What's a Lifetime Mortgage in 2022?

A Comprehensive Guide to Lifetime Mortgages in the UK

Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui

Are You Unclear About the Difference Between a Lifetime Mortgage and Equity Release? Fear Not! We're Here to Clarify All the Terminology So That You Can Fully Understand All Things Related to Equity Release.

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What Is a Lifetime Mortgage & How Does It Work?

A lifetime mortgage is one of the most popular forms of equity release, but is it for a good reason?

With products more flexible than ever, and over 600 plan types available, should you be next?

Is a lifetime mortgage too expensive or a good idea?

We’ve got the answers right here.

Through this article, we’ll help you discover: 

  • What’s a lifetime mortgage and how does it work?
  • The benefits of a lifetime mortgage.
  • The types of lifetime mortgage plans available.

Our expert team of SovereignBoss journalists regularly reviews our articles and the latest industry news, to ensure we’re bringing you the most up-to-date information about the retirement market.

Here’s what’s happening with lifetime mortgages in 2022.

Check this out!

What’s a Lifetime Mortgage?

A lifetime mortgage is the most widely used equity release product in the UK.

It’s a loan against the value of your primary residence, and it’s designed for homeowners aged 55 and above.

These flexible products allow you to make voluntary loan and interest repayments, with zero obligation attached.

Whatever’s not repaid will be covered from your when the last homeowner passes away or decides to move into long-term care.

How Do Lifetime Mortgages Work?

Lifetime mortgages work either as a joint or an individual plan.

If you and your partner are 55 or older, you can unlock a plan together, both receiving permission to remain on the property until you pass away.

Or, if you unlock an individual plan, your home will be sold when you pass away, even if you’re outlived by your spouse.

With a lifetime mortgage, your property works as collateral against the mortgage, which is a secured loan.

Who Qualifies for a Lifetime Mortgage?

To qualify for a lifetime mortgage equity release, the youngest homeowner must be 55 or older, you’ll need to own your home outright or have a small mortgage.

Furthermore, your property must be your primary residence, be located in the UK, and have a minimum value of £70,000. Basically, it depends on your age and personal circumstances.

Your financial adviser will talk you through all the requirements involved when releasing equity.

What Are the Types of Lifetime Mortgages?

The types of lifetime mortgages are enhanced plans, a drawdown plan, lump-sum products, buy-to-let options, interest-only lifetime mortgages, an income lifetime mortgage, and voluntary repayment plans.

Each of these has different costs associated.

About the 8 types of lifetime mortgages:

  • Enhanced Lifetime Mortgages  Also known as impaired plan, enhanced lifetime mortgages take your personal health into consideration when determining the amount you can get on your equity release mortgage loan. The poorer your health, the more value of your home you’ll be eligible to unlock and the lower the interest rates you can achieve with your enhanced lifetime mortgage.
  • Drawdown Lifetime Mortgages –How does this type of lifetime mortgage work? It’s one of the most popular lifetime mortgage plans because it offers you a flexible cash reserve facility, providing easy access to your capital. You only pay interest on the money that you withdraw.
  • Lump-Sum Lifetime Mortgages – You will withdraw a large cash injection, generally at a mimimum of £10,000 or £20,000. This is ideal if you’re looking to fund a once-off big-ticket item.
  • Buy-To-Let Lifetime Mortgages (BTL)  It’s for landlords who want to build their BTL property portfolios, which may result in them benefitting from their retirement and tax strategies.
  • Interest-Only Lifetime Mortgages  This product allows you to release equity and pay off the interest in monthly installments. Interest-only mortgages are ideal if you care about leaving an inheritance for your family or have the means to make monthly repayments.
  • Income Lifetime Mortgages – It allows you to use equity release to pay you a fixed monthly income. It’s one of the ideal ways to supplement your current retirement income – possibly to help in maintaining your lifestyle after retirement. There are no mandatory monthly payments with this option.
  • Voluntary Repayment Lifetime Mortgages  You can make voluntary payments of up to 15% (lender-dependent) of the debt annually, through monthly repayments, without penalties. Legal & General exclusively offers their Optional Payment plan which allows you to stop repaying interest at any time.
  • Retirement Interest-Only Mortgages – Technically not a type of lifetime mortgage, we’ve added it to our list as it bears a number of similarities and allows you to release equity. The homeowner is required to make monthly payments to cover the interest. If you want to know the amount of cash you want to unlock, you can try our RIO mortgage calculator.

What’s an Optional Payment Lifetime Mortgage?

An optional payment lifetime mortgage is a type of lifetime mortgage that’s exclusively offered by Legal & General, one of the UK’s leading providers.

After you release equity, the optional payment product gives you the flexibility of making payments whenever you can, allowing you to stop, without penalty.

What Are the Benefits of Opting for a Lifetime Mortgage?

The greatest benefit of choosing a lifetime mortgage is that you can gain access to tax-free cash.

Further benefits include:

  • Spend the Cash Any Way You Wish – There are no limitations on how you spend your equity release cash, whether a lump sum, drawdown, or monthly salary. Once releasing equity, it’s there to spend as you wish. For example you can use it for home improvements.
  • Zero Repayment Obligations – While you can opt for a voluntary repayment plan, there is zero obligation to pay back your lifetime mortgage while you’re still alive. The loan, plus rolled up interest, is paid back when you pass away or get relocated to a long-term care home.
  • Flexible Repayments Are an Option – There are options to repay some of the loan or interest, to reduce the interest rolling up too high, and lower the amount owed at the end of your loan.
  • You Get To Remain Living at Home  – You, the homeowners, will have the opportunity to remain in your beloved home for the rest of your life, offering you the security that so many retirees crave.
  • You Can Still Move to a New Home – Should you wish to do so, most lifetime mortgages are portable from one home to the next. However, the new home will need to be approved by your lender, so be sure to check before signing any paperwork.

What Are the Disadvantages of a Lifetime Mortgage?

The biggest disadvantage of a lifetime mortgage is that the interest will compound, reducing your family’s inheritance.

Here’s more details of the cons involved to help you determine if equity release is a good idea in May 2022:

  • The Interest Can Build Quickly – Your lifetime mortgage will generally work using compound interest. Therefore, the interest continues to roll up during the lifetime of your loan.
  • Less Inheritance for Your Family – When opting for a lifetime mortgage, you’re using the equity in your property and therefore the money that your heirs would usually receive. However, you can opt for inheritance protection or leave your beneficiaries other parts of your estate.
  • Early Repayment Charges – While an equity release scheme is intended for life, we never know where life might take us. If you end your plan early, you could be subject to early repayment charges, as much as 25% of the original loan.
  • State Benefits – Unlocking equity through a lifetime mortgage could impact your chances of qualifying for means tested benefits. Get expert advice before making your final decision.
  • Higher Interest Rates – Lifetime mortgage interest rates can often be higher than those of a traditional mortgage. However, with lifetime mortgage rates currently at an all-time low, now’s the best time to unlock equity from your estate.
  • Less Freedom to Move House – While you can transfer your equity release mortgage plan, it does limit your options. Not all homes will qualify for an equity release plan, so you’ll have to run any options by your equity release provider.
  • No Negative Equity Guarantee – with an interest roll-up mortgage the total amount you owe can grow quickly. Eventually this might mean you owe more than the value of your home, unless your mortgage has a no negative equity guarantee (Equity Release Council standard). The no negative equity guarantee is designed to ensure you never owe more than the value of your home.
  • Mean Tested Benefit Impact – It might affect your tax position and entitlement to means-tested benefits.

Who Offers Lifetime Mortgages?

Lifetime mortgages are offered by most firms, lenders, and building societies that hold membership of the Equity Release Council.

The 14 Equity Release Council member financial services providers are:

The 1st step is to contact your financial adviser, who’ll guide you in the right direction. A whole market adviser has access to information on all equity release schemes.

Make sure you also compare equity release rates before you decide on a company!

What Does It Cost?

A lifetime mortgage will cost you between £1,500-£3,000, and monthly interest.

You might have to pay:

  • buildings Insurance
  • legal fees and valuation fees
  • an arrangement fee to the lender for the product
  • a fee to an adviser for their advice and helping you set up the scheme
  • a completion fee, which can be paid at the point of completion or added to your mortgage.

Plus, you’ll pay monthly interest. The average interest rate is somewhere between 3% and 5% at a fixed interest rate.

While you might find plans with variable interest rates, most come with fixed interest rates.

Lifetime Mortgage Calculator

Does a lifetime mortgage sound like it could be the answer you could be looking for? Make life easy – check out our free UK lifetime mortgage calculator!

You can get an idea of how much equity is available for you to unlock through a lifetime mortgage right away by trying our lifetime mortgage calculator.

Also some providers might be able to offer larger sums if you have certain medical conditions, or even ‘lifestyle factors’ such as a smoking habit.

The whole process takes about 8 seconds and, we’ll allow you to have a FREE call for an expert adviser from the Age Partnership equity release team.

Got Questions? Check These First

What are the Different Types of Lifetime Mortgages?

What's the Most Popular Type of Lifetime Mortgage?

In Conclusion

Don’t be scared by too many complicated terms. That’s where an equity release adviser comes into play. Before unlocking equity, you must seek financial advice from a professional.

Their role is to support you throughout the process and guide you towards making the correct decision for you and your family.

Therefore, you’ll be in the best hands and have nothing to fear, as long as you select a plan from an Equity Release Council member.

While opting for one of these products can be the key to unlocking your retirement dreams, it could be the biggest regret of your life if not thoroughly thought through.

Therefore, we strongly suggest you review all the equity release alternatives before confirming your decision.

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
John Lawson

Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
kath icon

Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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