Key takeaways:
- Eligible individuals aged 55 and over may be able to use a lifetime mortgage to buy a home.
- It can offer an alternative to a traditional residential mortgage later in life.
- Borrowing is typically based on age, property value and lender criteria.
- Many plans do not require mandatory monthly repayments.
- The loan is usually repaid when the property is sold (for example, after death or moving into long-term care).
- If interest is not repaid, it may build up over time.
- A lifetime mortgage may impact the value of your estate.
What is a lifetime mortgage?
A lifetime mortgage is the most common type of equity release available in the UK. It allows eligible homeowners aged 55 and over to borrow money secured against their property while retaining ownership of it.
Unlike a traditional residential mortgage, the loan is usually repaid when the property is sold following death or entry into long-term care, rather than through monthly repayments. However, some plans do allow voluntary or regular repayments, but these are typically not a requirement.
For some buyers later in life, a lifetime mortgage can provide an alternative way to purchase a property when other mortgage options may not be suitable.
Can you buy a home with a lifetime mortgage?
Yes, you can use a lifetime mortgage to help you purchase a new home (subject to eligibility).
Typically, you would use your own deposit or available funds alongside a lifetime mortgage secured against the property you are buying. Once the purchase is complete, you become the legal owner, with the loan secured against the property.
How is a lifetime mortgage different from a traditional residential mortgage?
Although both products allow you to buy a home, they work differently. Understanding these differences can help you decide which option may be more suitable for your circumstances.
| Feature | Residential mortgage | Lifetime mortgage |
| Age | Available to borrowers aged 18 and above. | Available to borrowers aged 55 and above. |
| How borrowing is assessed | Primarily based on income and affordability. | Based on your age, property value and lender criteria. Health and lifestyle may also be considered by some lenders. |
| Monthly repayments | Monthly repayments required. | Many plans do not require mandatory monthly repayments. |
| Loan repayment | Repaid over a fixed term. | Usually repaid when the property is sold. |
| Property ownership | You remain the legal owner. | You remain the legal owner. |
| Interest | Usually paid monthly as part of your mortgage payment. | Can be paid voluntarily or added to the loan if no repayments are made. |
How does buying a home with a lifetime mortgage work?
Buying a home with a lifetime mortgage follows a similar process to a standard property purchase. The main difference is that part of the purchase is funded using a lifetime mortgage rather than a traditional residential mortgage:
| The step | What happens? |
| Find a property. | The property must meet the lender’s criteria. |
| Arrange the lifetime mortgage. | A mortgage adviser can help you find a suitable product and assess how much you may be able to borrow. |
| Provide the deposit. | Use your deposit or available funds towards the purchase. |
| Complete the purchase. | The lifetime mortgage provides the remaining funds and is secured against your new home. |
| Move into your home. | You become the legal owner, with the lifetime mortgage secured against your property. |
Who could a lifetime mortgage be suitable for?
A lifetime mortgage may be suitable for individuals aged 55 and over who want to buy a home, but do not meet the requirements for a traditional mortgage.
This may include individuals who are:
- Buying their first home or returning to homeownership later in life.
- Would like to move out of rented accommodation.
- Purchasing a home following divorce or separation.
- Buying a property with a partner later in life.
- Need a flexible alternative to a traditional mortgage.
- May struggle to meet lender requirements due to lower income.
What are the benefits of buying a home with a lifetime mortgage?
Depending on your circumstances, the potential benefits may include:
- Borrowing is not based on your income.
Lifetime mortgages are typically assessed using factors such as:
- Your age.
- Property value.
- Lender criteria.
- In some cases, your health and lifestyle.
This can make buying a home later in life more accessible for buyers whose income may not meet traditional affordability requirements.
- No mandatory monthly repayments.
Many lifetime mortgages do not require monthly repayments. Instead, the loan is usually repaid when the property is sold following death or entry into long-term care.
Some products allow voluntary or regular repayments, which can provide greater control and flexibility over how the loan grows over time.
- Fixed interest rates.
Most lifetime mortgages offer fixed interest rates for the life of the loan. This means you know how interest will be applied throughout the life of the loan. This can help provide greater certainty when planning your long-term finances.
What are the potential drawbacks of buying a home with a lifetime mortgage?
While a lifetime mortgage can help some people buy a home later in life, it is important to understand how it could affect your finances over time.
- Interest can build up.
If you do not make voluntary or regular repayments towards your interest, it will typically be added to the loan and will compound over time. This means the total amount you owe may increase over time.
- It may impact the value of your estate.
As the loan and any accrued interest are typically repaid from the sale of your property, this may reduce the amount of inheritance you leave behind to your loved ones.
- Early Repayment Charges (ERCs) may apply.
Some lifetime mortgages include early repayment charges if you choose to repay the loan sooner than the agreed term end date. This will vary depending on the product and lender, but it is something to be aware of.
- It Is not suitable for everyone.
A lifetime mortgage will not be the right solution for everyone, and other alternatives may be more suitable depending on your circumstances and goals.
Are there alternatives to a lifetime mortgage?
Yes. Before choosing a lifetime mortgage, it is worth considering whether another type of borrowing may be more suitable, such as:
- A Retirement Interest-Only (RIO) mortgage.
- Using additional savings towards your purchase.
- Buying a lower-value property.
- A traditional residential mortgage.
The most suitable option will depend on factors such as your income, deposit, and long-term plans. Seeking specialist advice can help you understand which option may be most appropriate for your circumstances.
How can Cooper Associates Mortgages help?
Buying a home later in life can feel complex, but you do not have to navigate it alone.
At Cooper Associates Mortgages, our award-winning advisers provide bespoke, whole-of-market advice, helping you explore all of your options clearly and confidently.
We take the time to understand your individual circumstances and long-term plans, so we can recommend the most suitable solution for you.
Book your fee-free, no-obligation consultation today and see how we can help you explore the right options for your next move.
