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Lifetime mortgages explained

Learn all about lifetime mortgages, including how they work, the risks involved, and discover if this type of equity release is the right product for you.

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Page last updated – 4th March 2023

Checked for accuracy by:

John - Equity Release Editor

Lifetime mortgages are becoming a popular way to raise money in later life. According to end-of-year figures from the Equity Release Council, 2022 saw nearly 50,000 (49,285) new plans agreed, a 20% increase on the 2021 total of 40,964 and a new record figure, exceeding the previous high of 46,397 from 2018..

Watch our introduction to lifetime mortgages video

What is a lifetime mortgage?

Equity release is the main term used for a set of later-life financial products and a lifetime mortgage is a type of equity release. A lifetime mortgage is a loan secured against your home which allows you to release a percentage of the wealth tied up in your property as tax-free cash and you can continue to live there, without having to move. The loan does not need to be paid back until you die, or go into long-term care, and you can never owe more than what your house is worth.

Lifetime mortgages are available to homeowners aged 55 or over with a minimum property value of £75,000 and the home is based in the UK and the main residence. You can take the money as a lump sum or in smaller amounts as you need it with a drawdown facility.

If you’re planning for your retirement, or you are already retired and want to raise some funds to make lifestyle changes such as paying off your mortgage, making some home improvements, or perhaps helping a family member get on the property ladder, then a lifetime mortgage could help.

The loan is not repaid until after you, or the last borrower dies or moves into long-term care permanently. You can also choose to pay off some or all the monthly interest to reduce the amount you’ll owe in the end.

Quick Facts About Lifetime Mortgages

The most up-to-date Equity Release Market Statistics from Quarter 4 2022 reveal:

  • Total equity released: £1.4 billion
  • Average equity released per customer: £89,890
  • Drawdown lifetime mortgages accounted for 70% of all equity release plans
  • Home improvements were the most common reason for equity release, accounting for 26% of all plans
  • Average interest rate on new equity release plans: 3.55%

How does a lifetime mortgage work?

If you’re eligible for an equity release lifetime mortgage you can unlock the value built up in your home and borrow a one-off cash lump sum, take regular instalments, or use a combination of both from an equity release lender. Because a lifetime mortgage is a loan, any money you release is tax-free.

Your home will still belong to you, and you will still be responsible for its maintenance. When the last borrower dies (for joint plans) or moves into long-term care, your property is sold and the money from the sale is used to pay off the remainder of the loan and any interest accrued.

Thanks to the no negative equity guarantee, the lender must promise that you, or your beneficiaries, will never have to pay back more than the value of your home. This is true even if the debt has become larger than the value of the property, on the condition that it is sold for the best price reasonably obtainable.

Equity Release Eligibility Checklist

Lifetime mortgage eligibility

In order to qualify for a lifetime mortgage and release equity from a property, you (or the youngest homeowner) must be at least 55 years old, your home worth a minimum of £75,000 with little to no mortgage left, and be your main residence and be in the UK.

How many types of lifetime mortgage are available?

There are two main types of lifetime mortgages that have different costs attached to them depending on how and when the money is released, these are called lump sum and drawdown. Drawdown is the most popular type of lifetime mortgage. [1]

A Lump sum lifetime mortgage gives you the opportunity to release a lump sum of money from a percentage value of your home. The money is tax-free and you are able to spend it all at once, on whatever you like. You will have the option to fix the interest rate for the duration of the mortgage and have the availability to make voluntary payments if you want to reduce the overall cost of the interest charged.

  1. A Drawdown lifetime mortgage allows you to release an initial lump sum from a percentage of the value of your home and the remaining equity you have available can then be accessed as and when you need it in handy instalments, known as a drawdown facility. You will only pay interest on the money you release, which can substantially reduce the over cost of borrowing.

Is a lifetime mortgage right for you?

Taking out equity release is an important financial decision, one that you should consider very carefully. If any of the following are not suitable to your circumstances, then a lifetime mortgage might not be right for you.

Proceeding with an equity release mortgage may reduce the amount of inheritance you can leave behind. It could affect your income tax threshold and your entitlement to means-tested benefits. Your equity release provider will also expect you to keep the property in good condition with regular maintenance.

Lifetime mortgage interest rates build up over the course of the plan and is added to both the loan and the previously added interest. This is known as compound interest, and quickly increases the amount you owe. Eventually, this might mean you owe more than the value of your home unless your plan has a no-negative-equity guarantee.

Each provider has specific criteria for their products, including minimum release amount, early repayment charges, and downsizing protection. Some lenders have further eligibility conditions on the type of property you live in meaning that you can’t apply for equity release if your home is a Grade I or II* listed building. You should be aware that some providers won’t offer lifetime mortgages for properties that are in close proximity to commercial premises (i.e. above, next to, or opposite). Lifetime mortgages are also not suitable for mobile or park homes or properties of non-standard construction.

Try our lifetime mortgage calculator

If you are considering releasing equity in a property it’s a good idea to use a lifetime mortgage calculator to get an idea of how much you could potentially release and what the costs might be.

Our lifetime mortgage calculator can help you see roughly how much equity you could releaseThe quote you get from a lender is based on your eligibility, circumstances, and current interest rates, so we cannot show you an accurate forecast tailored to you.

One of the best things about our lifetime mortgage calculator is that you don’t need to share any of your personal details to use it. You can remain completely anonymous and won’t receive any calls or spam emails from us. Our lifetime mortgage calculator is free to use and you can use it as many times as you like.

Lifetime mortgage calculator

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If you are eligible for enhanced rates then you could release around

How popular are lifetime mortgages?

Lifetime mortgages are popular because they offer homeowners a way to release the equity in their property without having to sell it or move out. This can be an attractive option for older homeowners who have a significant amount of wealth tied up in their home and want to access it for various reasons, such as supplementing their retirement income, paying for home improvements, or helping family members financially.

Lifetime mortgages also offer flexibility in terms of how the money is used, and the borrower retains ownership of the property, allowing them to benefit from any future increases in its value.

Have a look at the data below outlining how popular each of the different types of equity release are:

Lifetime mortgage providers

Several lifetime mortgage providers are in the market, each offering unique products and services to homeowners looking to release equity from their properties. Some of the most popular providers in the UK include:

  • Aviva
  • Legal & General
  • Just Group.

Aviva offers a range of flexible products, including the Lifestyle Lump Sum Max and the Flexi Loan Plan, which allow homeowners to release equity as a lump sum or as a flexible borrowing facility.

Legal & General’s Lifetime Mortgage plans offer a range of options, including fixed and variable interest rates, with the ability to make partial repayments to reduce the interest charged.

Just Group’s Lifetime Mortgages offer a range of products designed to meet different customer needs, including lump sum and drawdown plans, and the ability to protect a portion of the property’s value for inheritance purposes.

These providers, along with others in the market, such as Halifax, and even Woolwich mortgages, can provide valuable solutions to help homeowners access the wealth tied up in their homes. You can compare equity release companies here.

Lifetime mortgages compared to home reversion plans

Lifetime mortgages and home reversion are two types of equity release schemes that allow homeowners to release equity in a property while continuing to live in them. However, there are significant differences between the two, which can make one more suitable than the other depending on the homeowner’s needs and preferences.

Home reversion involves selling a portion or all of the home to a third party, in exchange for a lump sum or regular income. The homeowner retains the right to live in the property rent-free for the rest of their life, but no longer owns the portion sold to the reversion company. When the homeowner dies or moves into long-term care, the property is sold, and the reversion company receives its share of the proceeds.

One advantage of lifetime mortgages is that the homeowner retains ownership of the property and can continue to benefit from any increase in its value. However, as mentioned above, the debt can grow quickly, and the interest rates are typically higher than those for traditional mortgages. Home reversion, on the other hand, can provide a larger lump sum upfront and is generally more predictable, as the amount of money received is determined at the outset. However, homeowners lose the potential for any future appreciation in the value of the property.

In summary, lifetime mortgages and home reversion are two different ways to release equity in a property. Homeowners should carefully consider their options and seek professional advice to determine which scheme is most suitable for their needs and circumstances.

In conclusion, a lifetime mortgage can be a useful financial tool for older homeowners who are considering releasing equity in a property without having to sell it or move out. While these schemes can provide borrowers with additional income and flexibility in how they use the funds, it is important to carefully consider the costs and potential risks involved. As with any financial decision, seeking professional advice from a qualified adviser is crucial to fully understanding the implications of a lifetime mortgage and making an informed decision. Ultimately, a lifetime mortgage may be a good option for some homeowners, but it is important to carefully evaluate whether it is the right choice for their individual needs and circumstances before proceeding.

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