Most people associate taking a Lifetime Mortgage on their existing home that they’ve owned for a number of years. In conventional mortgage language, just a simple remortgage or taking a new mortgage on a house you own that is mortgage-free. Again, in the world of conventional residential mortgages, if you move home you are likely to take a new mortgage on the property you are going to buy.
It works exactly the same way with a LifetimeMortgage for an older couple that wants to move home but need to borrow money to afford what they really want. There are options like Retirement Interest Only (RIO) or Retirement Mortgages but these come with the burden of having to service the debt on a contractual basis. Income and expenditure is assessed and other affordability testing is carried out making these mortgages difficult to obtain sometimes.
Lifetime Mortgages are very different. There is no affordability or income and expenditure testing, they only depend on the value of the house you are buying and the age of the younger applicant. (Minimum age of the younger applicant 55). Previous bad credit is not usually a problem.
As an example, Mr S is 72 and his wife 70. They are looking to downsize and have worked out that when they’ve sold their family home and paid all the costs, they will have £255,000 to go towards their next home. There’s a choice of older housing stock they could buy within their budget but they’ve seen a brand new home on a new development that would give them a fresh start at £385,000.
This could be financed with a Lifetime Mortgage. At age 70, Mrs S could borrow a maximum of about £182,000 against the new house at £385,000. However, if they borrowed about £146,000 that would cover the gap, stamp duty, moving and setup costs.
They would not have to make any payments but could service the debt on an informal ad-hoc basis if they choose. Rates at the end of November 2021 would be around 3.3% fixed for life.
Check out our previous article here.