Buying a new home with Equity Release

People usually associate Lifetime Mortgages with raising money against an existing home. Most people miss the fact that a Lifetime Mortgage can be used to buy a house just like using a conventional mortgage. This has become one of the biggest growth areas over the last year.

Lifetime Mortgages have become flexible over recent years. Customers can fully or partially service interest on the debt for as long as they want, or they can choose to make ad-hoc payments, usually up to 10% of the original amount borrowed per year. This allows the interest to be serviced and for capital reduction without penalty. Interest rates are fixed for life. Not just for one year or five years, for life.

Let’s look at an example. Take a customer who’s looking to downsize. After the sale of their existing house, they have £180,000 to buy their new home. They have their choice of three-bedroomed semi-detached houses but they’ve seen a bungalow in an area they’ve always wanted to live on the market for £220,000. They would love to be able to buy the bungalow but don’t want committed mortgage payments they think would be unaffordable on their modest pension income.

Using a Lifetime Mortgage to fund the difference, with the younger applicant age 68, if they were to borrow £47,000 to cover the £40,000 needed, plus approximate setup and moving costs, the rate could be 5.56%, fixed for life. If they wanted a plan that would allow them to make the move and have a pre-agreed drawdown facility of about £29,000 for future expenditure, the rate would move up to just over 6.85% (Time of writing May 2023). Remember, no requirements to make any payments, unless they want to, and no income expenditure and affordability tests to pass!

They can now enjoy the home they really wanted and have the freedom to spend their pension income as they chose.

Please see the T&Cs in the provider illustration for full details.