Lifetime Mortgages

Yes, you continue to own your home when you take out a lifetime mortgage. This type of mortgage is a loan that’s secured against your home, enabling you to live there for the rest of your life while remaining the legal owner of the property.

When you, or the last surviving borrower if you have a joint lifetime mortgage, move into long-term care or die, your home will be sold to repay the loan. Once this has been done, any funds left over from the sale proceeds will be passed to your beneficiaries.

Yes, although a lifetime mortgage is designed to last until you either move into long-term care or pass away, you can repay it early.

If you’re in a financial position to do so, you can make partial loan repayments, subject to your lender’s criteria. This tends to be 10% of the outstanding loan, not including the accrued interest, per year. As you’re reducing the loan balance, this also reduces the interest that’s charged on it.

If you make higher repayments than the lender’s annual allowance or you choose to repay the loan in full, you’ll be penalised with an early repayment charge (ERC). This can be very expensive and is usually calculated on a sliding scale depending on how long you’ve had the mortgage for. Be sure to check your lender’s terms relating to early repayment charges before repaying your lifetime mortgage in advance.

If you want to move home, you can usually transfer your lifetime mortgage, known as porting your mortgage, to the new property without being penalised with an ERC. This is provided that your new home meets the lender’s requirements. Check whether your lender offers downsizing protection, because if your new home doesn’t meet the lender’s criteria, this can protect you from having to pay an ERC. You will need to have held a lifetime mortgage with them for a certain length of time, such as 3 or 5 years, to benefit from this.

As long as your lifetime mortgage has a no negative equity guarantee, you won’t have to repay more than your home’s value when it is sold, even if this is lower than the outstanding loan amount.

This protection is a mandatory requirement for all lifetime mortgages granted by providers registered with the Equity Release Council. It ensures that if your property is sold for less than the balance owed, including the loan and compound interest, the balance of the debt is written off by the lender. This gives you peace of mind that your beneficiaries won’t be left to repay the outstanding debt from your estate.

Your entitlement to means-tested benefits, such as Pension Credit, may be negatively affected if you take out a lifetime mortgage. This is because your entitlement is based on your income and savings.

As a lifetime mortgage is a type of equity release, it can increase your savings above the qualifying threshold for certain benefits. Depending on the types of benefits you receive and the amount of equity you release, your means-tested benefits may be reduced or stopped altogether.

Examples of means-tested benefits include:

• Pension Credit
• Universal Credit
• Council tax reduction
• Housing benefit
• Employment and Support Allowance (ESA)

How your means-tested benefits are affected really depends on how you receive the funds and what you use them for.

For example, if you use the funds from your lifetime mortgage to pay off an existing mortgage, the funds are paid straight to the lender. This means that the lump sum of money doesn’t sit in your bank account. As such, your savings don’t increase.

If the money is paid into your bank account, however, it’s treated as a liquid asset that’s considered to increase your savings. If your savings exceed a specified bracket for a particular means-tested benefit, you may lose your entitlement to it. If your savings fall between certain brackets, you’ll see a reduction in the benefits that you’re entitled to.

Yes, you can move home and transfer your lifetime mortgage over to the new property, provided that it meets the lender’s criteria. This is called porting your mortgage and you won’t incur an early repayment charge (ERC). If your new home is cheaper, you may be required to make a partial repayment of the loan to keep it within the lender’s loan-to-value (LTV) limit. On the other hand, if your new home is more expensive, your lender may allow you to borrow more.

If the new property doesn’t meet your lender’s requirements, your lifetime mortgage will have to be repaid and you may be penalised with an ERC. Some lenders offer downsizing protection, which means that if the new property doesn’t meet the lender’s criteria but you’ve held a lifetime mortgage with them for a certain length of time, such as 3 or 5 years, you won’t incur an early repayment charge.

Our mortgage brokers can check the terms of your lifetime mortgage and calculate any ERC penalty fees that may apply. That way, you can weigh up your options before deciding to move home.

Bear in mind that there are additional costs to consider when moving home, even when you don’t have to pay an ERC. These include a valuation and survey fee for the new property, legal costs and stamp duty, if applicable.

If you have a lifetime mortgage and pass away, your home will be sold to repay the outstanding debt. This includes the loan and the accrued interest. Any sale proceeds that are left after this will be passed on to your beneficiaries.

Should the outstanding debt exceed the value of your home, the loss will be written off by the lender, provided that a no negative equity guarantee is in place. Our mortgage brokers can check this for you and this guarantee is actually a requirement for equity release providers who are registered with the Equity Release Council. A no negative equity guarantee protects your beneficiaries from having to repay the difference themselves.

If you’ve taken out a lifetime mortgage with another person, they will be able to continue living in your home after you’ve died. Once they’ve either moved into long-term care or passed away, the property will be sold to repay the outstanding balance.

The sale of the property is usually handled by the executor of the estate. Typically, they have 6 to 12 months to sell the property and clear the debt. If your beneficiaries wish to keep your property and the estate has sufficient cash, the loan can be repaid from other funds instead.

Both lifetime mortgages and home reversion plans allow you to stay in your home without any restrictions and release equity from it to use as you wish during your retirement. There are key differences between them, though, as detailed below.

Key differences

• Home ownership: With a lifetime mortgage, the loan is secured against your property and you retain full ownership of your home. With a home reversion plan, you sell a share of your home to an equity release provider for below the market value.
• Interest: Interest is charged on a lifetime mortgage and is usually compounded, which increases your debt over time. A home reversion plan isn’t a loan and, therefore, no interest is payable.
• Repayments: You don’t need to make any monthly repayments with either of these equity release products. Instead, your property is sold once you, or the last borrower, move into long-term care or pass away. The sale proceeds are then used to repay the entire lifetime mortgage loan and accrued interest. For a home reversion plan, the equity release provider receives its share of the profits.
• Minimum age: You can usually benefit from a lifetime mortgage when you’re aged 55. Home reversion plans tend to be available from the age of 60 or 65 but some providers do offer them at a lower age.
• Amount you can borrow: You can usually borrow up to 60% of your home’s value with a lifetime mortgage. This depends on various factors, such as your age and health. With a home reversion plan, you can usually receive between 20% and 60% of your home’s value. This depends on the share you decide to sell but also bear in mind that the amount you receive will be below market value because you’ll receive a lifetime rent-free tenancy in exchange.
• Property value: If your home’s value increases, you benefit from the increase on the entire value of your home with a lifetime mortgage. With a home reversion plan, you only benefit from the increased value of the share you still own.

Choosing the most suitable option

Lifetime mortgages are usually more flexible than home reversion plans and enable you to ring-fence a portion of your home’s value for your beneficiaries. Home reversion plans don’t include interest charges, making them a cheaper option overall. However, they’re not as popular as lifetime mortgages because part of your home has to be sold upfront, immediately reducing the size of your estate.

Our mortgage brokers can go through the details of each type of equity release product with you as well as alternative options for borrowing later in life. Offering impartial, expert advice, this can help you to make the best decision for your needs.

Yes, when you take out a lifetime mortgage, you can protect a portion of your home’s equity to ensure that this is passed to your beneficiaries as an inheritance. This is known as ring-fencing and it allows you to protect a certain percentage or fixed amount of your home’s value so that it cannot be touched, regardless of the outstanding debt on your property.

It’s worth considering ring-fencing some of your home’s value because the compounded interest of a lifetime mortgage can considerably reduce the amount to be left to your beneficiaries.

Inheritance protection

This option is offered by many lenders, known as inheritance protection, and the amount you can ring-fence is typically capped. Despite the cap, it ensures that your loved ones will receive a share of your estate, regardless of how much interest has accumulated over time. If you decide to ring-fence a portion of your home’s value, just be aware that you won’t be able to borrow as much.

Choose an interest-paying option

Another way to protect some of your home’s equity is to choose an interest-paying lifetime mortgage instead of a standard lifetime mortgage with rolled-up interest. You can choose to make full interest payments at regular intervals or partial interest payments. Whichever option you choose, the balance to be repaid at the end will be lower than if opting for an interest roll-up mortgage. You’ll also reduce the overall cost of your lifetime mortgage, leaving more for your beneficiaries to inherit.

If you wish to protect some of your home’s equity for the sake of your loved ones, be sure to let your mortgage broker know. That way, they can search for the right products that offer the flexibility to do this.

There are two ways to receive your released funds. One is to get a single tax-free lump sum and the other is to use a drawdown facility.

• Lump sum: With this option, the interest is charged at a fixed rate on the full amount of released equity.
• Drawdown facility: This enables you to receive a smaller initial amount of released equity and have a cash reserve that you can take smaller sums from in the future. The interest is only charged on the amounts you’ve taken. This reduces the compound interest and, in turn, the overall balance to be repaid.

When you take out a lifetime mortgage, the loan is usually repaid through the sale of your home after you’ve moved into long-term care or passed away. There is a risk, however, that the price achieved through the sale may be less than the outstanding loan amount. Without having protection against this, the remaining balance has to be repaid through your estate. This reduces the amount left to your beneficiaries.

Having a no negative equity guarantee, however, prevents this from happening. It ensures that your estate doesn’t have to repay more than the value of your home when it’s sold, regardless of whether the outstanding loan amount is higher than the sale proceeds. Instead, the remaining debt is written off. This protects your beneficiaries from having any additional debt passed on to them and having to pay it from your estate.

Many lifetime mortgage providers offer a no negative equity guarantee as standard, especially those who adhere to the Equity Release Council standards. However, there may be circumstances when the guarantee doesn’t apply. Therefore, it’s important to check whether it is offered and, if so, under what terms it applies.

There are different options for paying the interest on a lifetime mortgage, each with its pros and cons.

Rolled-up interest

One of the main benefits of having a lifetime mortgage is that you don’t have to make any monthly payments. This includes the interest as well as the loan. Instead, the interest is rolled up and added to the loan, both of which are repaid from the proceeds of the sale of your home when the time comes.

The downside is that the balance you owe grows very quickly. Whilst you can enjoy a better cash flow each month without any payments, the compound interest makes your mortgage much more expensive in the long term. This further reduces any inheritance that you wish to leave to your beneficiaries.

An interest-paying mortgage

If you prefer to make interest payments during the lifetime of the mortgage, you have two options. One is to pay the full interest payment each month. This will just leave the loan amount to be repaid at the end. As you’re not adding to the loan balance, this leaves more in your estate to leave to your beneficiaries. By choosing this option, you may benefit from a lower interest rate from the lender.

The other option is to make partial interest payments when you can. By paying some of the interest, you’ll reduce the overall cost of your mortgage and the amount to be repaid at the end, compared with having rolled-up interest. This is a good compromise between having rolled-up interest and making full interest payments.

Whilst the eligibility criteria vary between providers, general terms tend to apply for a lifetime mortgage. One of these is that you usually need to be at least 55 years old. If you’re applying with another person, the youngest applicant needs to be aged 55 or older. Some lenders have a maximum age limit, such as 85, at the time of application.

You need to be a homeowner and either be mortgage-free or have a small mortgage left. Some lenders set minimum loan amounts, such as £10,000 or £15,000. The lifetime mortgage needs to apply to your main residence and some lenders stipulate criteria for this. For example, it may be an eligibility condition that you don’t leave your home unoccupied for more than 6 months at a time.

Your home must have a minimum value, such as £70,000, and the property type must meet the lender’s requirements. Typically, this means having a standard construction, although some lenders do accept non-standard constructions. Certain types of properties may not be accepted, such as listed buildings, static homes and houseboats. This is because the lifetime mortgage loan has to be repaid from the sale of your home so the lender needs to be confident of its saleability and reduce any future risk.

Both lifetime mortgages and retirement interest-only mortgages enable you to borrow later in life without having a fixed repayment date. Instead, the loan is repaid when you either move into long-term care or pass away. The differences between them are how the interest is paid and your affordability of the mortgage.

A lifetime mortgage

With a lifetime mortgage, the interest is usually rolled up and added to the loan balance. This improves your monthly cash flow but increases the overall cost of the loan and the amount to be repaid at the end. As such, this also reduces the amount to be left to your beneficiaries, although you can ring-fence a portion of your home’s value.

As you don’t have to make monthly payments for this mortgage, you don’t need to pass affordability checks as you would with standard residential mortgages. Instead, the value of your home as well as your age, health and lifestyle are taken into account by the lender.

A retirement interest-only mortgage

With a retirement interest-only mortgage, you have to repay the interest that’s due on the loan each month. This means that the original loan balance will stay the same, protecting your property’s value and ensuring there’s a larger sum to leave to your beneficiaries.

As you have to make monthly interest payments, you need to ensure that you can comfortably cover them during your retirement. The lender will check your affordability for these payments. This is typically done by checking your income if you’re still working at the time of application and your income in retirement. The lender will also take any outstanding debts and your outgoings into account.

Although a lifetime mortgage offers many benefits to an older borrower, there are various risks to consider before choosing one. These include:

Compound interest

Usually, you don’t make interest payments with a lifetime mortgage and the interest is rolled up instead. This is then paid at the same time as the loan once you’ve either moved into long-term care or passed away. As this interest is calculated on the loan amount as well as the interest already added to it, the outstanding debt increases very quickly.

Reduced inheritance

The outstanding balance owed to the lender continually increases due to the compound interest. This significantly lowers the amount of profit that’s left to pass on to your beneficiaries once the property has been sold and the debt repaid.

The risk of negative equity

In some cases, where the property’s value drops and the debt owed grows higher than this value, you can go into negative equity. The balance owed would, therefore, have to be paid from your estate.

To prevent this from happening, you should ensure that you have a ‘no negative equity guarantee’ in place. This protects you from having to repay more than the value of your home, even if the amount owed is higher than the value of your property.

An impact on means-tested benefits

Releasing a large lump sum of equity increases your liquid cash. This can affect your entitlement to means-tested benefits as this is based on your income and savings. If you exceed the qualifying threshold for specific benefits, these benefits may be reduced or even stopped.

Reduced financial options

Releasing equity from your home reduces your property wealth and, therefore, reduces your future borrowing options. For example, it can affect your eligibility for a future secured loan or a mortgage. It can also impact the funds you have to pay for long-term care.

If you decide to move home in the future, the outstanding loan plus accumulated interest must be repaid unless the lender allows you to port your mortgage. If the lender doesn’t agree, repaying the original loan and interest will restrict the amount you have left to buy your new home.

Taking a lump sum of cash can also negatively affect your eligibility for means-tested benefits or support from the local council, potentially disqualifying you from the financial help you normally receive.

Potential early repayment charges

A lifetime mortgage is designed to be repaid once you either move into long-term care or pass away and your property is sold. If your circumstances change and you need to repay the loan early, you’ll be penalised with early repayment charges. These can be very expensive so consider whether this type of mortgage is right for you if you think there’s a possibility that you may have to end your mortgage early.

It’s important to note that if you wish to move home and the new property meets the lender’s criteria, you’ll be able to port your mortgage and won’t incur an early repayment charge (ERC). Some lenders offer downsizing protection. This means that if the new property fails to meet the lender’s criteria but you’ve had a lifetime mortgage with them for a specific length of time, you won’t be subject to an ERC.

Minimise these risks

To help minimise these risks, you can use a drawdown facility to take money as and when you need it. This stops you from withdrawing more equity than you may actually need and prevents a large sum of cash from suddenly increasing your liquid assets. It also means that interest is only charged on the amounts you withdraw, rather than the entire loan.

You can also choose to make interest payments, whether partial or in full, instead of opting for rolled-up interest. This will reduce the amount of interest charged on the loan and lower the overall cost of your lifetime mortgage.

Lifetime mortgages are specifically designed to enable later-life borrowers to unlock property wealth without having to sell their homes. There are financial risks to consider, such as compound interest and reduced inheritance concerns. However, using regulated providers ensures that lifetime mortgages are safe.

Equity Release Council

Many equity release providers are registered with the Equity Release Council. This is the representative trade body for the UK’s equity release and later life lending market. They set high standards of compliance for equity release providers, guaranteeing fundamental protections for consumers. Among these protections are:

• The right to remain: You retain full ownership of your home and have the right to continue living there for the rest of your life or until you move into long-term care.
• Fixed or capped rates: The interest rate for a lifetime mortgage is usually fixed throughout but variable rates that are capped for the life of the loan are also available.
• No negative equity guarantee: This guarantee ensures that you or your estate will never owe more than the value of your home when it is sold. This protects your beneficiaries from having any debt passed on to them.
• The right to move: You have the right to move and transfer your equity release plan to your new home without being penalised by an early repayment charge. This is subject to the lender’s criteria as the property you wish to move to needs to meet their requirements.

The standards that are upheld by the Equity Release Council ensure that lifetime mortgages are transparent and safe. Financial security is key and later-life borrowers can rely on flexibility and security.

Financial Conduct Authority

It’s also a requirement of the Financial Conduct Authority (FCA) for borrowers to receive advice from a qualified adviser before using a lifetime mortgage to release equity. Our mortgage advisers can discuss your circumstances to ascertain whether a lifetime mortgage is the right choice for you, and your family can be involved in these discussions, too, if you wish.

Our equity release specialists will detail all of your options and ensure that you understand what this type of product entails and its long-term impact on your finances. With a range of products to compare and having received expert, impartial advice, you can feel confident that you’re making the right decision for your needs.

A lifetime mortgage is a major financial decision so there are various factors you need to consider before using this equity release product. These include:

The compound interest

The interest for this type of loan is usually rolled up and added to the total. As it is calculated on the loan and accumulated interest, it adds up very quickly. This makes it an expensive option that can significantly reduce the size of your estate.

The impact on inheritance

Once you move into long-term care or pass away, your home is sold to repay the loan and accumulated interest. This drastically reduces any property wealth you can pass on to your beneficiaries and may even eliminate it.

The effect on any means-tested benefits

The lump sum you receive increases your liquid cash and may place you over the financial threshold for certain means-tested state benefits. You need to find out how your benefits will be affected and weigh up any potential differences against releasing your home’s equity.

Potential early repayment charges

If your circumstances change and you need to repay your loan early, you may face hefty early repayment charges. A lifetime mortgage is designed to continue until you either pass away or move into long-term care so think carefully if it’s likely that you’ll need to repay your loan early.

Additional costs

There are various costs to budget for, such as a valuation fee, a survey fee, the lender’s arrangement fee, legal fees, property insurance and ongoing maintenance costs.

The upkeep of the property

Lenders usually stipulate that your home must be kept in a good, saleable condition. As the property is the sole security for the loan, you need to protect its value. This ensures that it’s adequate to cover the cost of repaying the loan and accumulated interest when it’s sold. As a legal obligation, you can be considered to be in breach of contract if you fail to maintain the property or make any major structural alterations without the lender’s permission.

The alternative options available

Think about the alternatives available to equity release, such as downsizing or a retirement interest-only mortgage, and compare the differences between them.

Discuss it with your family

It’s worth talking over your thoughts on equity release with your family. After all, they may be directly affected by the decision as your beneficiaries. They may be able to offer alternative ideas that you haven’t thought of or even offer help so that you don’t need to release the equity from your home.

Yes, you can be refused a lifetime mortgage if you don’t meet the lender’s criteria. Typically, you need to be at least 55 years old, although some lenders stipulate a higher age of 60. Some lenders also set a maximum age limit. You also need to be a homeowner and use the loan for your main residence.

You can also be refused if your property doesn’t meet the lender’s requirements. Many don’t accept properties that have a non-standard construction or are in poor condition. Certain property types can be refused too, such as static homes, listed buildings and houseboats.

If you’re refused by one lender, it doesn’t mean that you won’t be accepted by another one as each has its own criteria. Speak with one of our specialist mortgage brokers before approaching any lenders yourself. They understand different lenders’ criteria and can check your eligibility first. They can then prepare your application and present it to the most suitable lender on your behalf. Your dedicated mortgage broker will negotiate for the most favourable terms and rate to suit your situation and oversee the mortgage process from start to finish for a smooth transaction.

A lifetime mortgage enables you to unlock tax-free cash from your home’s value without having to move. You retain full ownership of your home and have the right to live there for the rest of your life. There are no restrictions on what you can use the equity for. For example, you can use it to supplement your retirement income, clear existing debts, carry out home improvements, gift it to family members, make an expensive purchase or splash out on holidays.

If you have limited savings, this arrangement enables you to have more financial freedom later in life. It offers a flexible drawdown option so that you can withdraw smaller amounts as you need them instead of receiving a single lump sum payment. This helps to preserve the equity in your home rather than withdrawing more than you need and interest is only charged on what you withdraw.

There are no monthly repayments to make, which helps with your cash flow. You also don’t need to worry about having to repay the loan by a set time as there’s no end date to this type of mortgage. Instead, it’s repaid from the sale of your home when you either go into long-term care or pass away.

Lifetime mortgages are very flexible in their use, with a multitude of options for what you can use the released equity for. You may decide to:

• Do some home improvements
• Splash out on a holiday
• Buy a new car
• Help a loved one get a foot on the property ladder
• Repay an existing mortgage or other debts
• Adapt your home to meet your needs as you get older
• Help a loved one pay for a big expense, such as a wedding or tuition fees
• Pay for ongoing care in your home
• Enjoy a comfortable retirement with a financial cushion

Generally, you can release between 20% and 60% of your property’s value with a lifetime mortgage. It really depends on your property’s value, your age, your health and lifestyle and the lender’s criteria.

For example, the higher your home’s value, the more you can borrow and you can also usually borrow more the older you are. You need to be aged at least 55 to qualify for this type of mortgage. If you make a joint application, the borrowing limit is based on the age of the youngest applicant. Lenders usually require a minimum equity release of £10,000 or £15,000.

Some lenders offer enhanced lifetime mortgages. This means that if you have a certain health condition or lifestyle choice that shortens your life expectancy, you may be able to borrow a higher percentage of your property’s value. Alternatively, you may be offered a lower interest rate. Lenders are willing to provide more favourable borrowing terms in these circumstances because they expect the loan to be repaid sooner.