The benefits of lifetime mortgages for retired people
Historically equity release mortgages and home reversion or home income plans have been the only available options for older people wanting to raise equity from their properties.
In more recent years a new type of mortgage has become available for the over 55s known as the lifetime mortgage. So what is a lifetime mortgage?
A lifetime mortgage allows homeowners to turn equity that has built up in their property into tax-free cash without having to sell their home or downsizing in an unfavourable market.
It has been estimated that 90% of clients who have a financial adviser would like more money in retirement. Equity release is now the fastest growing mortgage sector in the UK. Housing wealth is increasingly being considered as part of the wider retirement planning proposition. Divorce, long term care and the desire to help loved ones get on the property ladder, are some of the ways housing equity is helping people today.
There are a number of financial advantages of using lifetime mortgages e.g. for efficient tax planning, the settlement of later life divorce and repayment of interest-only mortgages. Later life divorce, for example, often leaves a big dent in ‘silver separators’ finances and selling their home can seem like the only option. However, with an estimated £1.8 trillion of equity in the over 65s homes, it may be time to consider property as an asset that works for you.
Lifetime mortgages can allow interest to be rolled up, meaning no repayments, or interest only. Most lenders will allow up to 10% of the mortgage capital to be repaid each year if the mortgage is a Flexible Lifetime Mortgage.
Capital may be released as a lump sum or advanced regularly like an income. The regular advance method is known as a Drawdown Lifetime Mortgage. This method of releasing equity is the most popular because the amount of money borrowed is very small initially and it gradually builds up. If a large capital amount is released initially then interest will become payable on that larger sum immediately.
Even if you take out a Roll Up Lifetime Mortgage you are still protected by the no-negative-equity guarantee if your lender follows the Equity Release Council standard. So it is important to ensure that your lender adheres to this standard.
Money released could even potentially be used to invest in Inheritance Tax efficient investments which could reduce your Inheritance Tax liability. The Lifetime Mortgage will of course reduce your estate for Inheritance Tax purposes too as long as the capital released is spent in some way.
So a Lifetime Mortgage is certainly worth considering if it suits your personal circumstances. As ever, you should take advice from a professionally qualified person with experience in this area. You know it makes sense.