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Drawing down on your mortgage

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 3rd July 2019* | Published: 8th February 2019

Perhaps you’re interested in finding out how drawdown mortgages work, and the potential benefits of getting one. Or maybe you’ve had trouble getting a drawdown mortgage in the past.

Not to worry, you have options - we get lots of enquiries about these products and the advisors we work with regularly help people, just like you, to find the perfect mortgage for their unique circumstances.

Here’s what you’ll learn in this article…

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 steer you in the right direction.

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Mortgage drawdown meaning: What is it?

What does ‘mortgage drawdown’ mean? Well, the term ‘drawdown' actually refers to two different things.

‘Drawdown’ is a word used to describe the release of funds for a mortgage that has just completed.

A good ‘drawdown mortgage’ definition would be the following: a flexible mortgage that allows you to withdraw funds whenever you like - a little like an overdraft.

Drawdown mortgages are most commonly associated with equity release products, though they are not exclusive to this sector of the market.

Drawdown equity release plans and drawdown lifetime mortgages

Drawdown equity release schemes are particularly popular amongst older people - as they provide financial flexibility in later life. In such schemes, some of the equity built up in your home is put into a reserve, where it can be withdrawn as needed.

This often form part of a ‘drawdown lifetime mortgage’. As you may expect, a drawdown lifetime mortgage combines the features of a drawdown mortgage (i.e. the reserve facility) with a lifetime mortgage. It’s a good alternative to the ‘lump sum’ option offered by some other kinds of lifetime mortgage.

Like with other lifetime mortgages, there are no monthly repayments in an equity release drawdown scheme.

Both loan and principle are paid off when the home is sold (usually after you move into care or pass on). The requirements are also the same - you’ll have to be over 55, be a UK resident and own your own home (which also has to meet a minimum value).

How do I find the best drawdown equity release mortgage?

Seeking specialist advice is always recommended if you’re looking for one of these products, since not all lenders offer mortgages with a drawdown facility.

Applying through one of the whole-of-market brokers we work with will give you the best chance of finding the lender offering the most favourable rates for a borrower with your needs and circumstances. It will also keep lender searches on your credit report to a minimum, not to mention save you a great deal of legwork!

Make an enquiry here to speak with an expert drawdown mortgage broker today.

The reserve

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 - 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, or a month 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 - 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.

Fees and terms

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 by 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, whilst 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.

Drawdown mortgages and your pension

Some people choose to approach this process almost in reverse - drawing down lump sums from their pension to pay off their mortgages. 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.

Drawdown mortgages for self build properties

You can’t get a drawdown mortgage on a self build property, because a self build mortgage is a kind of drawdown mortgage in itself.

In 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.

What are ’Flexible drawdown mortgages’?

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’ - all drawdown mortgages are flexible by nature.

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, quite often. As always, every lender treats this differently - but credit issues are often less of a factor, as you have no repayments to make. Read ore about bad credit mortgages.

Can I get a mortgage on a unique property?

This 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.

Want to find out more? We can help. Speak to one of the advisors we work with.

Are the rules the same for big mortgages?

On the main part yes, but it’s more a matter of availability. Less lenders are willing to offer drawdown mortgages on £1 million or over. As such, it can be harder to get one - but not impossible.

Are there any other alternatives to drawdown mortgages?

Yes. You could consider a ‘retirement interest only’ mortgage (RIO). Alternatively, if you have an investment property, you could consider refinancing that instead - opening an interest only mortgage on it.

Where can I find a drawdown mortgage calculator?

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, and therefore results can differ from one mortgage calculator to the next.

These tools will only give you a rough idea of the deal you’d qualify for, which is why speaking to a whole-of-market broker is a better alternative. The advisors we work with know which lender’s calculator is most likely to return favourable results for a customer with your needs and circumstances.

Are there many lenders for drawdown mortgages?

Yes. Drawdown mortgages are increasingly popular, especially amongst people 55 and over. Many lenders offer them.

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.

Interested in getting a drawdown mortgage?

You’re in the right place. OMA offers a 5-star service with access to expert brokers who:

  • Know the ins-and-outs of the drawdown market: being OMA accredited, and having passed the LIBF training course
  • Know the exact lenders you need to go to for drawdown mortgages
  • Cover the whole of the market
  • Can offer bespoke advice about drawdown mortgages

Speak to a drawdown mortgages expert

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.

Updated: 3rd July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*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.

Find out more about retirement mortgages

Mortgages for Pensioners