Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 28th August 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 homeowners at, or nearing, retirement age.
The good news is that there are plenty of options available if you're an older homeowner.
In this article we’ll look at just one of the mortgage products available for pensioners: lifetime mortgages.
If you'd like to skip the reading and get advice directly from one of the expert advisors we work with, call 0808 189 2301 or make a quick online enquiry.
We'll match you with an advisor experienced in helping older customers who want to release equity from their homes. They'll be able to answer all your questions and help you find the mortgage solution to meet your needs and circumstances.
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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, whether that happens when you move into residential care or pass away.
Is a lifetime pensioner mortgage the same as equity release?
Lifetime pensioner mortgages are a type of equity release, However, unlike other forms of equity release arrangements, you retain 100% ownership of your property after you take out the loan.
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.
Lifetime pensioner mortgages are accredited by the Equity Release Council, which was set up to protect homeowners from unscrupulous lending in this area.
What are the benefits?
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’, which means your estate isn't liable for any costs, even if the property loses value and doesn't cover the remaining loan amount at sale.
Who is eligible?
You may be eligible for a lifetime mortgage if the following apply to you:
The amount of equity you can release through a lifetime pensioner mortgage will depend on 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.
To find out exactly how much you could borrow, call 0808 189 2301 or make a quick enquiry.
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.
Can a poor credit history affect access to the best rates?
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.
Although lenders differ in their policies around this point, many offer lifetime mortgages to homeowners 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 if you're asset rich but don’t have a lot of cash savings to fully enjoy your retirement.
Some people want the cash before they die in order to 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'll 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's 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, call 0808 189 2301 or make a quick online enquiry.
We’ll match you with one of the advisors we work with who has experience of helping other customers successfully arrange equity release mortgages.
Can I take out a lifetime mortgage on a buy-to-let?
It’s not usually possible to take out a lifetime mortgage on a buy-to-let property, as almost all lenders offer them only on main residences.
At the time of writing, only one lender offers them on buy-to-let properties, and rates are far higher.
Speak to an expert on lifetime pensioner mortgages
If you have questions and want to speak to an expert for the right advice, call 0808 189 2301 or make an online enquiry. We'll match you with one of the expert brokers we work with.
All the advisors we work with are whole-of-market brokers with access to mortgage lenders across the whole UK market. We'll match you with an advisor experienced in successfully arranging lifetime pensioner mortgages.
They'll be happy to answer all your questions and find the best mortgage for your own particular needs and circumstances.
We don’t charge a fee and there’s absolutely no obligation either.
*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