One in four consider lifetime mortgages
Leading mortgage lender Legal and General surveyed Britain’s homeowners and found that one in four are interested in lifetime mortgages. In 2017 the Equity Release Council (ERC) report that £3 billion was released by homeowners in the form of lifetime mortgages to fund improvements to later life.
Lifetime mortgages explained
Lifetime mortgages are designed to help homeowner retirees or those nearing retirement to release property value to fund later life. Lifetime mortgage eligibility can vary but applicants must be homeowners and must usually be a minimum of 55 or 60 years’ old.
Lifetime mortgages enable homeowners to take out loans secured against their homes. The loans do not need to be repaid until the homeowner dies or goes into long-term care. The Equity Release Council (ERC) regulates lifetime mortgages.
Lifetime mortgages can help homeowners to release house value from their homes, while still living in their homes; but also enable homeowners to ring-fence home value so that family inheritance is not compromised.
There are two types of lifetime mortgages
Interest roll-up mortgages – the homeowner gets a lump sum or can take an initial lump-sum and then regular payments. The interest on this loan is rolled up and paid when the home is sold. If the mortgage has a ‘no-negative guarantee’ this means that the final home value will never be less than what is owed on the lifetime mortgage. This stipulation is regulated by the ERC, lifetime mortgage advisors are aware of it.
Interest-paying mortgages – the homeowner gets a lump sum and makes either monthly or ad-hoc payments to pay off the interest and/or the capital on their mortgage. The amount borrowed is paid off when the property is sold or when the lifetime mortgage term ends.
How homeowners use equity release
The most popular use of house wealth was to fund refurbishments, renovations and home improvements. The good news about this reinvestment is that it is spent within the UK in the construction and manufacturing sectors. Legal and General Assurance Company has calculated that every £1.00 of house value released is worth £2.34 to the economy.
- Some later life homeowners use equity release to provide a Living Inheritance. By placing a debt on the house and gifting the money to their children, later life homeowners enable their children to receive part of their inheritance early. And subject to UK Inheritance Tax (IHT) regulations, can potentially reduce IHT liability for both the estate and for their offspring.
- In other cases house wealth can fund domiciliary care in the mortgagee’s own home. More people in need of care are now choosing to stay in their own home, rather than selling their house and moving into a care home.
- House equity can be used for home improvements. Homeowners in later life do not always have the means to carry out extensive repairs to their home. This is because they may not have the capital as a lump sum, or they may not have sufficient income to secure a loan. By using equity released from their homes they can afford home improvements.
- There is a need for some retired people to supplement their pension income due to low annuity rates. By releasing equity in a property, pension income can be supplemented through pre-planned staged payments, or drawdowns via a lifetime mortgage product.
Here is our tips list when considering a lifetime mortgage
- Draw up a quick budget planner. It should cover later life finances but also what you wish to do and how you can plan for it.
- Always discuss your options with an Independent Financial Advisor or mortgage adviser that is properly qualified to give advice in this area.
Retirement planning is complex and you may need specialist advice to achieve your retirement dream.
- You may also want to discuss your plans with your family.
- Do not discount local authority funding and help, particularly regarding wheelchair access, disabilities or any other medical help or support.
To book a consultation with MarchwoodIFA equity release expert Hamish Gairns, please call 01243 532 635.
To discuss pensions, retirement and investment plans, please ask to speak to Richard Smith.
To discuss mortgages and insurances, please ask to speak to James Mayne.