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Mortgages- lifetime schemes

Equity release mortgage providers - general information only

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The combination of lower than ever annuity rates and failed pension schemes, and the rise of property values, means that more and more people owning their own homes are turning to specialist mortgage providers to free up the capital invested in their homes.

Previous schemes such as home reversion plans have been superseded by lifetime mortgages. Reversion plans meant selling part or all of the property at a discount to market value in return for a lump sum or regular income with the right to live in the property rent-free for life.

Lifetime mortgages, on the other hand, are loans which allow the interest to be rolled up and added to the mortgage debt and is discharged, together with the capital, on death or sale of the property. The amount that can be borrowed depends on the borrower‘s age. Typically, a person of 65 can borrow 20% of the market value of the property rising to as much as 50% at age 90+.

Aviva introduced the scheme and providers of these equity release schemes in the past have included Standard Life Bank with its Freestyle Home Cash Plan, Mortgage Express, Portman Building Society and National Counties Building Society. These are often quoted by advisers. However it is very important to seek proper independent advice as new entrants enter the market and others leave.

When considering any of these schemes it is important to realise that attractive as they may seem when house prices are on the up, they can eat up the remaining equity in a depressed property market. Ray Boulger of Charcol told the Sunday Telegraph that the total debt roughly doubles every ten years at current rates of interest.

Whilst not mandatory, it is advisable when considering these options to discuss plans for this method of equity release with your inheritors, financial planning adviser, accountant and solicitor. After all, the mortgage debt and its interest will come out of your estate. For further details on equity release schemes see Safe Home Income Plans, the membership body for equity release providers which currently include:

Abbey - 0870 6080091; Allchurches Life Assurance - 01452 419221; AMP Retirement Services - 0800 707580; BPT Bridgewater - 01372 742741; GE Life - 0800 378921; Hodge Equity Release - 0800 7314076; Home & Capital Trust - 0800 253657; Key Retirement Solutions - 0800 0647075; Legal & General Mortgages - 08700 100338; Northern Rock - 0845 6002220; Aviva Equity Release http://www.aviva.co.uk - 020 7283 2000; Portman Building Society - 01202 560560; Stroud & Swindon Building Society - 08457 252423. Always seek independent professional advice before taking any action .

Mortgages - you're never too old

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Once upon a time, the magical kingdom of Mortgagemania had no boundaries. It stretched forever, further than any eyes could see, and welcomed with open arms – as it were, the young, the tired, the poor.. the wretched refuse of the teeming shore.



Especially the tired, and the retired. Munificent lenders would not stoop to impose restrictions, whether sub-prime or past their prime so older people could have borrowed well into retirement.



Well, the land of Mortagemania has disappeared in to the jaws of the giant MRR (mortgage market review) crunching the old lending criteria and it is now harder than ever for the retired or about to retire to obtain a mortgage.



Nevertheless, obtaining a mortgage or remortgaging is not wholly impossible. David Hollingworth, a consultant with mortgage brokers London & Country says that although the criteria for borrowing have become tougher, there are still some lenders prepared to lend up to age 75, and a few — very few- prepared to go beyond that age.



“Prior to the credit crunch it was relatively easy for someone approaching retirement at 65 to take a mortgage to age 80 - and beyond. Now, typically, the maximum age is 75. If someone aged 70 is looking to re-finance, they will usually have to go for a five-year mortgage term rather than a ten year term”.



This is an expensive option. If we assume an interest rate of, say, 4%, and the borrower is hoping to raise, say, £100,000 it would mean paying £1,842 per month for five years as opposed to £1,012 per month for ten years.



“That’s a hefty committment”, says Mr Hollingworth. “The borrower will need to provide hard evidence that he or she can afford to take it on. The lender will need to be satisfied that the borrower is comfortable making that sort of monthly payment so they will be looking for a pension fund of a certain size and will need to know what the borrower’s other outgoings are”.



Part of the reason for these strictures is that lenders are anticipating tougher rules to be laid out by the Financial Services Authority (FSA) in their Mortgage Market Review to be published in 2012. The FSA has made it clear that lenders must ensure there is no potential for consumer detriment. The lenders must be satisfied that the borrower has made a considered and sensible decision and, in particular, in the case of mortgaging past a certain age, that the borrower is not going to struggle to meet their payments when their income dips post-retirement.



One might ask whether such an attitude is frankly ageist - or indeed, just plain sensible. “It depends on the borrower’s circumstances”, says Mr Hollingworth. “There are a number of reasons why someone might wish to re-finance. They may want a capital sum to help their children or grandchildren put down a deposit on a property for themselves. They may be wanting to make home improvements or they may need to reconfigure their home to accommodate a disability — after a stroke, for example. Or they may just be looking for a lump sum to pay for the holiday of a lifetime! Either way, the lender will need to know the purpose of their raising capital”.



If the borrower is looking to use the money to adapt or improve their home, the lender may ask for estimates. If the borrower is intending to use the capital to buy an overseas property, there is no reason why a lender should not finance such an aquisition, given that the mortgage is secured against a favourable loan to value (LTV) on the borrower’s UK home. If, however, the lender is hoping to raise capital to inject into their business, their request may well be denied.



“There are some circumstances, for example, where the borrower is looking to fund long-term care of their spouse, when the borrower might be better advised to consider an equity release scheme”, says Mr Hollingworth. “Although the rates of interest are higher, and the interest rolls up in the debt, a significant sum can be raised without the need to make any monthly payments”.



In any event, if someone is coming up to retirement and is seeking to extend their current mortgage, it is always worth asking their existing lender what they can offer. Even if your mortgage is coming to the end of its fixed term, there is no reason why it should not continue — at the lender’s variable rate.



Currently the best deals for older mortgagees are with Leeds Building Society and the Darlington Building Society. “Leeds BS used to offer mortgages up to age 85, but they pared back”, says Mr Hollingworth. “However, they have recently launched deals specific to the sort of situations mentioned earlier. Their two year fix is based on a 70% LTV at 3.99%, and the five year fix is at 4.99%. Darlingon BS have no maximum age limit per se and have the flexibility to consider any request on a case by case basis”.



London and Country Mortgages. Beazer House, Lower Bristol Rd, Bath BA2 3BA



Website: http://www.lcplc.co.uk/ Tel: 0800 953 0304
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