Lifetime Mortgages

A little departure from the norm this issue. A subject that has become increasingly popular of late, and will continue to do so, especially as the provision of first-rate occupational pensions is becoming less commonplace, and contributions into personal arrangements are generally somewhat inadequate. This is the thorny subject of ‘Equity Release’ or ‘Lifetime Mortgages’. Much has been said about such arrangements over the years, a fair amount of which was ill-informed, and some, pure sensationalism. I hope to shine a little light on these products, so that you may have a better idea of the realities (and fallacies) of the arrangements that are available these days.

Firstly, it must be said, these are specialist products that will not suit the majority of circumstances. They should be advised upon by specialists, with the appropriate qualifications and experience. However, used appropriately, and under the right circumstances, they can have a dramatic, positive effect on people’s lives. Common reasons for entering into such schemes are: to repay debts; fund home improvements; increase income; provide other lifestyle improvements; or provide funding for one partner going into residential care, when the other remains in their home.

There are two types of equity release arrangements available in the current market: Home Reversion Plans and Lifetime Mortgages. In the former, the property owner(s) sell all or part of their residence to the scheme provider in return for a capital sum. The latter allows the owner(s) to retain ownership of the property and exchange a capital sum (or series of advances) for a legal charge on the property, and the relevant debt increases over time, in accordance with the agreed rate(s) of interest, over the term of the arrangement. This is normally until the last borrower dies or goes into permanent residential care, at which time the property is sold, and the outstanding debt is repaid. Until this time the borrowers in both schemes have a permanent right to reside in the property, as long as it is properly maintained and insured. The older the borrowers, the greater percentage of the property value they can access, and at the lower end of the age range (normally from age 55-65, depending on the scheme) the amount that can be raised is relatively low, in relation to the value of the property.Modern plans are written under a code of practice that ensures a guarantee that there can never be a debt on the subsequent estate, that exceeds the sale value of the property. Horror stories from many years ago tell of spiralling debts exceeding the eventual sale proceeds, and schemes that were sold on the basis of extracting the maximum value available, whether needed or not, and investing it in investments schemes that fell dramatically in value. Such practices were (rightly) frowned upon by the financial regulators, and should never darken our doors again!

This is only intended to be a very brief overview of the subject, and it is a matter that demands considerable scrutiny should anyone be considering it. Independent legal advice should be sought, in addition to financial advice, and where there are other family members concerned, it should be discussed with them. There have been many instances of parents discussing such a matter with their children, only to be told, “If you are short of money, you only have to ask!” It is broadly considered that the option of down-sizing to a smaller property be considered before looking into any equity release option, and any course of action should be assessed in the light of the impact that it may have on any State benefits that the applicant(s) may be receiving, or are entitled to.

Well, that was a pleasant change, for me, and I hope it might be of some use to some of you out in Whistler-land. I’ll be back when the Summer sunshine has started to shine upon us (hopefully).

David Foot


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