For people who are nearing or already in retirement, their home is often their most valuable possession. After years of mortgage repayments, the property that used to feel like a financial burden has become a significant store of wealth. However, some feel this wealth is frequently locked away and unavailable, but this is not always the case. In recent years, we have seen retirees use their homes as security to unlock capital and fund the retired lifestyle they’ve always dreamed of.
The concept of accessing property wealth in later life has evolved dramatically over the past decade. What was once viewed as a last resort for those facing financial difficulty has now become a strategic financial tool for funding comfortable golden years ranging from home improvements and holiday adventures, to supporting family members or simply enhancing quality of life.
This shift not only reflects a changing attitude toward debt in retirement, but also the recognition that property wealth should work for its owners, not simply accumulate indefinitely.
What are my mortgage options in later life?
The most established route to accessing property wealth is through equity release, now commonly known as a lifetime mortgage. Having a lifetime mortgage allows you to borrow money against your home’s value whilst you not only retaining ownership, but continue to live in it also. This type of loan typically repaid when the property is eventually sold. The interest compounds over time, but having a lifetime mortgage means you’ll maintain the right to live in your home for life.
There is also another type of equity release; home reversion plans. These are fairly uncommon nowadays, however a home reversion plan means you sell some or all of your home to a home reversion provider and in return receive a lump sum or regular payments for the value of the portion you sell.
Beyond traditional equity release, the later life lending market has expanded considerably. Some providers now offer retirement interest-only mortgages, whereby borrowers make monthly interest payments to service the loan for its duration, rather than allowing the debt to compound. This option is often popular with individuals who are in receipt of sufficient retirement income but want to access capital whilst managing the long-term cost. Standard residential mortgages are also increasingly available to older borrowers, with some lenders extending their maximum age limits well beyond the typical maximum age of 70.
The practical reality
By way of example, a couple in their mid-sixties live in a property that was bought for £400,000 and now unencumbered. Through an equity release mortgage they are able to access £120,000- £160,000 of equity based on their age and chosen product. This cash could allow them to enjoy a holiday of a lifetime, invest in a second home, undertake critical home improvements or even release equity to help their children make headway towards their own property purchase.
Unsurprisingly, the ‘equity release effect’ extends beyond making a major purchase. Some clients chose to use their released equity to supplement their income, helping them to overcome financial constraint. Interested to learn more? Get in touch.
Is later life lending and equity release popular?
The stigma once associated with later life lending has largely disappeared due to stricter client lending criteria and protection parameters in place. It’s felt that today’s retirees are more comfortable harnessing debt as a financial tool to open up opportunity, having lived through decades of mortgage lending and credit use.
Today’s retirees understand that property wealth serves little purpose if it remains completely inaccessible throughout retirement. This attitude shift has contributed to market growth, with later life lending products now being arranged at record levels.
Professional financial advice has also improved dramatically. Advisers must now demonstrate that clients understand the implications of their decisions, including the impact on inheritance and potential means-tested benefits. This regulatory oversight has increased confidence in the sector and helped establish equity release as a mainstream financial product rather than a niche solution.
How later life lending can assist inheritance planning
Today’s generation are deemed to view wealth differently than previous generations. Adult children may prefer their parents enjoy their money rather than leaving larger inheritances. Similarly, some families actively encourage their parents to release equity from their property, recognising that their parents’ happiness and comfort take priority over maximising future inheritance amounts.
However, inheritance remains an important consideration for many as government restrictions continue to tighten around said topic. As a lifetime mortgage is secured against your home, and the loan and any interest accrued must be repaid when the property is sold, this reduces the overall estate value meaning this could lead to a reduction in what heirs may inherit.
Ultimately, later life lending can reduce the value of an estate, but it can also help to reduce your inheritance tax exposure. By releasing cash out of your home, you may be in a position to provide gifts to family and friends in your lifetime, which could fall outside of the inheritance tax limits*.
Navigating later life lending challenges
Despite the benefits, accessing property wealth requires careful consideration surrounding your current and long term plans.
Because lifetime mortgage debts accumulate with compound interest over time, it is possible that it could consume a significant portion of the property value. If a homeowner’s circumstances change requiring them to repay the mortgage, an early repayment charge may also apply. Depending on your personal circumstance, the release of capital from a lifetime mortgage may also affect your entitlement to means tested benefits. If you are keen to learn more about your personal later life lending options, arrange to speak to our expert later life lending team.
How much can you borrow?
It’s also important to remember that property values can fluctuate, and whilst house prices have generally risen over the long term, future performance cannot be guaranteed.
Your lifetime mortgage options
For those considering accessing their property wealth, expert advice from later life lending professionals is essential. The complexity of products available, combined with their long-term implications, makes professional guidance invaluable before choosing this type of loan.
With a number of compelling advantages on side, it’s no wonder that the rise of property wealth as a funding source for retirement continues to increase. Rather than accepting financial limitation, retirees increasingly view their property as a resource to enhance their lifestyle and open up new opportunities.
With careful planning and appropriate advice, the wealth locked in your home can indeed transform retirement from a period of constraint into one of possibility. Contact our multi-award-winning team to get started and learn more about the later life lending options available to you.
*LDN Finance is not a tax advisory firm. Our suggestions are indicative and do not represent your personal circumstance. For accurate advice around your individual tax situation, contact a professional tax adviser.