Lifetime Mortgage

Whiterose23

I have sold my house subject to contract. I was viewing new houses in an effort to downsize as my current mortgage has £56,000 outstanding, and was going to port a reduced mortgage to the new property. 

However, my employer has gone into administration and all staff, including myself, have been made redundant with immediate effect.

I want to go ahead with the house sale but as I am no longer employed, cannot take on a new mortgage so have looked into options to continue my plans.

I am 60 years old and have talked to a specialist adviser about a Lifetime Mortgage.

As I understand it, the debt would increase rapidly if I didn’t pay anything off the interest so I understand that. I can pay it off at any time by any means. After 8 years there will be no early repayment fee. The interest rate is 6.1%.

My plan is to borrow £30,000 to add to the £200,000 equity from the sale of my house so I can downsize into something half decent in the area I want to live, then pay the £154 a month interest and also pay off some of the capital each month as well once I have found another job, which I expect to do fairly soon. Plus I am due to receive redundancy of £18,000 which would go into the bank as a buffer.

I have looked at downsizing so I don’t have to do any of this but the area I want to live in has few options in my price range.

My children understand the situation as well, and my adviser has suggested taking out an insurance policy to cover the £30,000, should anything happen to me (they both still live with me).

Can anyone advise if I’m missing anything? Knowing I’m able to do this has taken a huge weight off my shoulders, particularly knowing I can leave my redundancy in the bank.

Just to add I have a couple of final salary pensions that will mature in five years time, one of which I could take a £30,000 tax free lump sum from now if for some reason I wanted to pay off the debt. I thought of taking the money now but it will be worth more to me later on when I retire.

Thanks in advance.

whizzywoo

My husband and I have done similar to what you propose.  We don't have anyone else living with us though and we are both over the state pension age.

We are paying the interest in full every month and an additional £160 per month reducing the capital borrowed.  We borrowed £79,000 and the new build house cost £255,000.  The remaining balance of the house was covered by the net proceeds from the sale of our house plus savings.

We can afford the payments easily each month with both of our incomes but would struggle individually.  We are taking out a life insurance policy on my husband but I cannot get one because I am not yet 5 years clear from a cancer diagnosis.  But at the end of the day we can stop making payments to reduce the capital borrowed and if push comes to shove we can stop paying the interest although the debt would soon climb sky high.

What I will say is that the provider of the lifetime mortgage, in our case Standard Life, was extremely picky regarding the new build.  They have their own legal team who act for them and so you end up dealing with 3 lots of solicitors.  Your own solicitor, the builders' solicitor and the mortgage provider's solicitor and that does slow the process down.  Standard Life's legal team kept coming up with one query after another and it took nearly 6 months to get from reserving the house to completion and this was a new build which was fully built and ready to move into.  We ended up completing on the sale of our old house and moving in temporary accommodation whilst waiting for Standard Life to finally say they were happy!

Whiterose23

whizzywoo said:

What I will say is that the provider of the lifetime mortgage, in our case Standard Life, was extremely picky regarding the new build.  They have their own legal team who act for them and so you end up dealing with 3 lots of solicitors.  Your own solicitor, the builders' solicitor and the mortgage provider's solicitor and that does slow the process down.  Standard Life's legal team kept coming up with one query after another and it took nearly 6 months to get from reserving the house to completion and this was a new build which was fully built and ready to move into.  We ended up completing on the sale of our old house and moving in temporary accommodation whilst waiting for Standard Life to finally say they were happy!

Thanks for your response. I wonder if this reaction from the lender was specifically because you were buying a new build? In my case I would be buying an older house, probably at least 50 years old. Also my borrowing is lower at £30,000 so I wonder if that would be easier for me also?
Interesting… I do understand though, that any lender, particularly of this type of mortgage, is going to want to be absolutely sure they get their money back. Do you regret taking it out?

MWT

Whiterose23 said:

My plan is to borrow £30,000 to add to the £200,000 equity from the sale of my house so I can downsize into something half decent in the area I want to live, then pay the £154 a month interest and also pay off some of the capital each month as well once I have found another job, which I expect to do fairly soon. Plus I am due to receive redundancy of £18,000 which would go into the bank as a buffer.

Sensible use of an appropriate product in the circumstances.

Check the total amount you are allowed to repay each year without triggering the early repayment charge, so you don't inadvertently go over the allowance. It is often 10% of the initial sum borrowed so with 6.1% interest you may not have a lot of room for additional capital repayments before hitting the ERC trigger point.

Also, just in case, check if you are obliged to pay the interest monthly or if it is optional. Naturally you fully intend to pay it to stop it rolling up but the flexibility of it being optional may be useful as a 'just in case' feature.

Also check the number of repayments you can make each year, sometimes there is a limit, like say 10 per year, so if optional, monthly payments could be tricky.

Whiterose23

MWT said:

Whiterose23 said:

My plan is to borrow £30,000 to add to the £200,000 equity from the sale of my house so I can downsize into something half decent in the area I want to live, then pay the £154 a month interest and also pay off some of the capital each month as well once I have found another job, which I expect to do fairly soon. Plus I am due to receive redundancy of £18,000 which would go into the bank as a buffer.

Sensible use of an appropriate product in the circumstances.

Check the total amount you are allowed to repay each year without triggering the early repayment charge, so you don't inadvertently go over the allowance. It is often 10% of the initial sum borrowed so with 6.1% interest you may not have a lot of room for additional capital repayments before hitting the ERC trigger point.

Also, just in case, check if you are obliged to pay the interest monthly or if it is optional. Naturally you fully intend to pay it to stop it rolling up but the flexibility of it being optional may be useful as a 'just in case' feature.

Also check the number of repayments you can make each year, sometimes there is a limit, like say 10 per year, so if optional, monthly payments could be tricky.

Thank you, yes the limit of capital repayments is 10% each year. Also the interest payment is set, meaning that I can choose pay all of it or part of it from the outset, but I can’t change the amount I pay from month to month although I can stop paying it at all if needed (which I hope won’t be the case).
The capital payment however, can be changed from month to month. I have to pay at least £50 but not go over the 10% limit. Good point about being aware of that.
I already have life insurance to cover my mortgage; would I need to take out another form for a mortgage like this?

MWT

Whiterose23 said:

I already have life insurance to cover my mortgage; would I need to take out another form for a mortgage like this?

As long as your life insurance is sufficient to cover the new mortgage it does not require any thing special.

If you have not already done so, I would suggest you look at writing it under trust so it can be paid out before probate is obtained as the time limits for repaying this type of loan can be quite short, your advisor should already have highlighted this.

You have not said, but I am assuming this mortgage is in your name only?

If so the other consideration is that this type of product is also repayable if you enter into long-term care, and while you clearly do not intend to have the product for too long and you have other ways to repay it, just be aware of that potential risk as the life insurance would not pay out in that circumstance.   

poseidon1

Best be aware your children living with you ( glossed over so far) complicates the position, and they will be required to sign a waiver to the effect that they will move out when you are no longer living there - see guidance below


https://www.equityreleasecouncil.com/what-is-equity-release/faq/what-if-i-want-somebody-to-live-with-me-but-they-are-not-party-to-the-equity-release/

As a matter of interest did the adviser flag this issue with regard to your children?

The life policy you set up would not change a lender's requirement that the children sign the waiver, but it would at least put them in the position to payoff the loan (quickly), rather than be forced to move.

Also note the increase in legal fees inherent in your children being forced to obtain separate legal advice regarding the consequences of signing the waiver. 

All in all, up front fees for a lifetime mortgage may well prove disproportionate, for the small £30k loan required.

Whiterose23

MWT said:

Whiterose23 said:

I already have life insurance to cover my mortgage; would I need to take out another form for a mortgage like this?

As long as your life insurance is sufficient to cover the new mortgage it does not require any thing special.

If you have not already done so, I would suggest you look at writing it under trust so it can be paid out before probate is obtained as the time limits for repaying this type of loan can be quite short, your advisor should already have highlighted this.

You have not said, but I am assuming this mortgage is in your name only?

If so the other consideration is that this type of product is also repayable if you enter into long-term care, and while you clearly do not intend to have the product for too long and you have other ways to repay it, just be aware of that potential risk as the life insurance would not pay out in that circumstance.   

Some good points here thank you. Yes this will be in my sole name.

Whiterose23

poseidon1 said:

Best be aware your children living with you ( glossed over so far) complicates the position, and they will be required to sign a waiver to the effect that they will move out when you are no longer living there - see guidance below


https://www.equityreleasecouncil.com/what-is-equity-release/faq/what-if-i-want-somebody-to-live-with-me-but-they-are-not-party-to-the-equity-release/

As a matter of interest did the adviser flag this issue with regard to your children?

The life policy you set up would not change a lender's requirement that the children sign the waiver, but it would at least put them in the position to payoff the loan (quickly), rather than be forced to move.

Also note the increase in legal fees inherent in your children being forced to obtain separate legal advice regarding the consequences of signing the waiver. 

All in all, up front fees for a lifetime mortgage may well prove disproportionate, for the small £30k loan required.

The arrangement fee is £1200, payable on completion. I hadn’t informed my adviser that someone else would be living with me, as I was unaware this could complicate things, however he is now aware and has advised that they can sign something via a solicitor but he also suggested taking out an insurance policy specifically to cover this amount to ensure it’s paid within 12 months of my passing, should it come to that. 

MWT

Whiterose23 said:

...however he is now aware and has advised that they can sign something via a solicitor but he also suggested taking out an insurance policy specifically to cover this amount to ensure it’s paid within 12 months of my passing, should it come to that. 

As long as the current life insurance is written under trust, I would just ask him what the new insurance he is proposing provides that the current policy does not...

Whiterose23

MWT said:

Whiterose23 said:

...however he is now aware and has advised that they can sign something via a solicitor but he also suggested taking out an insurance policy specifically to cover this amount to ensure it’s paid within 12 months of my passing, should it come to that. 

As long as the current life insurance is written under trust, I would just ask him what the new insurance he is proposing provides that the current policy does not...

Thanks, I will do that. I haven’t gone so far as to let him know I have life insurance cover, but will discuss this with him.
From reading up on this, it may not make any difference anyway as the lender may still insist a waiver is signed. I totally understand why they would want that. 

I can get my hands on £30,000 by taking a lump sum from a pension, but that would then trigger the monthly payment as it is a Defined Benefit pension, plus it would come at a reduced rate for taking it early. 

Frustrating this all is but I don’t think I have any choice but to raise the money in this way.
My plan is to chip away at the capital every month till I am in a position to pay it off without incurring a penalty. By that time my pension is forecast to pay out over £50,000 as a TFLS so would cover what is still owed.