What is a Lifetime Home Equity Release and Which Lifetime mortgage providers Should You Consider?
We’ve got the important facts you need to know before considering UK release plans, as well as an overview of some of the most popular lifetime mortgage providers. If you are thinking about freeing up capital right now, this is for you!
What is a Lifetime Mortgage?
A lifetime mortgage is when you borrow cash backed against the home’s equity, if it’s your primary residence, while you keep the property.
The property is sold when the last borrower dies or takes long-term care, and the money from the sale is used to pay off the loan.
There are several types of lifetime mortgage plans available, including:
- Accrued lifetime mortgages
- Lifetime mortgages with disposition
- Flexible Life Mortgages
- Enhanced life mortgages
Lifetime mortgage providers: what you need to know
Unlike traditional mortgages, lifetime mortgage providers don’t consider affordability a factor in determining how much you can borrow because there are no payments to be made with this type of loan.
One of the main reasons people want to use an interest-only lifetime mortgage is that a provider can release the money as income that will strengthen their retirement funds.
Important points to consider when looking for lifetime mortgage providers are:
- Your age, health and property value are the main factors that determine how much a mortgage lender will allow you to borrow for life.
- The older you are, the more capital you can unlock from home
- All providers of lifetime mortgages will require a proper appraisal of your primary residence. The bottom line is that the house is sellable and has sufficient security in the long term.
- Most providers offer a maximum loan-to-value (LTV) ratio of between 50% and 55%, some as high as 60%.
- The minimum age for most providers is 55 years, for some 60 years. Some providers also have a maximum entry age, usually between 80 and 95 years.
- Some providers who are members of the Equity Release Council (ERC) offer fixed interest rates and may allow interest to be paid while the applicant is alive, rather than accruing.
- The advisors we work with have in-depth knowledge of this loan form and can help you find a provider with the best conditions that meets your needs.
- The advisors we work with are supervised by the Financial Conduct Authority, so you are dealing with a highly trained individual who adheres to strict rules of conduct.
What are the benefits of a lifetime mortgage?
Retention of the title of your property
If you want to keep your property in the family, you can do it with this option. This may be the case if you or your family members plan to live in your home indefinitely. You can also sell your home earlier if your circumstances change.
Freedom to use your money
Borrowed money can be spent (or reinvested) as you choose, giving you freedom and flexibility.
Negative equity guarantee
Many lifetime mortgage providers offer a “negative equity guarantee,” which guarantees that you won’t pay more than what you received when you finally sold your property.
Real estate planning
Some lenders also allow you to divide and protect a percentage of the property’s value as a gift as an inheritance, or make early partial repayments if your circumstances change. This way you can ensure that your family receives part of the inheritance of your home.
Some life-long mortgages allow you to pay off part of your debt early. This will help increase the amount that may be available to your family in the event of your death.
What are the disadvantages of a lifetime mortgage?
Reduce your inheritance
Stock release schemes and lifetime mortgages, in particular, are likely to reduce the amount of inheritance you can give away to family and friends. However, this is less of a concern if the cost of impending care needs is likely to reduce the amount you can leave in the event of your death. We recommend that you seek independent advice so that you can make the best decision based on your circumstances.
Impact on profit and tax position
A lifetime mortgage can affect your entitlement to certain government benefits, as well as your tax position, so it’s worth getting a clear idea of how enrolling in a plan might affect your income support before you make a decision.
Life-course mortgages yield interest, both on the mortgage itself and the annual interest added.
This significantly increases the amount you have to pay later. (Lifetime interest-only mortgages can be obtained to alleviate this, as described below.)
You may need permission or be forced to make early repayment if you decide to rent out or sell your home before the agreed term has expired.
So if you change your mind or find your circumstances changing, things can get pretty complicated.
What Are the Different Types of Lifetime Mortgages?
There are roughly two different types of mortgages that you can choose from:
– An accrual interest mortgage
Here you will either receive a lump sum at the start of your release plan, or you will receive a fixed amount over a certain period. You then pay interest on the loan amount, which is added to the loan. The effect of this is that you do not have to make periodic payments to the mortgage lender. You pay the amount you initially borrowed plus accrued interest at the end of the term of your mortgage when your home is sold.
– A mortgage that pays interest
Here you get a lump sum and make monthly or ad hoc payments to cover interest costs on the amount borrowed. This reduces or stops the impact of generating interest or “coiling”. In addition, you can also pay off the principal with some mortgages. The loan amount is repaid when your home is sold at the end of the term of your mortgage, less any payments that have already been made.
Equity release: who, how and why!
An equity release arrangement is a way for homeowners over age 55 to borrow money against their property and not pay off the debt until they die or move into long-term care. It is usually chosen to help the elderly owner improve the quality of life in the future and to fund his retirement with tax-free cash, but not exclusively.
The loan is not repaid until the owner dies or moves out and receives long-term care. This is done by selling your property and using some or all of the money raised to pay off the debt in one go. The most common form of exemption arrangement in the UK is called a lifetime mortgage.
You should only get a lifetime mortgage from lenders that are licensed and regulated by the Financial Conduct Authority. And you should get personal advice on share releases before you go any further.
What is a Standard Lifetime Mortgage?
The Lifetime Mortgage Standard – There are a few variations! – works by providing a lump sum loan based on the equity of your home. You can get up to 60% of your home’s value in one go.
The loan is subject to a fixed interest rate that is charged monthly but does not have to be paid every month, so there are absolutely no monthly payments to be made. The debt is only paid after you die or move to a care facility by selling your property to pay.
The beneficiaries of the estate can use cash to pay down the debt and maintain the family home, or even buy it themselves when it comes on the market. Stamp duty may be due if they buy it on the open market or pay cash to the estate to settle the debt.
What is the difference between a lifetime mortgage and a principal?
Lifetime mortgages are one type of stock release plan, but there is another type called a home reversal plan. Therefore, all lifetime mortgages are equity releases, but not all equity plans are lifetime mortgages. Because lifetime mortgages are so much more popular and widely advertised than home flip plans, the two terms are often treated as the same.
Can I get a lifetime mortgage?
To get a lifetime mortgage, you must first receive personal release advice from a financial advisor experienced in the release industry.
The advisor assesses your suitability for a capital release plan and tries to identify alternative options that may ultimately require the family home to be sold. Freeing up capital can be extremely expensive to pay for, which we will illustrate shortly, so it’s good to look for better alternatives early on.
You must also meet the lender’s eligibility criteria, and appraisers will appraise your property on the lender’s behalf to assess whether the property will continue to have value going forward and is not at risk for things like flooding.
Who qualifies for a lifetime mortgage?
To qualify for a Lifetime Repayment Mortgage you generally need the following:
- Be at least 55 years old (applies to the youngest applicant in joint applications)
- Be under 85 years old (applies to the oldest applicant in joint applications)
- Owning a home with no secured debt, including home mortgages and other loans.
- Take equity from your primary residence with a minimum property value of around £80,000
- Be wise to make the decision
What is the maximum you can borrow with a lifelong mortgage?
The amount you can borrow with a lifetime mortgage is determined by several factors, including the equity in your home, your age, details about your property and the lender.
Typically, the most you can borrow with a lifetime mortgage is about 60% of your home equity (or 60% of your property’s value because you have to own it to apply). This means that owning a £200,000 home can net you a lump sum of up to £120,000.
If you need a larger lump sum than the loan you’ve been offered, and you have health issues, you might want to consider one of the other types of lifetime amortization mortgages that are designed to allow for larger loans. This is called an extended lifetime mortgage.
What is the interest rate for lifetime mortgages?
Average lifetime mortgage rates can range from 2-8% on average. Lifetime mortgages can become very expensive loans if held for long periods, so it’s important to find the lowest lifetime mortgage interest rates.
For example, someone taking out a £ 65,000 lifetime mortgage at a flat rate of 6.4% will pay around £137,000 after just 12 years. This greatly affects the amount of inheritance you can pass on to family and friends.
Can I buy a house with a lifetime mortgage?
You can use a lifetime mortgage to buy investment properties or help family members climb the real estate ladder themselves.
Many senior homeowners choose to help their sons and daughters buy a home by releasing equity. Just keep in mind that by gifting part of your loan to others, this money may be subject to inheritance tax, if applicable, and if done within seven years of your death.
How to Find the Best Lifetime Mortgage Providers?
To find the best lifetime mortgage providers, we recommend consulting a top financial advisor.
Ideally, your chosen advisor should specialize in lifetime mortgages to help you find the best provider for your needs and circumstances.
The most effective way to find the best lifetime mortgage providers is to use the services of one of the full market advisors we work with. They will already have a thorough understanding of what product terms are available for this type of financing, including offers that are not readily available to the general public.
Also, keep in mind that making multiple mortgage applications from different lenders can hurt your credit score if you do a lot of mortgage credit checks, so it’s best to work with a specialist who knows where to look for the best deals and some lenders to do.
Here’s a checklist:
- Be sure to choose a lender who is a member of the Equity Release Council.
- Check that the company offers a “negative net worth” guarantee, meaning that the amount you owe the lender can never exceed the value of your property.
- Check if there are any application fees, also known as closing fees.
- You can also view our independent product reviews. These highlight the most flexible products available, with no sneaky, high one-off costs.
Lifetime Mortgage Providers – Who offers the Best Lifetime Mortgages?
The answer depends on your circumstances, as well as each lender’s attitude toward lifetime mortgages. In this section, we’ve provided an overview of some of the more well-known lenders and their stance on lifetime mortgages at the time of writing.
More 2 Life
More 2 Life is known for the flexibility of its share release plans. The cost to add or remove people from a plan is lower than standard and protects downsizing, so downsizing won’t be as expensive.
Liverpool Victoria (LV)
Liverpool Victoria (LV) offers both fixed and flexible lifetime mortgages. For both products, the minimum entry age is 60 years. Loan to Value (LTV) is based on the age of the applicant and the value of the property, which ranges from 20% to 50%.
If you’re between the ages of 55 and 60 or looking for a higher LTV, you should hire an advisor to find alternative lenders that can meet these requirements.
Legal and General (L&G)
Statutory and general lifetime mortgages are available for properties worth £100,000 or more. The minimum age for applicants to participate is 55 years. Legal and General offer three types of lifetime mortgages: flexible and optional payment and income. LTVs typically range from 38% to 44%.
L&G Lifetime Mortgages are only available through an advisory service, although their website offers a lot of information, including a mortgage calculator to work out how much you can borrow.
Aviva’s interest-only lifetime mortgage is available to eligible homeowners aged 55 and older. Available LTV depends on your age and home value but is typically between 20% and 52%. Aviva Lifetime Mortgage interest rates also depend on your age, health, loan amount and property value.
To access Aviva’s product suite, you must use an advisor.
One Family offers internal release advice for a flat fee of £950 (including VAT). Most advisers charge a percentage of your loan, so LV advice can be cost-effective if you want to access a larger loan amount.
Hodge Lifetime offers two types of lifetime mortgages: flat rate and flexible with lifetime fixed rate options. They also offer two other types of traditional mortgages aimed at customers aged 55 and older:
- Hodge Lifetime 55+ Mortgage
- Hodge Lifetime Retirement Mortgage
- Hodge Lifetime products are only available through an advisor.
Prudential no longer offers lifetime mortgages to new customers. If you are an existing client, you can request the release of more equity in your property if necessary. If you are already a Stonehaven Exclusive Interest Lifetime Mortgage customer, you can transfer your plan to Prudential.
Saga Lifetime Mortgages are available in both lump sum and withdrawal formats. They are available to customers with a minimum age of 55 to a maximum age of 80. If you are over this age, you should use a broker to find lenders that might meet your requirements.
Known for exceptional customer service, Pure Retirement only handles Independent Financial Advisor requests on behalf of clients. This is a sign that they act professionally. They offer some competitive rates.
Nationwide offers free principal release advice and will not charge you a prepayment fee if you need to pay off part of the loan in the future to reduce your. They are currently offering £1,000 cashback to successful applicants.
Only Interest-only Lifetime Mortgage Providers
Not all main lenders offer interest-only life-long mortgages. However, the following does:
- Legal and General: Your interest-only lifetime mortgage plans come with a free appraisal, no application fee, and a payback feature.
- LV= – They also offer a free appraisal and no application fee for their plans.
- One Family: Your plan comes with variable interest rates and a free appraisal.
- Canada Life: Again, you can get a plan with a free valuation, no application fee, and money back.
- Pure Retirement: You can get a lifetime interest-only mortgage with a down payment exemption.
- More2Life – Your Prime Max subscription comes with a guaranteed inheritance feature.
Which banks and building societies offer lifetime mortgages?
Most major lifetime mortgage providers do not currently offer their version of a lifetime mortgage to new or existing customers. Banks and building societies that do not offer this type of loan include:
- Yorkshire Building Society
Some lifetime mortgage providers, including Santander and Natwest, offer existing single mortgage customers age 55 and older the option to switch to a lifetime mortgage with Legal & General. Other lenders, such as Leeds Building Society, offer interest-only mortgages rather than lifetime mortgages.
If you do not meet these criteria, or if you are an existing customer of a bank or building society that does not currently offer a lifetime mortgage option, you will need to engage an advisor to find alternative lenders.
Nationwide has bucked this trend by offering lifetime mortgages with the option to take your principal as a lump sum or as income when needed. If you are an existing mortgage customer of Rijkswaterstaat and you are between 55 and 85 years old, you can apply for this form of financing.
If you are not currently a Nationwide mortgage customer, you should use an advisor to find alternative lenders that may meet your requirements.
Scottish Widows Bank offers the option of a lifetime mortgage only to existing customers who currently have an interest-only mortgage. If you don’t meet these criteria, you should engage an advisor to find alternatives.
Lifetime trailing mortgages
Several banks and building societies offer a similar-sounding product called a lifelong trailing mortgage, which includes the following:
However, it is a tracker, a type of interest-paying mortgage that tracks the movement of the Bank of England’s base rate, either for a fixed period or over the entire term. This form of mortgage should not be confused with a lifelong mortgage, as they are completely different forms of lending.
How to apply for lifetime mortgage providers?
While it can be tempting to approach lenders who offer lifetime mortgages directly, this is generally not recommended as it will limit you to products from a single provider that may not necessarily best suit your needs.
Due to the complexity of this form of loan, most providers of lifetime mortgages only offer their range of products through an advisor to ensure that the client receives professional advice before proceeding.
Using the services of a market-wide consultancy is the best way to find the most competitive product, with the best available terms. They also have close relationships with many of the major lifetime mortgage providers and can introduce you to the one that’s best for you.
Do I need financial advice?
You must seek financial advice to obtain a stock-release product.
You can choose to receive advice from:
- A limited advisor – You can only advise on a limited number of products, which means there is no guarantee that you will get the best deal possible.
- An independent advisor: they search the entire market for the best offer that fits your needs
- For example, Legal & General, one of the largest providers of seed capital, employs its advisers:
- The advantage is that you do not pay extra for the advice you receive from them.
- The downside is that they can only recommend L&G products, so you might miss out on a better product from another supplier.
- An independent financial advisor can give you a more complete picture of what’s available in the market.
- It is important to find a good independent advisor who specializes in stock releases. The largest independent national specialists are Age Partnership Limited and Key Group.
- Age Partnership Limited is the Times Money Mentor ‘Accredited Broker’ which means we have rated them as unbiased and customer-focused. If you choose to apply for any of the products in our release table, you can do so through Age Partnership Plus.
How do equity release fees work?
Capital release plans can be complex and come in many different forms. There may also be many additional costs involved.
We’ve listed the most important ones to consider:
1. Opening Costs
Like regular mortgages, lifetime mortgages often come with a set-up fee, commonly referred to as an arrangement or application fee, which can run into hundreds or even thousands of pounds.
Although you only pay them once, if you add them to the loan, interest will be charged on them.
Loans with higher application fees and lower rates may be cheaper for those looking for larger loans, while for those borrowing smaller amounts, it may make sense to look for a loan with a higher but lower interest rate.
2. Costs of early repayment
Circumstances change and if you decide to pay off your loan early, it can turn out to be very expensive.
All providers have early repayment fees, but some are much lower than others. In the worst case, the costs can be up to 25% of the mortgage.
Other companies have fixed prepayment fees that decrease the longer you have the loan.
3. Redemption Fees
These are applied when the loan is paid off, usually upon your death or long-term care.
Some companies charge up to £200, while others charge nothing. So make sure you are clear if these charges apply.
4. Charges for adding or removing someone from the loan
You can get divorced or remarried, and adding or removing someone from your release plan can incur significant costs.
Some companies charge up to £695, while others charge nothing.
5. Valuation Committee
Just like with a regular mortgage, lenders will want to value your home before deciding how much to loan you and on what terms.
Some providers and products do not charge anything for this service, while others have tiered fee structures, with appraisal fees rising to £2400 for the most expensive properties.
Lifetime Mortgage Providers Frequently asked questions
How do I apply for a lifetime mortgage?
To apply with a lifetime mortgage provider, you need to consult an advisor to compare the offers on the market and find the best one for you.
Should borrowers use a High Street lender or a specialist for a lifetime mortgage?
Borrowers should use a lifetime mortgage specialist when looking for the best deal.
While commercial lenders are also a viable option, the track record and industry experience of specialists are a bonus.
Who offers the best lifetime mortgages?
The best lifetime mortgages are offered by regulated companies with years of experience.
These include Aviva, Canada Life and Legal & General.
How do you find the best lifetime mortgage provider?
To find the best lifetime mortgage provider for you, work with a prime broker.
What Features Do the Best Lifetime Mortgage Providers Offer?
The best lifetime mortgage providers offer features such as fixed or variable interest rates, as well as a “negative equity guarantee”.
Which banks provide lifelong mortgages?
Banks such as HSBC, Barclays, Halifax and Santander provide lifelong mortgages.
What does Martin Lewis say about lifetime mortgages?
Martin Lewis says there are different versions of lifetime mortgages to consider.
An example of this is a cash lifetime mortgage, where you have to take less and pay part of it.
What is the interest rate on a lifetime mortgage?
The best rates range from 4.35% to 7.55%* APR.
Can you buy a home with a flexible lifelong mortgage?
Yes, you can buy a home with a flexible life-long mortgage.
If you sell your current home before you move, you can get a flexible lifetime mortgage on the home you’re moving into.
Lifetime Mortgage Providers Conclusion
Trying to identify which lifetime mortgage providers offer the right solution for your circumstances can be a difficult task for you. Many people in your situation seek professional advice before making a final decision on which lender can best help.
There is much more to know about lifetime mortgages, such as using a principal release calculator, variations of a standard lifetime mortgage, such as an abbreviated lifetime mortgage, and understanding how to take out a rough amount can be from affect any benefits you receive according to the media.