Speak to an expert
Michelle is an award-winning chartered financial planner who holds the designation 'Fellow of the PFS' demonstrating her commitment to maintaining the highest standards of knowledge, ethical conduct, and professional practice. Michelle is also an accredited member of the Society of Later Life advisers. Michelle offers a fully personalised service tailored to each clients individual needs and goals, using an approach that was recognised and honoured by the Women in Financial Advice awards in 2021. Clients working with Michelle can expect a high level of professionalism, integrity and a lasting relationship built on trust and open communication
Michelle Boakes
Chartered Financial Planner
Body
What is a lifetime mortgage and are there different types of lifetime mortgage?
A lifetime mortgage is a type of equity release product. The other form of equity release is called a home reversion scheme.
How does a lifetime mortgage work?
A lifetime mortgage allows people aged 55 and over to borrow money against the value of their home. You retain full ownership of your property.
With a lifetime mortgage, you can choose to either make monthly interest payments or make no monthly payments at all. In that case the interest rolls up and gets repaid when you pass away or move into long term care.
The loan is secured against the value of your home. The amount borrowed is based on the house value and your age. The older you are, the more you can borrow.
Who is eligible for a lifetime mortgage?
It’s mainly for people aged over 55 who are either homeowners or looking to use a lifetime mortgage to purchase a property.
What should I consider before taking out a lifetime mortgage?
You should fully consider the advantages and disadvantages of taking out a lifetime mortgage for your personal circumstances. There will be many pros and cons for everybody.
Seeing a financial advisor who specialises in equity release can help you to determine whether the lifetime mortgage is suitable for you, or whether there’s another way.
What are the criteria for a lifetime mortgage?
There’s lots of different criteria for taking out a lifetime mortgage and each provider will have a different set of criteria. Even products with the same provider will have their own requirements.
A lot of it relates to the property that you’d like to have the lifetime mortgage secured against. For example, how close it is to commercial properties or what kind of construction it is. The main criteria for you as an applicant will be that you need to be over the age of 55.
We offer fee free mortgage advice.
We do not charge our customers for any mortgage advice we are purely paid by the lender on completion.
How do you calculate a lifetime mortgage and what is the maximum Loan to Value on a lifetime mortgage?
The maximum amount that you can borrow on a lifetime mortgage is usually somewhere between 20% to 55% of the value of the property. The older you are, the higher the percentage of the value of the property you’re likely to have agreed.
Is there an alternative to a lifetime mortgage?
Yes. The home reversion scheme is a different kind of equity release. With the lifetime mortgage you’re borrowing money against the value of your home, while with a home reversion scheme you’re actually selling your property to the mortgage lender for a lower amount than it is worth.
You can remain in the property until you pass away or move into long term care, in the same way you can with the lifetime mortgage.
There are also retirement interest only mortgages. These require a monthly payment of interest only, but they don’t have an end date. They’re repaid when you die or move into long term care too. And then, of course, there’s a traditional residential mortgage.
Can I get an interest only lifetime mortgage? How does the interest work on a lifetime mortgage?
There are lifetime mortgages where you can make the monthly interest payments. The interest works in the same way as your traditional interest only mortgage. You’re only paying the interest on the loan each month – you don’t pay anything towards the principal loan amount. The interest is calculated based on the loan amount outstanding.
Can I use a lifetime mortgage to purchase a property?
Yes, you can use a lifetime mortgage to buy a property. Your savings or equity from the sale of a previous property can be used for the deposit, and the lifetime mortgage would then be used to fund the rest of the purchase.
What is the cost of a lifetime mortgage?
There are always some costs to consider and they’ll be different depending on the provider and the type of transaction you’re going through.
The main ones to point out are legal fees. You need to have your own solicitor to act on your behalf and complete the legal process of taking out a lifetime mortgage. Those costs depend on the complexity of the transaction, but are likely to be somewhere between £600 and £1,500.
There may also be a valuation fee to pay to the lender to have your home inspected, making sure it’s suitable security and meets the lending criteria. Most of the time, the lenders will meet that cost. But if you have a high value home, you might have to pay something towards that.
You might also have fees payable to the provider – things like arrangement fees which covers the cost of setting up the lifetime mortgage. Another thing to bear in mind as well is some financial advisers will also charge an advice fee.
Here at Verve we don’t charge a mortgage advice fee. We get paid by the lender when you move into the property or when the lifetime mortgage completes.
We work with dozens of lenders including the high street banks and can compare their deals for you, always with your best interest at heart.
Can you pay a lifetime mortgage back early?
Yes, you can pay it back early but you do need to discuss with your provider whether you will incur an early redemption penalty for that.
What if I owe more than the value of my home?
A lot of lifetime mortgage providers will offer you a No Negative Equity guarantee. That means that if the balance of your lifetime mortgage is higher than the value of your property when you die or move into long-term care, the mortgage provider will not seek to recover the remaining balance over and above market value of the property.
That’s a really important feature – check that you get before you enter into your lifetime mortgage agreement.
Can I still claim benefits with a lifetime mortgage?
Yes, absolutely. You can still draw benefits, but you do need to make sure that taking out a new lifetime mortgage doesn’t affect your eligibility for benefit. You can usually check this with Citizens Advice or a similar service.
Do I have to take the full lifetime mortgage loan?
You can apply for the amount that you require rather than the maximum. It might be that you could be approved for £100,000 but you only need £50,000 – and you can absolutely take less. If you decide not to take as much as you’re eligible for immediately, you can look to take more borrowing in the future by taking out a further advance.
Another really good feature available on a lot of lifetime mortgages is called a drawdown facility. That allows you to take your initial sum with an ‘agreed facility’ – an amount that you could withdraw in the future as and when you need it.
The interest charges only apply to the amounts that you’ve actually withdrawn, not the full facility. So you only pay interest on the sums that you have already taken and used so far.
The drawdown facility allows you to access funds from your lifetime mortgage in a flexible way over many years. You can take what you need, when you need it, which is the most important thing.
It’s not a guaranteed facility, though. Even if you’ve been agreed for a drawdown facility at the outset, every time you ask to take more money, your provider is likely to review your whole lifetime mortgage and your circumstances. It could be that they refuse your request.
Do I still own my house with a lifetime mortgage?
Yes, absolutely you still own your house under a lifetime mortgage.
Can I move home with my lifetime mortgage?
Yes, you can move home with your lifetime mortgage if the mortgage lender allows it. The new property does need to be acceptable to your lifetime mortgage provider, or you could incur an early redemption penalty.
Again, this is another key area that you should focus on with your advisor if you’re using one, before taking out a lifetime mortgage.
Get in touch
We take away the stress and uncertainty of applying directly with a lender who may not have the most suitable deal for you.
What are the advantages and disadvantages of a lifetime mortgage?
The advantages and disadvantages will really depend on your individual circumstances. But to summarise some of the advantages, the lifetime mortgage can allow you to release tax free cash. It allows you to maintain ownership of your property and there aren’t any affordability checks.
If you’re using a gross rollup mortgage, you can benefit from flexible drawdown options. There’s a No Negative Equity guarantee for the lenders that sign up to that.
Also, funds can be released to pay for care at home. So if you are in need of care and you want to stay at home, but you don’t have any liquid assets to pay for it or you’re not sure what to do, you can take out equity release to pay for your own care.
To summarise the disadvantages, the interest compounds over time, so the amount owed can grow very large – this significantly reduces the equity left in your property and reduces any inheritance for your family.
Future moving could prove difficult – and your future needs are always unknown. It’s hard to predict if you’ll need more funds in the future and if you’re taking too much equity now.
House prices can always fall, even though we are used to them rising. The loan can then quickly exceed the value of the house. It’s really important to make sure that your equity release or your lifetime mortgage doesn’t affect your means tested benefits – always double check before you apply.
There could be an early redemption penalty as well. If you decide that you no longer want the arrangement, or you do want to move and the new property is not acceptable to the provider, then you could be charged.
How do I take out a lifetime mortgage? How can a financial advisor help?
You can either apply directly to a lifetime mortgage provider yourself or you can discuss your requirements with a financial advisor.
The benefits of talking to a financial advisor are that we can look at the pros and cons of the lifetime mortgage and help you understand how those work for you personally. How will your personal situation be affected by those pros and cons?
We can help you identify the right provider for your circumstances, and the right product too. If we think that the lifetime mortgage won’t quite do what you need it to do, we can identify another way forward.
Warning Text
A LIFETIME MORTGAGE IS NOT SUITABLE FOR EVERYONE AND MAY AFFECT YOUR ENTITLEMENT TO MEANS TESTED BENEFITS, SO IT IS IMPORTANT TO SEEK FINANCIAL ADVICE BEFORE TAKING ANY ACTION. IF YOU ARE CONSIDERING RELEASING EQUITY FROM YOUR HOME, YOU SHOULD CONSIDER ALL OPTIONS AVAILABLE BEFORE EQUITY RELEASE.
THE INTEREST THAT MAY BE ACCRUED OVER THE LONG TERM WITH A LIFETIME MORTGAGE MAY MEAN IT IS NOT THE CHEAPEST SOLUTION. AS INTEREST IS CHARGED ON BOTH THE ORIGINAL LOAN AND THE INTEREST THAT HAS BEEN ADDED, THE AMOUNT YOU OWE WILL INCREASE OVER TIME, REDUCING THE EQUITY LEFT IN YOUR HOME AND THE VALUE OF ANY INHERITANCE, POTENTIALLY TO NOTHING.
ALTHOUGH THE FINAL DECISION IS YOURS, YOU ARE ENCOURAGED TO DISCUSS YOUR PLANS WITH YOUR FAMILY AND BENEFICIARIES, AS A LIFETIME MORTGAGE COULD HAVE AN IMPACT ON ANY POTENTIAL INHERITANCE. WE WOULD ALSO ENCOURAGE YOU TO INVITE THEM TO JOIN ANY MEETINGS WITH YOUR FINANCIAL ADVISOR SO THEY CAN ASK QUESTIONS AND JOIN IN THE DECISION, AS WE BELIEVE IT IS BETTER TO DISCUSS YOUR DECISION WITH THEM BEFORE YOU GO AHEAD. THIS IS A REFERRAL SERVICE.
Every episode is a gateway to new knowledge and endless inspiration!
Related podcasts
ESTATE PLANNING IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
