Lifetime mortgage market to reach £3bn: could it work for you?
Legal & General claims a 30% lifetime mortgage market share and according to its half year results, the business has around 16,000 customers with an average age of 70 and weighted average loan-to-value (LTV) of almost 30%.
The lender is also bullish on the future prospects for the market, expecting it to continue growing strongly with predictions the market will reach £3bn in 2017, up from £2.2bn in 2016.
What are lifetime mortgages?
Lifetime mortgages can provide money for your retirement without the headache of making regular repayments.
This type of equity release scheme gives you a cash lump sum now, or regular income for the rest of your life, and you don’t have to worry about the repayments. Instead the interest accumulates over time and is repayable when you die, or move into long-term care and sell your home. When this happens, the capital and the interest are repaid in one lump sum from money raised from the sale.
It’s important to know that lifetime mortgages are a lifetime commitment so if you change your mind, you may have to pay a substantial early repayment charge. However, they don’t tie you in to one property so you can move home (though it’s subject to the new property meeting the company’s lending criteria).
If you move to a lower value property, you may be required to repay some or all of the total loan and interest. The amount you can borrow depends on the value of your home and your age.
Impact on inheritance
Equity release will have a major impact on any inheritance you were hoping to leave so it may be wise to inform your family and seek help from a financial adviser. As it’s a loan that’s repaid once you die or enter long-term care, most often once your home is sold, you need to know exactly what is involved and how it will affect the plans you already have in place.
For instance, if you receive means-tested benefits, you could find the cash injection you get from a lifetime mortgage may make you ineligible for further benefits. Therefore, as well as speaking to a financial adviser, it may be worth taking legal advice.
Fall in property prices
One concern among potential lifetime mortgage customers is that, should property prices fall, they, or their family, may be left owing more than the value of the home and have to find more money to pay off the loan and interest.
Therefore, most lifetime mortgage providers have a ‘no negative equity guarantee’ included in their plans. This means that no matter what happens to property prices, your family or estate will never be left with a debt that cannot be repaid by the sale of your property, providing peace of mind for you and your family.
The questions you should ask an adviser
- How will taking out a home reversion affect your income tax position and your eligibility for state or local authority benefits?
- What conditions does the home reversion impose on you for continuing to live in your home?
- If you want a regular income how will you achieve it? Will the income be guaranteed? Will it be fixed or variable? How often and for how long will it be paid?
- Can you transfer the home reversion scheme if you want to move home?