Lifetime Mortgages

Lifetime mortgage schemes are generally aimed at those over the age of 55, who have little or no outstanding mortgage, and are offered by a number of lenders.

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How a Lifetime mortgage works
You must be aged 60 or over
Maximum of two applicants
You will have to prove your age, for example with a birth certificate or pension book
You will have to prove that you own your home (your solicitor will do this for you)

Loan size
Minimum £10,000
Maximum £500,000+

The amount that can be borrowed depends on your age (or the age of the youngest applicant, if there's two of you) and the value of your property, up to a maximum of 55% of the property's value. The table below gives an indication of the amount some lenders may be prepared to lend.

Age	% of property value	Age	% of property value	Age	% of property value
60	25	71	36	81	46
61	26	72	37	82	47
62	27	73	38	83	48
63	28	74	39	84	49
64	29	75	40	85	50
65	30	76	41	86	51
66	31	77	42	87	52
67	32	78	43	88	53
68	33	79	44	89	54
69	34	80	45	90	55
70	35

Lump sum drawdown - (Available through some lenders only)
If you don't want to take the whole amount offered to you at the beginning, you can apply for the rest as a cash drawdown facility. With most lenders the drawdown facility will be restricted to ten years, but it is possible to a rrange a lifetime mortgage that provides a drawdown facility for life. Future withdrawls are usually limited to a minimum of £2000 or more for each individual drawdown. With some lenders this can be at no additional cost. The amount of drawdown required must be declared when the Lifetime Mortgage Application is completed.

Further loan
As you get older lenders are happy to lend a bigger percentage of property's value. To take advantage of this, you can apply for a further loan generally after 12 months. In most circumstances a further lifetime mortgage loan arrangement fee is charged as well as a valuation fee for revaluing the property.

Loan term
The loan will have to be repaid a maximum of 12 months after your death or the death of the last surviving of you if it's a joint mortgage. If you (or both of you, if it's a joint mortgage) are no longer able to live in your home or the property ceases to be your main residence, you will also have to repay the loan.

Leaseholds
Outstanding term on leaseholds must be at least 80 years from the mortgage's completion date.

Fixed rate
Generally Lifetime mortgages / Equity release mortgages come with a rate that is fixed for the entire mortgage term. Interest accrues monthly and is added to the loan until the loan is repaid.

Moving home
If you want to move home after taking out a Lifetime mortgage, most lenders will allow you to transfer it to your new property, subject to you and the property satisfying the lending criteria at the time. But if you're moving somewhere cheaper, you may have to pay back some of the loan.

Other occupiers
Any other persons over the age of 17 who will occupy the property after completion must sign the appropriate consent forms waiving any rights they may have over the property.

Insurance
You must arrange your own property insurance and make sure that it meets the lenders requirements.

Solicitor
You will need to instruct a solicitor to act on your behalf. Licensed conveyancers will not be acceptable when arranging a Lifetime Mortgage / Equity Release mortgage. Some lenders may require you to pay elements of their legal costs.

Things to remember
The Lifetime mortgage really is intended to last a lifetime - it will only be repaid when you (both of you if it's a joint mortgage) die or leave the property. So it's vital that you talk it all over with your mortgage adviser or solicitor, to make sure it's the right scheme for you. We also suggest that you discuss it with your family or the people who will inherit your estate in the event of your death.

You won't have to make any payments on your mortgage, but interest will be added at a rate which is fixed for the entire mortgage term which means that the amount payable upon a repayment event such as death, will be more than the amount you borrowed. Interest will be charged on accumulating interest which means that the amount of the loan will increase faster than it would on a normal mortgage when interest and/or capital repayments are made.

With lifetime mortgages there is a 'no negative equity guarantee' which will ensure that the most you will ever owe is the value of the property. You will need to ensure that your property is maintained to a reasonable standard so not to reduce your property's value. A reduction in the property's value due to poor maintenance could mean the loss of the 'no negative equity guarantee'.

When recommending a Lifetime Mortgage lender, we always ensure that they are a member of Safe Home Income Plans (SHIP), which means that they have to follow its code of practice and give you a fair, value for money mortgage. For more information on SHIP, call 0870 241 6060.

Frequently Asked Questions:

How does an equity release mortgage work?
There are two main types of scheme available - lifetime mortgage and reversion scheme. A lifetime mortgage is more popular and is offered by the majority of lenders active in the market. The product provider lends the borrower a percentage of their property value. Interest is then rolled up and added to the loan over the mortgage term. Once the mortgage is redeemed (usually when the borrower dies or goes into long term care), the proceeds from the sale of the house will pay back the loan plus the interest incurred. Any surplus amount would go to the borrower or their estate.

With a reversion scheme the customer sells a proportion or all of their home to the scheme provider, while still remaining a tenant in the property. Once the house is sold, the provider would receive a proportion of the proceeds based on the share it bought.

What are the consequences of taking out a reversion scheme rather than a lifetime mortgage?
With a reversion scheme, the customer would actually relinquish some of the ownership and potential property growth of their property to the product provider. However, with a lifetime mortgage, ownership would stay with the customer who would then continue to benefit from any house price growth.

Can anyone take out an equity release mortgage?
Equity release should not be confused with mortgage equity withdrawal, where borrowers release some of the equity that they have built up in their property by taking a further advance.

Equity release schemes are generally aimed at those over the age of 60 who have little or no outstanding mortgage, and where much of their money is tied up in possessions rather than available as disposable cash. Furthermore, as the borrower does not make any repayments and the product provider only recoups its loan once the property is sold, there is more certainty of the mortgage term with elderly clients. And so it is not a scheme targeted at those in their 50s, even if they have taken early retirement.

Why would someone take out an equity release / lifetime mortgage?
There are many reports about lack of pension provision for the elderly and the poor performance of the equity markets. These factors have ( led to many people finding themselves unable to fund their lifestyle during retirement in the way they had planned. Furthermore, when someone retires their income typically drops and, as the proceeds of their savings and investments dwindle over the years, they may find themselves requiring other means of support. Equity release is not for everybody and is just one solution that can be used to subsidise provisions for retirement.

Why is the rate for a lifetime mortgage more expensive than for other residential mortgages?
The majority of lifetime mortgages are available at a fixed rate for the entire mortgage term. Generally, the longer the fixed-rate term the higher the cost of funding which means a higher rate. The precise term is unknown and this creates additional funding risks for the lender. As a lifetime mortgage term could potentially be over 30 years, the customer can rest assured that the rate is constant, or will never go above a certain ceiling if they applied for a capped rate and the lender can cover itself for any significant changes in the economic climate.

How does equity release help with inheritance tax planning?
Due to increases in the average house price in the UK, there can be little leeway with inheritance tax for many people to prevent their heirs and estate from paying a potential bill of 40% of the value of all assets beyond the inheritance tax threshold.

By releasing some of the equity from their homes, many borrowers may be able to mitigate future liability as they would reduce the amount that could be left to their estate and potentially take their net worth below the threshold. In some cases, customers may be able to give their dependants their inheritance early by using the released funds as a gift of reservation, provided the customer continues to live for a further seven years.

What other financial implications are there in taking out an equity release scheme?
There are a number of financial implications, depending on the type of scheme and the amount of money borrowed. The main one is that it affects the amount of money that can be left to heirs and the estate. It can have some Inheritance Tax implications, and may also affect any income support, Council Tax benefits or any other means-tested benefits that the borrower is entitled to.

Can borrowers increase their borrowing in the future?
Typically, lenders include the flexibility for borrowers to increase their borrowing. The additional amount that can be borrowed, if any, depends on the outstanding mortgage balance including rolled-up interest and the maximum loan to value appropriate for the customer's age at the time of the loan request.

What is the no negative equity guarantee and how does it work?
It ensures that even if house prices decline to an extent that once the property is sold, the proceeds are less than the original loan plus interest, the most the customers will ever owe would be the value of their property. Neither they nor their estate would be pursued for any shortfall.

What fees are associated with a lifetime mortgage?
For a typical lifetime mortgage, the customer would need to pay:

• A valuation fee (dependent on the value of the property)
• A completion fee (some lenders include their solicitor's legal costs in this fee)
  
• A telegraphic transfer fee (the cost of transferring funds from the lender to the borrower's solicitor)
  
• Borrower's own legal fees - (the costs incurred by the borrower's own solicitor)
  
• Early repayment charge - only payable if the borrower makes a voluntary repayment of all or part of the outstanding mortgage balance. For most lenders it is only payable if the mortgage is redeemed in the first five years of the mortgage term
  
• Sealing fee - this is charged when the mortgage is repaid and covers the cost of administration work.

In what instance would an early repayment charge be payable?
Most lenders typically charge an early repayment fee if the borrower makes a capital repayment on part or all of their mortgage within the first five years.

This would not be payable if the customer were to die or move into long term care as a result of losing two or more of their activities of daily living

Transferring - the ability to move from a bed ; to an upright chair or wheelchair and vice ' versa, or to get on or off a toilet or commode.
Continence - the ability to manage bowel and bladder functions such that an adequate level of personal hygiene can be maintained.
Dressing - the ability to put on, take off, secure and unfasten all necessary garments and any braces, artificial limbs or any other surgical appliance.
Mobility - the ability to move indoors from one room to another on a level surface in the person's normal place of residence.
Feeding - the ability to feed oneself once food and drink has been prepared and made available.
Washing- the ability to wash in the bath or shower (including getting into and out of the bath or shower) such that an adequate level of personal hygiene is maintained.

Can the customer have a tenant or additional family members or carers living with them?
Again, this varies from lender to lender. The majority of lenders would not allow a paying tenant to live in the property Tenants would also have an interest in the property, which may affect the lender's charge over the property and complicate proceedings once the mortgage was redeemed. The general policy is different with regard to carers and family members. Providing that they signed a declaration waiving all rights to the property and agreed to move out of the property once the mortgage was redeemed - they would be allowed to live in the property along with the customer.

Why are two solicitors involved in processing the application?
This is a requirement from the majority of product providers active in the market. The lender would have a firm acting on their behalf from their panel of solicitors and the borrower would need to consult a solicitor who would ensure that the customer understood the ' implications of taking out a lifetime mortgage.
Having separate firms of solicitors acting for each party ensures that there is no conflict of interest that may occur if the same firm was acting for both parties. This also fulfils one of the SHIP requirements, which states that the borrower must obtain independent advice.

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THIS IS A LIFETIME MORTGAGE. TO UNDERSTAND THE FEATURES AND RISKS, ASK FOR A PERSONALISED ILLUSTRATION.