Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 16th April 2019* | Published: 7th February 2019
We get a lot of enquiries from pensioners who want to take out a mortgage to access funds in later life, many of whom have been turned down by lenders that don’t cater for borrowers at, or nearing, retirement age.
The good news is that there are plenty of options available for older borrowers, and the experts we work with have strong experience in working with customers to find a suitable mortgage provider, whatever their age.
In this article we’ll look at just one of the mortgage products available for pensioners: lifetime mortgages.
A lifetime pensioner mortgage is a form of equity release, which is the act of ‘unlocking’ some of the capital tied up in a property. Lifetime mortgages for pensioners take the form of a loan secured on your home or primary residence, and the equity released is made available to you as a tax free cash sum.
Interest is added to the amount that you decide to borrow and is ‘rolled up’, i.e. it accrues on a yearly basis, but does not need to be repaid until the property is sold or the borrower dies or moves into residential care.
Is a lifetime pensioner mortgage the same as equity release?
Lifetime pensioner mortgages are a type of equity release, but they differ from other forms you might have heard of such as home reversion plans, crucially in that you still own 100% of your property after you take out the loan. They are accredited by the Equity Release Council, which was set up to protect homeowners from unscrupulous lending in this area.
They contrast with an older form of equity release called ‘home reversion plans’ which meant selling all or part of your home back to the lender in order to release funds. The borrower then becomes a tenant in their own home, and it was easier for the lender to repossess the property if it went into negative equity.
What are the benefits of a lifetime pensioner mortgage?
The key benefits of a lifetime mortgage can be summarised as follows:
You own the property
No repayments due while you’re living in the property
No risk of repossession
No regular income required
You get a ‘no negative equity guarantee’ meaning your estate is not liable for any costs even if the property loses value and does not cover the remaining loan amount at sale.
Am I eligible for a lifetime pensioner mortgage?
You may be eligible for a lifetime mortgage if the following apply to you:
How much equity can I release through a lifetime pensioner mortgage?
The amount you can release will depend on lender policy as well as the amount of equity in your home, your state of health, and your age.
The older you are, the more you can borrow, for example at age 55 or 60, most lenders allow you to borrow 25%-30% of the value of your home. At 65 or 70, many allow up to 55.5%.
Lenders also set a minimum loan amount for lifetime mortgages: for most this is around £15,000; for a few it’s as high as £45,000.
For example, if you’re 55 years of age and your house is worth £250,000 you may be able to release around £51,250 using a lifetime mortgage.
At 65, you could borrow around £75,000 on a property of equal value.
Rates for lifetime pensioner mortgages
Most lenders currently offer interest rates of around 5% on lifetime mortgages for pensioners. A few can go as low as 3.7% under the right circumstances.
There are both fixed and variable rates available; variable carries far more risk since interest is not usually paid off until the sale of the property and can mount up quickly, which means a much larger final amount owed by your estate if interest rates rise significantly.
Factors that can affect access to the best rates include:
Lifetime mortgages with bad credit
Credit issues may not be as much of an obstacle to lifetime mortgages than they can be for normal residential mortgages, because no regular repayments are due. Lenders differ in their policies around this point, but many can offer lifetime mortgages to borrowers with a history of adverse credit.
Is a lifetime pensioner mortgage right for me?
Lifetime mortgages can be a good way to free up funds for pensioners that are asset rich but don’t have a lot of cash savings to fully enjoy their retirement, gift money to family members or make modifications to their home.
However they aren’t the answer for everyone, and there are a few important issues to keep in mind:
Impact on your tax position
While the lump sum you will receive is paid to you tax free, it could limit your access to some state benefits and it’s also possible that it will be considered a tax event at some point in the future, depending on what you do with the money.
Seek professional advice for clarity on this point.
Will it impact on my legacy?
Taking out a lifetime mortgage will reduce the amount of equity in your property and therefore limit the amount you are able to pass on to beneficiaries (unless the property’s value increases significantly). However, it could also potentially reduce the amount of inheritance tax due on your estate.
Upkeep of the property
Most lenders will stipulate that the property needs to be maintained to a certain standard as a prerequisite of agreeing to a lifetime mortgage. This may not be realistic for you if you’re not up to the task of managing regular upkeep.
It is also a requirement that the property is insured.
What are the alternatives to lifetime pensioner mortgages?
If you’re unsure of the best solution for you, feel free to contact us on 0800 304 7880 or make an enquiry here, and we’ll be happy to find a suitable advisor.
Can I take out a lifetime mortgage on a Buy to Let (BTL)?
It’s not usually possible to take out a lifetime mortgage on a BTL property, as almost all lenders offer them only on main residences. Only one offers them on BTLs, and rates are far higher.
Speak to an expert on lifetime pensioner mortgages today!
If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...
Find out more about how we help people with lifetime mortgages