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Lifetime mortgage

If you're over the age of 55 a lifetime mortgage could allow you to release a cash lump sum or establish access to a flexible borrowing facility which could allow you to borrow more in the future via a mortgage secured on your home. As it’s a mortgage, you retain full ownership of your property.

No monthly payments are required as your mortgage and the accrued interest are only repaid when your home is eventually sold. This makes this type of equity release more expensive than a traditional mortgage with repayments, as interest is applied to the mortgage and any interest already added each month (this is called compound interest).

How much will it cost?

The cost of a lifetime mortgage will vary depending on how long the policy runs. We can't predict how long you may live and therefore it's not possible to know the final cost to your estate.

Because these plans benefit from a lifetime fixed interest rate your advisor can demonstrate what the cost will be for each year of your life in order to remove uncertainty. 

'No negative equity' guarantee

A 'no negative equity' guarantee ensures that regardless of the amount owed and the future value of your property your liability can never exceed the value of your home.

Flexibility

These products also allow you to customise your plan in line with your personal objectives; perhaps you want the facility to release more funds later, or the ability to make lump sum repayments, or the opportunity to protect an inheritance for your family. For lots of clients it may just be choosing a plan that will give them the flexibility of moving home in the future without penalty.

Whatever your objectives your advisor will discuss all suitable options before making a specific recommendation based on your individual circumstances.

Flexible drawdown mortgage

A drawdown mortgage will allow you to release an initial cash lump sum while establishing access to a pre-approved further borrowing facility. This allows you to borrow what you need gradually over time and interest is only applied to funds you actually withdraw.

You are under no obligation to use the facility and there is usually no additional set up costs. However a higher rate of interest may apply to your initial release.

 

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Frequently asked questions

When is a lifetime mortgage plan repaid?

The outstanding amount  is repaid from the proceeds of the sale of your property either on death (with a couple it’s on the death of the last survivor) or following a move into permanent long-term care. 

Can I transfer my plan to another property?

All Equity Release Council plans that meet SHIP (Safe Home Income Plan) criteria are portable; this means they can be transferred to a new property, subject to the approval of the plan provider.

How much money will I owe the provider when the plan finishes?

The amount payable will be the initial amount borrowed plus the interest accrued during the life of the plan.

Your adviser should provide a ‘key features’ illustration produced by the equity release provider confirming exactly what will be owed each year for the rest of your life before you commit to any application. This will remove any uncertainty.

Could a lifetime mortgage lead to negative equity?

All Equity Release Council plans that meet SHIP (Safe Home Income Plan) criteria carry a 'no negative equity' guarantee. This means that the amount owed can never exceed the value of your property.

How much money can I borrow via a lifetime mortgage?

The amount you can borrow depends on the value of your property, your age, and sometimes your health. New mortgage rules mean any interest only lifetime mortgage applications will be assessed based on whether you can afford to repay the loan.

Usually the amount you can release is linked to your age; the older you are the greater the cash sum that can be released. Most providers will release a fixed percentage based on your age. For example a 60-year-old could release 20%, a 65-year–old could release 25%, and so on. The amount available varies between providers.

Who would be responsible for the maintenance of my home?

With both home reversion plans and lifetime mortgages you’re responsible for the maintenance of your property to a reasonable standard.

Could entitlement to means-tested benefits be affected?

Yes, depending on the amount borrowed and purpose of the release.

Before making a recommendation your advisor will complete a full benefits assessment looking at the impact equity release may have on any means-tested benefits you receive now or are likely to receive in the future.

What impact would changing house prices have on my plan in the future?

You retain the full benefit of any increases in the value of your property.

If the value of your property falls, the amount of capital available after the plan has been repaid will also decrease. If your plan offers a “no negative equity guarantee”, the amount owed can never exceed the value of your property.

What impact will equity release have on my on inheritance tax liability?

A lifetime mortgage could reduce your inheritance tax liability as the amount you owe on the plan is deducted from the value of your estate before your tax liability is calculated.

Will I still be able to leave an inheritance?

The amount of inheritance available will be the difference between the proceeds from the sale of the house and the amount outstanding on the plan when it’s redeemed. If your plan has a lifetime fixed interest rate you’ll have the certainty of knowing exactly what your future liability will be.

We can’t predict the future value of your property as prices could be higher or lower than they are today when the property is eventually sold. Therefore we cannot predict what inheritance will be available.

Some providers offer an inheritance protection facility on their plans which allow clients to protect a specific percentage of the property’s future value. Your advisor will discuss this option if protecting an inheritance is one of your priorities.

Would I still own my home?

You’ll keep 100% ownership of your property. 

What fees are involved with setting up a plan and when must they be paid?

There are four main costs associated with setting up any equity release plan.

Survey fee – This is payable when you submit your application. The amount usually depends on the estimated value of your property.

Application fee – This is paid to the provider when your plan completes. This fee can be borrowed as part of the release and is typically £695.

Legal fee – We recommend that you agree a fixed fee with your solicitor once your equity release offer has been confirmed. Typical legal fees range between £400 and £500.  If you’re purchasing a property, or the legal position of your property is not straightforward, additional costs may apply.

Advice fee – StepChange Financial Solutions does not charge an advice fee.

Can I lose my home?

Providing you adequately maintain your home and fulfil the terms of the agreement, all plans that meet the Safe Home Income Plan (SHIP) standards via the Equity Release Council guarantee lifetime tenancy in your property, regardless of what happens to future interest rates, property values or investments.

How long does an application take to complete?

The time taken to complete an application varies, depending on each applicant’s individual circumstances. Typically you should allow four to six weeks from the time you submit your application. All funds will be released directly to your solicitor.

If you've got any other questions or if you would like to book an appointment with an advisor please call us on 0808 168 6719 (free from UK landlines) or complete our enquiry form.

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

Book an appointment

0808 168 67199am to 5pm Monday to Friday

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Which? equity release report

Which equity release report

Under our previous name, CCCS Equity Release, we were the only advice service to pass all of Which?'s equity release tests

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Listen to our financial advice manager, Tom Moloney, answering questions with Ruth Alexander on BBC Radio 4's Money Box.

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Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

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