Frequently asked questions
Some frequently asked questions covering later life lending.
Who is later life lending available to?
Later life lending is available to UK residents aged over 55.
What can later life lending be used for?
Later life lending can be used to purchase or refinance a main home, 2nd property or buy to let property.
What products make up later life lending?
Later life lending is made up of traditional mortgages, retirement interest only mortgages and equity release (lifetime mortgages).
Is later life lending only available to homeowners?
Not necessarily. If they are looking to purchase a new property they do not need to be a homeowner.
Why would current homeowners look to use later life lending?
Later life lending is used by homeowners for a number of reasons, whether it be to repay an existing mortgage, lower monthly payments, increase their standard of living/income, help family, early inheritance/inheritance tax planning, home improvements or to pay for care.
Do homeowners need to have a current mortgage?
No, they do not need to have a current mortgage.
Does the current mortgage need to be repaid?
Yes. As these mortgages are first charge mortgages the current mortgage will need to be repaid either via the new mortgage or the borrower’s own funds.
Is proof of income or an affordability assessment required?
For traditional mortgages and retirement interest only mortgages, an affordability assessment is required. The lender may also request proof of income. For lifetime mortgages there is no affordability assessment or requirement to prove income.
Are monthly payments required?
Traditional mortgages and retirement interest only mortgages both require monthly payments to be made. Lifetime mortgages do not require monthly payments to be made.
Can customers make interest payments on lifetime mortgages?
Yes. Some lenders allow customers to make interest payments. Each lender will have different rules around when and how interest payments can be made.
What happens to the interest on lifetime mortgages if the interest is not repaid?
Lifetime mortgages allow “roll up” of interest. This means that each month interest is added to the amount borrowed and at the end of the mortgage the amount owed will be the total of the amount borrowed plus the rolled-up interest.
How are the mortgages repaid?
Traditional mortgages will need to be repaid by the borrowers at the end of the agreed term. Retirement interest only mortgages and lifetime mortgages are repaid on death or entry into long term care of the last borrower usually by the sale of the property.
Do retirement interest only mortgages and lifetime mortgages have to be repaid by the sale of the property?
Not necessarily. Many lenders will allow the outstanding balance to be settled from other funds not just by the sale of the property.
Can the mortgage be repaid early?
Yes, all later life mortgages can be repaid early, however early repayment charges may apply.
Can overpayments be made?
Yes, all later life mortgages come with the ability to overpay. Each lender will have different rules around how much and how often overpayments can be made.
Aren’t these products risky?
All financial products come with some risks; all later life lending products are regulated by the Financial Conduct Authority. Lifetime mortgages are also provided by members of the Equity Release Council.
What is the no negative equity guarantee?
Lifetime mortgages come with a no negative equity guarantee. This means that at the end of the term, the amount to be repaid can be no greater than the value of the property.
What are the costs involved?
These can vary by product but include:
- Valuation fee – to carry out a survey on the property to establish that it is suitable for lending purposes.
- Arrangement fee – charged by the lender for arranging the mortgage or fixed rate. Can either be paid up-front, added to the loan or deducted from the advance.
- Legal fees – costs for carrying out the legal work involved in either the purchase or re-mortgage activity.
- Adviser fees – Financial Advisers may charge fees for advising on these products.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.