Drawdown Lifetime Mortgages Explained

We receive many enquiries from people who want to know more about drawdown lifetime mortgages, whether they’d be eligible for one, and how much they could potentially borrow against their property.

We have gathered all the critical information to give you a clear understanding of this type of lifetime mortgage.

A drawdown mortgage is a big decision, and the amount you borrow could affect how much you have left for unexpected costs such as residential care. Therefore, you should consider it carefully and get specialist advice before applying.

What is a drawdown lifetime mortgage?

Designed with older borrowers in mind, a drawdown lifetime mortgage is a form of equity release. It allows existing homeowners with a property worth over £70,000 to access between 18% and 50% of the equity accrued in their home. But rather than being a one-off arrangement, as is typical of a lifetime mortgage, in a drawdown mortgage, you can withdraw a small amount initially before setting the rest aside in what’s called a reserve or mortgage drawdown facility, to be withdrawn in multiple stages.

The idea is that you can access capital as and when needed. The lender will decide how much money you can release from your home based on your circumstances, such as your age and health.

A broker would be able to share more about the nuances and help you decide whether a lifetime or drawdown mortgage might be best for you, alongside other mortgages for older borrowers.

How does it work?

In short, a lender – either your current provider or a new one – allows you to release a certain percentage of the equity in your home. The specific amount will depend on each lender’s criteria and calculations. Many have their own drawdown lifetime mortgage calculators to give you an estimate of what they’d offer, but rather than doing a search across each provider, a specialist broker would be able to assess your situation and share what they believe you’d be able to borrow.

Once you have an amount, you choose how much you’d like to withdraw as a lump sum in an equity drawdown, accessing it in a matter of days, and how much you’d like to leave as a reserve to be accessed at various later points. Some lenders limit how many withdrawals you can make in a year and stipulate a minimum of £10,000 to be taken out as the initial payment and £500 thereafter.

How does repaying the interest work?

There are no monthly repayments. The lender will set a fixed interest rate on each amount you withdraw. The rate is typically higher than a residential rate but in line with the market. This means it’s worth noting current interest rates before deciding when to access the funds. This means the amount you owe will accumulate over time, depending on the amount you withdraw and the interest rate.

How to pay a drawdown lifetime mortgage back

When you die or move into long-term care, your property is sold, and the money from the sale is used to pay off the loan. If there is any money left over after paying your loan, your beneficiaries inherit it. Alternatively, there is an option that allows interest to be paid over time.

What are the benefits and drawbacks?

Easy access to money over the long-term and only paying interest on the amount currently borrowed rather than the reserve sounds like a great situation and it is, but there are important downsides to consider too, along with the benefits.

Which providers offer this type of mortgage?

In general, the number of lenders offering equity release is small, and that reduces when you get to lifetime mortgages, which is more so with drawdown mortgages. There is, however, a good collection of others that have this in their portfolio, including Legal and General, Hodge Bank, One Life, and Canada Life. They may be less familiar to you than the high street names but often have expertise in other retirement products.

The rates and amounts they’ll be willing to lend will then vary depending on their internal criteria and will be influenced by how much equity you have in your home, your age, and your health. Often, if you’re older and have health issues, you can get a better rate. A broker would be able to help you find the best rate currently available for you and your circumstances.

Fees to expect

Most lenders allow borrowers to draw down free of charge, but you should expect to pay set-up and administration fees as well as solicitor fees at the outset. Where there can be stipulations, however, is on the amount of money you can withdraw at once. Some lenders will set a minimum amount of £500, while others will raise that to £6,000. When deciding on which lender to apply to, it’s worth considering the size of withdrawals you’re likely to want.

Eligibility for drawdown lifetime mortgages

Many drawdown lifetime mortgage lenders would be willing to approve an application, providing you pass their eligibility checks, which could include questions about:

• Your health: This can affect the amount you can borrow, though it’s only usually a factor for borrowers who want to borrow especially large amounts
• Your age: You must be aged 55 and over
• The property value: It should be worth a minimum of £70,000
• The type of property you live in: Lenders prefer standard construction properties
• Where your property is: It must be in the UK

Before applying for a drawdown lifetime mortgage, you should talk to an expert who can examine your circumstances and point you in the direction of a lender who is more likely to approve your application and give you the best possible deal.

How much could you borrow with a drawdown lifetime mortgage

Every lender is different regarding how much they will lend to a homeowner, but usually, the older you are, the higher the loan-to-value (LTV) ratio they will give you. Lenders will also consider your health when assessing your application, and in some cases, if you are under 55, they will consider approving a drawdown lifetime mortgage.

Drawdown mortgage examples

In any case where health is a factor to consider, a doctor’s report will be requested to provide evidence of the illness or condition. Most lenders will consider a maximum LTV of 40-50%, although some can consider an LTV of up to 55-60% in certain circumstances.

Contact a specialist for drawdown lifetime mortgage examples that are more specific to your circumstances.

Can I get a drawdown lifetime mortgage with credit issues?

If you have bad credit, this could affect your chances of approval for a drawdown lifetime mortgage. However, bad credit is usually less of an issue for lenders with no repayments. Every lender has different criteria, so some may want to look at your credit report when assessing your application for a drawdown lifetime mortgage.

For more information on how each of these can affect your drawdown lifetime mortgage application, see our bad credit mortgages section or make an enquiry. The advisors we work with will walk you through everything.

Are there any other alternatives to a drawdown lifetime mortgage?

Yes, other alternatives may be more cost-efficient or better for you and your circumstances.

These can include:

Retirement Interest Only Mortgages

Retirement Interest Only (RIO) mortgages require the homeowner to pay back their interest on the loan monthly. Similarly to drawdown lifetime mortgages, the ownership of the property remains with you and the loan itself is paid back from the sale of the home when you pass away or move into full-time care.

Equity Release

Equity Release is a type of loan that is secured against your home. The amount you can borrow depends on a number of factors, including how much equity you own in your property.

There are two types of Equity Releases:

Lifetime mortgage

You borrow money secured against your home but remain the property owner. When you die or move into residential care, the loan is paid back from the sale of your home.

Home reversion plan

You raise money by selling all or part of your home while continuing to live in it until you die or move into residential care.