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 October 2019 *
A drawdown mortgage – also called a drawdown lifetime mortgage – is a great option for those over 55 looking for a flexible way to release cash in their home. But what exactly is a drawdown mortgage, how does it work, and is it the right financial option for you?
To answer these questions and more, we’ve put together this handy guide that includes the following:
Want to find out more, or explore your options? For the right advice, speak to one of the experts we work with. They’ll be able to provide you with all the information you need about drawdown lifetime mortgages, and all advice is free.
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A drawdown mortgage enables you to release funds for a mortgage that has just completed. It’s a flexible mortgage that enables your to gradually release some of the money in your home over time. You’ll get an initial lump sum, followed by a facility you can draw on when you like.
Because a drawdown lifetime mortgage allows you to access your money gradually, interest grows at a slower pace, so you could save more money. It’s also worth noting that even if you take out smaller amounts over time, your funds will always remain tax-free.
Drawdown lifetime mortgages work in the same way as lifetime mortgages, though they offer more flexibility. Lifetime mortgages are also one method of equity release, which we explain in more detail below.
How does drawdown equity release work?
With equity release, there are two types you can choose from: a lifetime mortgage, and a home reversion scheme.
The main difference between the two comes down to home ownership: with a lifetime mortgage you still own your home, whereas with a home reversion plan, you sell a share of your home in exchange for a lump sum or a lifetime of regular income.
Because a drawdown lifetime mortgage combines the features of a drawdown (i.e. the reserve facility) with a lifetime mortgage, you’re able to keep 100% of your home as well as draw on your funds at your leisure.
Like with other lifetime mortgages, there are no monthly repayments in an equity release drawdown scheme, as both the loan and principle are paid off after the last deed-holder has passed on or moved into care and the property has been sold.
The requirements are also the same – you’ll likely need to be over 55, be a UK resident and own your own home (which also has to meet a minimum value). You can typically release 18%-50% of your property’s value, though this will depend on a number of factors.
Instead of paying interest on the entire balance of the mortgage, mortgage drawdown works by allowing you to borrow as much as you need from a pool of funds held in a ‘reserve’.
The interest is only charged on the amount you have ‘drawn down’ - not the full amount that is available to you in the reserve. This lowers your monthly repayments.
For example, if you have a mortgage drawdown facility set up to borrow £100,000. If you borrowed £70,000 (initially) you could withdraw £30,000 a day, a month or 6 months later without having to make another application.
This drawdown facility is usually agreed in advance, and will be stated in your formal mortgage offer.
Caveat: The reserve can be withdrawn or withheld
Though most lenders permit unlimited access to the reserve, not all of them will guarantee to keep this reserve available indefinitely.
Lenders may withdraw access to the reserve for many reasons, such as citing high interest rates or an ‘adverse’ property market, for example. Of course, there are some exceptions – for example, there are lenders who can guarantee that their loan will be available for a set amount of time.
That said, it’s also worth noting that a lender is not actually obliged to offer you a withdrawal. Like with any mortgage, they may refuse if they have concerns over your use of the funds.
Are there any fees or terms involved with a drawdown mortgage?
There’s usually no fees for making a withdrawal, and no new set-up fees. However, there’s often minimum and maximum quantities that can be taken out in one go. This varies from lender-to-lender, but on the low end can be around £500, going up to £6,000 with some lenders.
The rate of interest is often set at the time of each withdrawal. However, while the rate is fixed, it can vary over time. As a result, you could end up with a series of different fixed rates on a number of separate borrowings. Some people, understandably, find this confusing.
Drawdown mortgage FAQs
Below you’ll find answers to some common drawdown mortgage FAQs.
Can I draw down from my pension to pay for my mortgage?
As with most things, there are definite pros and cons to this, and if you’re considering it, it’s certainly worth speaking to an expert to see which option fits you best.
Can I get a drawdown mortgage for a self-build property?
Unfortunately, you can’t get a drawdown mortgage on a self-build property. This is because a self-build mortgage is a kind of drawdown mortgage in itself.
With a self-build mortgage, a lender agrees to offer you a certain amount for the property, releasing it in stages as you progress in the construction. So the real difference here is that the lender decides when to release the funds, instead of you.
How long does it typically take to drawdown mortgage funds?
This can vary by lender, but typically the process of withdrawing funds from your reserve is quick, taking no more than a few days.
Are there fees involved?
Yes, just like any other mortgage there are often set-up fees to be paid. For example, there are solicitor fees for mortgage drawdown products, along with the standard administrative fees imposed by the lender.
Does a flexible drawdown mortgage exist?
Not as such, because drawdown mortgages are flexible by nature.
Many equity release products with a drawdown facility are labelled as ‘flexible’ by the lenders that offer them, although a ‘flexible’ home loan could also refer to a mortgage with the option to make capital repayments.
This is because they provide the option (but not the obligation) to take as much you want from the reserve. As such, there isn’t really a separate category of ‘flexible drawdown mortgages’.
How much can I borrow?
Every lender is different. Most will offer a maximum loan-to-value (LTV) ratio of 40-50%, though some will consider up to 55-58% in certain circumstances.
Typically, the amount of available LTV increases with your youth and health. Essentially, the younger the applicant and the better their health, the higher LTV that the lender will offer.
Your personal income is not usually a factor, as this kind of mortgage doesn’t require you to make repayments.
Can I get a drawdown mortgage with credit issues?
Yes, you could get a drawdown mortgage with poor credit, though it depends on your circumstances. As always, every lender treats this differently, but credit issues are often less of a factor, as you have no repayments to make.
Can I get a mortgage on a unique property?
It depends. Many lenders don’t accept property that’s not-standard, unique or listed. This is because they view these properties as less sellable and a higher risk. Of course, some lenders may be more open to financing an unusual property.
They are available on many lenders’ websites and other financial hubs, but keep in mind that every lender uses its own calculations to work out how much you could borrow for a drawdown mortgage, so you wouldn’t get an accurate calculation.
Because these tools will only give you a rough idea of the deal you’d qualify for, it’s recommended that you speak to a whole-of-market broker instead. The advisors we work with will be able to provide you with more accurate figures, as well as source the best mortgage deals via their whole-of-market access.
Yes, there are many lenders which offer this product, including some high street lenders.
For example, Santander’s drawdown mortgage offers include flexible offset mortgages and additional loans secured against your home. Halifax’s drawdown mortgage option allows you to borrow up to 85% of the value of your property, provided you’ve had your mortgage with them for more than 6 months. Natwest’s mortgage drawdown products include additional borrowing on a capital and interest repayment basis.
Seeking specialist advice is always recommended if you’re looking for one of these products, since not all lenders offer lifetime mortgages with a drawdown facility.
By working with one of the independent mortgage experts we work with, they’ll be able to take into consideration your requirements and circumstances in order to make the best recommendations. They also have ‘whole-of-market’ access to look at and compare lenders across the board so you don’t have to do the legwork.
*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!
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