Case Studies

Income Lifetime Mortgages

Jean can cover her day-to-day essentials, but has no savings or investments, only her pension.

She would like a little extra each month, to be able to treat her grandchildren with days out and spoil them more often and to spend more time out with friends and to keep fit. She’d also like to install a downstairs bathroom to make sure her house is suitable as she gets older and less physically able.

Jean still lives in the family home, a large three-bedroom property in Kent worth £500,000 with no outstanding mortgage. Although her home is larger than she needs, she has a strong emotional attachment to it. It’s where she raised her family with her late husband. It’s also ideally located close to her daughter, so she doesn’t want to move out of the area.

She’s considered lifetime mortgages before, but feels nervous about managing a lump sum, because her husband always managed the finances. She wants everything going forward to be as simple as possible. She’d also like to leave some inheritance to her family.

Possible Solution

Based on Jean’s circumstances she would like an extra £500 a month over the next 15 years. By then her grandchildren will have grown up and her lifestyle is likely to be less active and she thinks her current level of income will cover her costs at this stage in her life.

Overall, based on Jean’s age and property value, she can access a total sum of £232 000, of which she can take an initial loan of £10,000 to cover the cost of a new down stairs bathroom and then receive £500 a month for 15 years.

Benefits

An Income Lifetime Mortgage provides a fixed monthly income for a set number of years, paid automatically each month into your bank account.

• Jean can treat her grandchildren and go out with her friends more often.
• Jean won’t need to downsize or move away from her daughter.
• The monthly income is for a fixed term, and the interest rate is fixed for the life of the loan. Neither will change which gives Jean peace of mind.
• Access to an initial loan means she can pay for her new bathroom.
• If Jean decides she doesn’t need the monthly income, she can stop at any time with no fee.
• A No Negative Equity Guarantee means Jean (or her estate) will never owe more than the amount the property is sold for – subject to terms and conditions.
• Jean can choose to protect some of the value of her home for her beneficiaries with inheritance protection. This will of course affect the amount she can borrow
• Jean will have no monthly repayments to make and there are no credit checks required

Risks

• A lifetime mortgage is a loan secured against Jean’s home
• The Income Lifetime Mortgage may affect Jean’s entitlement to means-tested benefits.
• The monthly income Jean receives is fixed for the length of the income term. This means inflation may erode the value of the monthly income she receives over time.
• At the end of the income term, Jean’s income will stop and interest will continue to roll up until the loan is repaid.
• Jean will need to be confident about how she’ll manage when the income stops
• Jean won’t be able to change the amount of monthly income she receives, or receive it for longer than the fixed income term.
• The interest charged is compound interest, which means interest is charged on the loan plus any interest already added.
• Although Jean can stop the income at any time, if she chooses to stop it, she won’t be able to restart.
• There may be cheaper ways for Jean to borrow money.
• A lifetime mortgage will reduce any inheritance
• If Jean gives the money away, the recipient may have to pay tax in the future.

Find out more about the possibilities of an Income Lifetime Mortgage by clicking here.