Is Lifetime Lending a good idea?
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My house is worth nearly £1 million and I have a decent pension that provides enough income to live on. I’d like to help my grandchildren with the deposits they need for their first homes but don’t have any other capital to draw on. Is Lifetime Lending (Equity Release) a good idea?
Diane Fish of Smith & Pinching responds:
It sounds like you are in a classic “asset rich, cash poor” situation. Lifetime Lending might indeed help ease the frustration of being wealthy on paper but having no cash fluidity. It is suitable for many people and is safe in most circumstances, but do take the time to understand all the implications before you sign up to a contract.
Lifetime Lending is where you borrow against the value of your home and the loan is repaid, plus interest, when you die, or go into long-term care and the property is sold. You can pay the interest during your lifetime if you wish, or the interest can be “rolled up” and added to the amount due to be paid at the end of the contract. This means that the repayment when the property is sold will be higher than the amount borrowed.
There is an alternative type of Lifetime Lending, known as a Home Reversion Plan, where you effectively sell a proportion of your home to the provider for an agreed sum. When the property is sold, the provider gets that proportion of the final sale price. In both cases, there will be fees and administration charges involved.
Many people are nervous about Lifetime Lending, but it has become more of a mainstream product these days and both types are regulated by the Financial Conduct Authority. I recommend that you get advice from an independent financial adviser who is a member of the Equity Release Council – the industry body for the Equity Release sector.
There are a few things you should take into account when considering Lifetime Lending. You must remember that taking out a Lifetime Mortgage will mean that the value of the estate you leave to your family when you die will be reduced. It may also affect your entitlement to any means tested benefits both now and in the future. In addition, you will still be responsible for maintaining the property.
Equity Release can be more expensive when compared to a normal residential mortgage. This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. There will be a fee for Equity Release/mortgage advice. The precise amount will depend upon your circumstances, but we estimate that it will be a minimum of £1,100. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk