Lifetime mortgages are a readily accessible vehicle used to help release equity in a home. They are especially popular in the over 55 age group, with thousands of home owners taking advantage of this method to help realise their retirement aims or just to give additional income during retirement.
The way it works is by allowing the home owner to borrow a specific amount in a long term loan, against the value of their house, without having to sell or move home.
The home is still owned by you, and you’re responsible for ensuring it’s upkeep during the term of the plan. In the future, when the property is sold, the loan is settled, which could occur upon death or if you move into permanent care.
Provided any outstanding mortgage is settled, there are no restrictions upon how the released funds can be used. It is important to note that taking out a lifetime mortgage may affect your ability to means-tested benefits plus it could alter your tax status. You may also be left in negative equity, i.e. no value in your house, when there is interest added to the loan, although many lenders now offer a “no negative equity” guarantee. When selling and moving home, a Lifetime Mortgage may also affect all your options. It is therefore recommended that you speak to a solicitor and / or financial adviser to assess whether a Lifetime Mortgage is right for you.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
Home Reversion Plans
A home reversion plan allows you to sell your house or a percentage of it. You won’t fully own your house but you can remain there as a life time tenant, typically rent free, although sometimes a nominal monthly fee of say a pound may be agreed.
When a Home Reversion plan is purchased jointly, both partners retain the right to live in the house, including when one of the partners dies. You can take a monthly annuity income, a cash lump sum, or a hybrid option of both.
Such a scheme gives you a percentage of the house’s market value, proportional to your age, so the older you are, the greater the percentage of your home’s value. Upon death, the property is sold with the investment company taking the proportional amount originally agreed within the scheme. For example if you sold back the entire property they would receive all proceeds upon your death; if you sold 50% then they would be restricted to 50%.
It is worth noting that should you sell 100% of your home into this scheme and it increases in value, only the investment company will benefit. If you sell a percentage of your property then your estate will benefit from any market increase by the proportional amount.
It is possible that your home’s market value could also reduce, so some schemes also offer a “no negative equity guarantee”. This ensures that the equity release company will receive the value fo the house but no more. Any excess owed monies will be written off under these schemes.
Here are some other options to be aware of whilst considering an equity release scheme:
- A conventional mortgage
- Assets and other savings that may assist in financing your retirement
- Buying a cheaper home
- Selling your home & living with family
- Selling your home and rent
- Rent out a room(s) to tenants
- Local authority and other grant schemes
Equity Release Schemes may affect your eligibility to means tested benefits. Equity release products involve borrowing against or selling all or part of your home. There may be more suitable methods of raising the funds you need.
Equity release schemes may work out more expensive in the long term than downsizing to a smaller property.
Equity Release schemes will reduce the value of your estate and will not be suitable for everyone. We recommend you discuss with your estate beneficiaries before proceeding.
This article is intended to provide a general appreciation of the topic and it is not advice.