Buying a house with a lifetime mortgage

In this article, we will review the process of buying a house with a lifetime mortgage. Most people associate a lifetime mortgage as a way of releasing cash from their existing property. They then use the money for essential expenditure. This includes repairs, gifts, or luxury items that they might not otherwise afford.

Not everyone is aware that you can use a lifetime mortgage to buy a new or second home. Some estate agents are also unaware. However, people with a lower income or those already retired can still secure a mortgage.

Why use a lifetime mortgage to purchase a house?

There are several reasons to consider buying a house in later life. Also, by using a lifetime mortgage to do so.

• Moving to a different area to be closer to your family.
• Moving to a home that will be more retirement friendly.
• Even with enough cash to purchase outright, you may want to borrow extra. The extra can be for refurbishment, related costs, or adapting the property.
• Using the extra money to enjoy a more comfortable retirement.
  
  

On occasions, borrowing may be low. As such, the extra money will cover immediate costs. However, on other occasions, there may be a significant difference in property prices. As such, a greater percentage of the purchase price will come through borrowing.

Furthermore, divorce or separation in later life is becoming more common. In this scenario, a lifetime mortgage can help you buy a new home. Also, the new home may be more comfortable than one purchased with savings.

Speaking with a professional advisor as early in the process as possible is our advice. They can guide you through the entire process. In addition, seeking advice early allows you to determine how much you can borrow. As a result, you can then look at suitable properties within your budget.

What types of properties are suitable for a lifetime mortgage?

Lifetime mortgages are a form of equity release. Lenders who offer lifetime mortgages use the same criteria as lenders for a standard mortgage. They assess whether the property provides sufficient security to warrant granting a loan.

They want to be certain, that the property will retain its value. Also, expectations are that the property will be easily sellable by the current owners or their heirs.

Certain types of property are more difficult to release equity from. These include.

• Very large properties.
• Properties that are non-standard construction. (For example, timber-framed or pre-cast concrete)
• Properties with walls of a single course of bricks.
• Flat roofs.
  
  

Speaking to a professional advisor will help you understand your options. They will also know which lifetime mortgage lenders to approach when your chosen property is non-standard.

Furthermore, lifetime mortgages are not generally available for retirement homes. Retirement homes provide sheltered living for those in later life.

Community-type properties are generally not mortgageable. These properties often have wardens and additional facilities. These include medical support. In addition, they typically have a substantial, regular service charge.

To clarify the situation, you can speak to an advisor early.

What does a lifetime mortgage cost to arrange?

There are costs involved in arranging a lifetime mortgage. This is similar to any other type of mortgage. However, depending on your situation, you may want to add these costs to your mortgage.

Some lenders offer mortgages without an arrangement fee. Some also offer free valuations. However, you may consider having a full survey. This ensures your property does not require any significant repair work.

Arranging a lifetime mortgage is a complex process. It requires a significant amount of time and effort. As such, the advisor, if you use one, may charge a fee for their service. This fee varies from advisor to advisor. Always check before committing to anything.

Other fees to consider are

Solicitor fees

You will need a solicitor who has experience in equity release. Their fees can be as high as £1,000 or more. Also, there are additional fees if the property is leasehold.

Stamp duty and land fees

You can obtain an estimate of the stamp duty online. However, it is the solicitor's obligation to collect and remit these fees. As such, you can check with them early in the process.

There may be other costs depending on your personal means. These include furniture, decorating, and landscaping. Also, interior alterations to make the property suitable for elderly residents.

The process of using a lifetime mortgage to buy a property

You will be familiar with the process if you have purchased a property before. However, we recommend consulting with an advisor at the outset of the process. The advisor will guide you regarding how much you can borrow. Once you know the figure, you can then start your search for a suitable property. This can save time and avoid potential setback. Some properties will not be suitable for a mortgage. Also, others may be beyond your budget.

Furthermore, engaging a solicitor in advance can save time. It allows the preparatory work to begin.

If you are using an advisor, they can submit your mortgage application on your behalf. This takes place once you have found a suitable property and your offer has been accepted. They will also monitor the progress of your application and keep you informed. Lenders do not need to assess your financial position. As such, if you meet the age criteria for the requested amount, they will appoint a valuer.

Valuation

The valuer will inspect the property and provide comments to the lender. If there are no issues, the lender will issue you with a mortgage offer. They will also send a copy to your solicitor. The solicitor will then begin the legal process.

When buying a house with a lifetime mortgage. Offers are only valid for a few weeks. This differs from a standard residential mortgage. Here the offer is usually valid for a few months. Furthermore, if the time taken to complete the purchase exceeds the expiry date of the offer, it may need reissuing. An advisor can arrange this on your behalf. However, interest rates may vary either up or down from the original offer.

Your solicitor will arrange the exchange of contracts on completion of all the legal work. Exchange of contracts is when you are committed to the purchase.

Completion

Completion will typically occur a few weeks after the exchange. At this point, money changes hands, and you become the legal owner of the property.

You will need to pay any personal funds to your solicitor before the completion date. Likewise, if you are selling a property, the solicitor will receive any funds from the sale. Also, they will receive funds from the lifetime mortgage. Typically, this process occurs on the same day. Your bank account receives any surplus funds.

Does interest roll up when buying with a lifetime mortgage?

You have a choice when it comes to how the mortgage runs. If you want your heirs to receive more on your death, you can pay some or all the interest. Otherwise, you can allow the interest to roll up, thus adding to the mortgage amount.

Lenders linked with the Equity Release Council must meet specific requirements regarding the outstanding capital. They must allow you to repay some capital borrowed. However, there are typically limits. The limit is usually about 10% of the amount borrowed without penalty each year. Each case is different, and your advisor will explain, if any, the limits of your lifetime mortgage.

Payments are flexible and are payable monthly or whenever you have enough in savings to do so. Furthermore, you can stop payments at any time if your means change.

What happens in the future?

Buying a house with a lifetime mortgage remains in force until the last mortgage holder dies. Otherwise, it remains in force until the last mortgage holder goes into residential care. From this point, the estate has one year to sell the property and repay the lender.

There is usually a no-negative-equity guarantee built into the loan. This means that the amount due to the lender can never exceed the market value of the property. Also, the property can be left to one or more of your heirs. Provided they can pay the mortgage.

Can I move home?

Providing the new property meets the lender's criteria, you can move home. The lender will usually transfer part or all of the mortgage to a new property. However, there will be costs linked with this. As such, you should consider this option carefully before proceeding.

Can I borrow more?

At the point of purchase, one option is to have a reserve fund. You can draw upon this when needed to supplement your income. However, if the fund is not sufficient, it may be possible to borrow more. This will depend on your age, the property's value, and the outstanding mortgage balance.

Summary of buying a house with a lifetime mortgage

A lifetime mortgage is a flexible way to buy a house later in life. However, it is a complex issue that needs careful judgment. We recommend using a qualified equity release advisor to guide you through the entire process. At Regulated Advice, we collaborate with professional advisors covering the whole of the UK. An advisor can save you time and money. However, finding the best one for you can be time-consuming. This is where Regulated Advice can help alleviate some stress. We will always strive to find an advisor local to you who will help you make the best decision. So, if you are thinking of buying a house with a lifetime mortgage, let Regulated Advice help you take the first step.