Later Life Lending Options

Blog by Andy Shaw Head of Later Life Lending at SPF Private Clients.

Life Lending has continued to grow in popularity amongst UK homeowners as increasing numbers of borrowers seek long-term solutions. In 2022, the lifetime mortgage market represented ￡6.2 Billion of lending* and this figure is expected to continue rising as we, an aging population, seek to release wealth that is ‘locked-up’ in our home. In recent years the evolution of the later life lending marketplace has seen new lenders enter this arena, as well as significant product innovations, which in turn provide greater flexibilities to accommodate borrowers’ future requirements alongside their immediate needs.

Later Life Lending Options

The most common form of Later Life Lending is a Lifetime Mortgage. Lifetime mortgages are available to borrowers over the age of 55 and provide a sum of money secured against the borrower’s home via first legal charge in the same manner as a conventional mortgage. Interest rates are usually fixed for life and borrowers can either pay some or all of the interest or choose to make no payments and add the interest to the loan. The loan and any interest are repaid when the borrower (or last borrower for joint applications) dies or moves into care. Lifetime mortgage loan sizes and interest rates are based on the borrower’s age and the value of the subject property. They are not assessed against income or affordability.

Lifetime Mortgage Loan Purposes

A lifetime mortgage can be used for most purposes. The most common uses of the funds raised include:

• Supporting the purchase of a new main residence
• Repaying an existing mortgage or other debts
• Making home improvements
• Gifting to family
• Capital expenditure e.g. holidays, a new car, a second/holiday home
• Topping-up retirement income
• Funding long-term care
• Inheritance Tax/estate planning

Lifetime Mortgage Flexible Features

Future flexibility is often key when establishing the most appropriate lifetime mortgage lender and product. The following features/considerations may be important:

• Taking funds as a lump sum or on a drawdown basis
• Optional interest payments – regular or ad hoc
• Transparent Early Repayment Charges (usually applicable for 8 – 15 years)
• Portability and downsizing protection
• Exemptions from Early Repayment Charges on first death (joint borrowers)
• Enhanced terms for borrowers suffering from certain medical conditions

It is essential that all alternatives are considered alongside lifetime mortgages when establishing the most suitable solution, these may include:

? Home Reversion Plans. These schemes allow the homeowner to sell a percentage or all of their property at below market value and live there rent free until they move into care or die. At this point the home is sold and the reversion company gets its share (or all) of the proceeds.

? Retirement Interest Only Mortgages. These products allow the homeowner to borrow a lump sum secured against their home, pay monthly interest on the loan and repay the debt when the home is sold. These mortgages are assessed against retirement income and in the case of joint applications, on a ‘sole survivor’ basis.

? Mainstream Residential Mortgages. An increasing number of lenders are willing to offer conventional mortgage terms to older borrowers and a mortgage adviser can investigate these options on the borrower’s behalf.

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SPF offers Lifetime Mortgages and Retirement Interest Only Mortgages from the full range available to intermediaries through a team of expert advisers.

4 April 2023

* Figure quoted by the Equity Release Council.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SPF Private Clients Limited is authorised and regulated by the Financial Conduct Authority (FCA). The FCA does not regulate some forms of buy-to-let mortgages.