages offer optional features like drawdown facilities or guaranteed inheritance percentages. Evaluate your needs and budget to decide if these are worthwhile additions.
Stamp Duty – Don’t forget to budget for this cost when considering the loan you require and the total cost of your purchase.
Moving and settling in – Plan for additional costs associated with moving, furnishing, and potential renovations in your new home.
The Benefits
Bridge the financial gap – Accessing your home equity can make your desired property purchase a reality, even if you don’t have sufficient income. Lifetime mortgages can accommodate a range of situations and income.
Stay in your own home – An Equity Release Council-approved Lifetime mortgage also includes a right to reside, meaning named borrowers can stay in their new home for life.
Downsize without compromising – Release equity from your current property to afford a more suitable home, like a bungalow or one closer to amenities. Not necessarily of a lower value, but more suitable or manageable for you.
Gift to family – Any released funds could also be used to help support children or grandchildren.
Maintain financial independence – A Lifetime mortgage can offer not only an initial lump sum but also a drawdown reserve facility. This could allow a more comfortable retirement, with funds available to draw as required.
The Financial Implications
Loan-to-value ratio (LTV) – This ratio determines the maximum amount you can borrow, typically ranging from 15% to 50% of your property’s value, depending on your age and health. Higher LTVs could mean more money upfront but a larger debt later.
Interest rates – Lifetime mortgages usually come with higher interest rates than traditional mortgages, fixed for life and leading to increased debt over time.
Fees – Be aware of potential fees associated with application, valuation, legal advice, and early repayment. Always obtain a personalised illustration.
Inheritance impact – The outstanding loan amount will be deducted from the property’s sale proceeds, reducing the borrower’s estate. A benefit if IHT mitigation is an objective, but less inheritance will be available for your beneficiaries, otherwise. The best advice is always to discuss your plans with your beneficiaries beforehand. Seek professional tax advice for clarity.
Early Repayment Charges – Exiting the mortgage early, such as repaying from an inheritance or maturing investment, can incur significant penalties. Be sure to discuss this with your adviser.
Limited funds for care – Releasing equity will mean the remaining equity available for care is reduced. The local authority may also decline to fund care if equity has been released.
Interest accrual – Unlike a traditional mortgage with fixed monthly repayments, the interest on a Lifetime mortgage rolls up over time, potentially increasing the debt owed. Plans allow flexible, voluntary payments, but any unpaid interest is added to the loan and compounds, meaning interest is charged on unpaid interest.
Means-tested benefits – Releasing equity can affect your ability to claim support. A specialist adviser should make you aware of any implications.
Lifetime mortgages are increasingly flexible and transparent but necessitate seeking independent legal and financial advice to ensure your current and future circumstances are considered, allowing you to make an informed decision.
Alternatives to Consider
There is always the option to downsize without equity release. Selling your current property and purchasing a smaller, more affordable one, may be possible without needing a loan.
It is also worth discussing your plans with your family and beneficiaries. They may offer financial help meaning you can leave your equity untouched.
A traditional mortgage may also be an option and should always be considered before a lifetime mortgage. If you have income and can pass affordability, a standard or Retirement Interest-only mortgage may be a more suitable option.
Utilising your existing pension pot or other retirement savings may also be a viable option to contribute to the purchase without involving your property. Specialist advice should be sought beforehand to understand the cost and there may be tax implications.
Always ensure it’s the right move for you and your family
Using a Lifetime mortgage to complete a property purchase can be a valuable tool for the over-50s seeking to achieve their housing dreams. However, it’s crucial to weigh the benefits and drawbacks carefully, considering the long-term implications and seeking professional guidance to ensure it aligns with your financial circumstances and plans. Remember, your home is your most valuable asset, so making informed decisions regarding its equity is essential. Always obtain a personalised plan illustration and discuss your plans with your family or beneficiaries.
Please note: Later Life mortgage options include Retirement Interest Only and Lifetime mortgages. To understand the features and risks, always obtain a personalised illustration.
