Advertiser and Mortgage, Equity Release and Protection Adviser Nigel Urban (from Finance Planning Group) explains in more detail…
The key to giving mortgage advice is to discover the customer’s circumstances and objectives, then match those to the most suitable product – bespoke advice.
There is no better example of that than lifetime mortgages. They are available to the over-55s, but what are they and which, if any, product is right for you? We are bombarded with advertisements for ‘equity release’, we see ‘myth-busting’ articles (which are actually advertisements) and we read ‘exposés’ in the tabloid press – generalisations about products being bad. Add to this the musings of saloon bar philosophers and anybody can be excused for being confused.
Lifetime mortgages are as they say: mortgages which last a lifetime. That is not quite true, they will also end when the borrower goes into permanent residential care, but the benefit is the same – you can stay in your home as long as you want to or are able to. Other benefits are that it is not necessary (but often possible) to make interest payments during the term of the mortgage and the interest rate is usually fixed for life, giving certainty. Because interest payments are voluntary, income is irrelevant. If no interest payments are made then interest rolls up and equity reduces, although the products we recommend have a ‘no negative equity’ guarantee.
Who, then, are lifetime mortgages for? Some recent cases give examples:
A lady in her mid-70s, employed but on a zero-hours contract, needing to remortgage. Her age and type of employment made it impossible to get an income-based product. A lifetime mortgage was ideal, as interest payments could be made from earned income, if desired, but could cease on retirement.
A gentleman needing to raise money, with a reasonable pension income but a high level of credit card debt. A standard mortgage would have required nearly all the debt to be repaid to establish affordability, defeating the objective of raising money.
As well as remortgaging and capital raising, lifetime mortgages can be used to purchase a property.
The amount borrowable depends on the borrower’s age and the value of the property.
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Lenders often offer tiered interest rates, where the lower the percentage of the property’s value being borrowed, the lower the interest rate. This is good news for property owners in the south east, where large property price increases over the last few decades mean that quite large sums can be borrowed at the best rates.
For example, at time of writing, the lowest rate available is with a lender which would lend an 80 year old up to 32% of the value of a property (e.g. £240,000 on a £750,000 property). A 55 year old could borrow 6% (£45,000) of the value of the same property*.
Higher loan to value borrowing is available, although at a higher rate of interest. At time of writing the most that could be borrowed is 58% of the value of the property*, at age 83+.
Returning to the theme at the beginning, a hairbrush is a good product, but not to a bald man. Lifetime mortgages are good products if they are right for you. Get bespoke advice. As whole of market advisers, Finance Planning can draw on over 350 lifetime mortgage products* and find the right one for you.
*Source: Answers in Retirement Limited
Contact me for a free initial discussion, with no obligation: by email to nigel.urban@financeplanning.co.uk, or call/text me on 07765 465508 (preferred) or our head office number, 01444 449200. FCA Registration Number 715721. Head Office: Hurstwood Grange, Hurstwood Lane, Haywards Heath, RH17 7QX.