Lifetime Mortgage Wanted But My Location May Prevent Me from Getting One

gord323

Hi,

I'm very interested in getting a lifetime mortgage. I'm 65, and have about £100,000 equity in my property when the mortgage has been deducted.

But I was told by one equity release provider that I could not get a lifetime mortgage because my property is situated over a fast food shop.

Is this the case? Would any broker be able to offer a lifetime mortgage or similar product in these circumstances?

Thanks in anticipation.

MWT

Unfortunately yes, equity release lenders are very sensitive to adjacency to retail/industrial premises and a fast-food outlet would be a problem.

You may have other alternatives though, could you give a little more detail just to better understand your needs?

What is the rough value of the property at the moment, and the remaining balance of the mortgage?

Do you already have a plan to pay-off the mortgage, or do you need the amount you release to cover that as well? (you can't have a Lifetime Mortgage without clearing the existing mortgage.)

Ideally, how much do you want to release?

gord323

Thanks for your reply.

The original plan was to pay off the mortgage with the lifetime mortgage. My home value is £260,000 and my mortgage and total debt secured on the property is about £160,000. (There are some unsecured debts which have been turned into secured debts by CCJs by debt purchasing companies who buy for 3% and profit by 3,300%.)

So I was planning to pay off the mortgage completely I would then get a percentage of the £100,000 or whatever is left over.

MWT

gord323 said:

The original plan was to pay off the mortgage with the lifetime mortgage. My home value is £260,000 and my mortgage and total debt secured on the property is about £160,000. (There are some unsecured debts which have been turned into secured debts by CCJs by debt purchasing companies who buy for 3% and profit by 3,300%.)

The numbers are probably not going to work if I've understood you correctly...

If you need £160k to remove the mortgage and other debt secured on the property, and the valuation is around £260k, you are already beyond the amount you could release at age 65.

Very roughly, assuming the property is in your name only, at 65, you would be expecting to release under £110k in total even if the property was ideally located for equity release...

Did you go through any numbers with the provider that you spoke to?

gord323 said:

So I was planning to pay off the mortgage completely I would then get a percentage of the £100,000 or whatever is left over.

Even if you had been able to get £160k released with a Lifetime Mortgage, you wouldn't have been able to access further funds from the remaining equity, that represents the lenders security to cover the rolled-up interest on the loan, and although you can ask about further borrowing, it is very much dependent on the growth in house valuation, interest rolled-up and of course your age.

... but you are starting with a need for an amount that significantly exceeds the amount you could borrow even if there were no concerns about the adjacencies for your home...

Have you considered a Retirement Interest Only product? (RIO)

This would require you to be able to demonstrate guaranteed income in retirement sufficient to cover the interest, but it is more likely that you could get a loan of that type if you do have the income...

I imagine the end date for your current mortgage may be approaching, how much longer have you got, and is that an interest only product?

gord323

That's odd. All of the applications I've used have said that I'd qualify for between £44,000 and £100,000. So I assumed that the only sticking point would be the shop below me (which none of them mentioned).

MWT

gord323 said:

That's odd. All of the applications I've used have said that I'd qualify for between £44,000 and £100,000. So I assumed that the only sticking point would be the shop below me (which none of them mentioned).

There is nothing inconsistent, but you may be misunderstanding what they are saying, or I'm still misunderstanding your current position...

With your house valued at £260k, using their numbers you would qualify for up to £100k equity release (Lifetime Mortgage), but that also requires that there is no other loan secured on the property, and you say you have £160k currently outstanding.

I'm not sure if this is the problem, but for clarity, you don't get a 'Lifetime Mortgage' for £160k and equity release from the remaining £100k equity, they are one and the same thing, and you would need to pay-off the current mortgage/secured loans (£160k) somehow if you wanted to release the £100k using a Lifetime Mortgage product...

gord323

I tried using the equity calculator supplied by Standard Life and it's showing me similar figures to the ones I've been quoted before.

So they are all saying much the same thing.

So I was given to understand that the only thing barring this was having the shop underneath.

MWT

gord323 said:

I tried using the equity calculator supplied by Standard Life and it's showing me similar figures to the ones I've been quoted before.

So they are all saying much the same thing.

So I was given to understand that the only thing barring this was having the shop underneath.

There is no debate about the amount you could potentially release from a property valued at £260k, it will be somewhere around £100k on a sole life aged 65.

The only issue (other than location) is your existing secured loans.

You cannot use an equity release product on a property that you have already used as security for loans, without clearing those loans at the same time.

So the question remains, if you have £160k of secured loans, how do you plan to clear those if you can only release £100k from the property?

If you have a plan for that then it is worth trying to get past the location problem, if you don't then there is no point in looking at equity release and you need to focus on other products like a RIO to see if that is a viable route to dealign with the £160k, at least part of which is presumably going to fall due relatively soon if the mortgage is perhaps reaching the end of its period?

Just to say the same thing in a different way in case it helps, that calculator result you posted above is telling you that if you have an unencumbered home valued at £260k, so you have £260k equity you could release £93,600. It is not telling you that with only £100,000 equity you could release £93,600...

gord323

As one of their agents explained to me, I would clear the secured loans by taking out the lifetime mortgage. This would immediately reduce The £260,000 equity to about £100,000. This is what they said. The simple arithmetic certainly seems to work. It was only later that I was told that the shop below me was the issue, not the arithmetic.

The new owners of my property (the lifetime mortgage company) would get to keep the property and also the amount by which the property will have gained in value by the time of my death, which could be between 15 and 35 years away. By that time the value of the property will have increased considerably. Again, this seemed very plausible.

The only variable, it seems from the several quotes I got, was the percentage of the outstanding amount left after the deduction of the secured loans.

£260,000 - £160,000 = £100,000.

The arithmetic seems valid. Could it be that all of those companies were, in some way, not telling me the whole story in order to hook me in?

MWT

gord323 said:

The new owners of my property (the lifetime mortgage company) would get to keep the property and also the amount by which the property will have gained in value by the time of my death, which could be between 15 and 35 years away. By that time the value of the property will have increased considerably. Again, this seemed very plausible.

This is not a 'Lifetime Mortgage', this is a home reversion plan, a very different product.

This is an older product and one that is rarely taken these days for many reasons, but they may not apply in your case.

I can't really say much more about that sort of product as I have no direct experience with it, but do please take some independent advice before proceeding with it, if of course you can find a company willing to proceed given the location problem.

gord323

OK, thanks for your advice and help. Much appreciated.