The alternatives to Lifetime Mortgages

Clients aged 55 or over who need to access funds have a number of options open to them, where appropriate.

This table compares a lifetime mortgage with some of the most common alternatives available:

Sources of funds Advantages Disadvantages

Using lifetime mortgages

Clients can unlock some of their property wealth and use the funds for almost anything they like. For example, they can supplement their retirement income, help family members, make home improvements, etc.

  • Release funds as they’re needed without having to move
  • Avoid costs and potential delays of moving house
  • Potential for future growth in value of property
  • No monthly repayments needed, unless clients choose to service interest
  • Funds released are tax-free
  • Comes with the ‘No Negative Equity Guarantee’, meaning clients or their estates will never owe more than the value of the property when the mortgage becomes repayable upon death or moving into long-term care
  • Flexibility – clients can take out a lump sum and/or regular withdrawals, and/or make regular payments to reduce the build-up of debt
  • May affect clients’ entitlement to state benefits and grants
  • Using a lifetime mortgage to repay existing debts may cost more in the long-term
  • Releasing equity would reduce the value in clients’ property, affecting the amount of inheritance they leave behind
  • Clients wishing to repay their lifetime mortgage early may incur penalties

Borrowing from family or friends

Getting financial help from family and friends could supplement clients’ income, or provide them with a lump sum.

  • Potentially cheaper than conventional loans
  • Quick to arrange
  • Increased dependency on a family member or friend
  • Not a sustainable arrangement
  • May not provide enough

Moving home

Downsizing to a smaller property or a less expensive area can generate a cash lump sum.

  • Cash purchase so no loan needed
  • Flexibility over amount released
  • Potential for growth in value of new property
  • Many costs to consider, including moving costs, estate agent fees and stamp duty
  • Potentially losing support from nearby family and friends
  • Having to start again in a new area
  • Process of moving house can be stressful and takes time

Taking a bank loan

Clients can:

  • Take out a personal loan secured against the value of their home, or
  • Re-mortgage their home
  • Less disruption than moving
  • Loans can be arranged for short terms and the amount borrowed is flexible
  • Quick to arrange
  • Usually need to make regular payments
  • Interest rates on loans are generally more expensive than on mortgages
  • Clients have to make separate arrangements to use the lump sum as an income, if desired
  • Risk of home being repossessed if clients can’t keep up with the repayments
  • May not provide enough

Using other savings and investments

Clients may have savings or investments they could use however they like.

  • Lower cost option
  • Quick to arrange
  • Risk of running out of money
  • Risk of losing future growth
  • Might attract tax charges such as Capital Gains Tax

Retirement Interest Only Mortgage (RIOM)

Clients can borrow against their property and only pay back the interest each month.

  • Clients can remain in their home
  • Risk of client’s home being repossessed if they’re unable to keep up with the repayments
  • There isn’t a ‘No Negative Equity Guarantee’ - if the property’s worth less than the outstanding mortgage when it becomes repayable, clients or their estates will pay any resulting shortfall
  • Affordability checks – clients need to prove that they can afford to pay interest each month

    To see the difference between lifetime mortgages and RIOM, please see our sales aid.

Taking a tenant

Depending on clients’ health and independence, they could rent out their spare rooms on a short or long-term basis.

  • Enjoy the extra company of having other people live in their home
  • Loss of privacy
  • Inconvenience of dealing with a tenant
  • May not provide enough for retirement

Pension funds

Clients can use their existing pension pot to take cash as and when they need it.

  • Flexible way of releasing extra money – lump sum or additional monthly income
  • The unused funds in the pension pot can be left to grow tax-free
  • Possibility of running out of money
  • Investment performance isn’t guaranteed - fluctuation in investment markets may cause fund value to fall
  • Any withdrawals clients make beyond the first 25% is taxed at their marginal income tax rate

Getting a job/Returning to work

Going back to work could help with providing clients with more disposable income.

  • Great way to keep active and meet new people
  • Gives a sense of purpose
  • Unable to enjoy later life if tied up with work
  • May not be sufficient to fund retirement
  • May not enjoy the work
  • Income may be taxed and also may impact means tested benefits

Claiming grants or state benefits

Clients may be eligible to state benefits and grants to help with the cost of home improvements.

  • No costs involved
  • Able to leave larger estate for their beneficiaries
  • May not be sufficient to fund retirement