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Lloyds Bank And Their Involvement In The Lifetime Mortgage Sector
How Equity Release Could Benefit Your Retirement Finances
All homeowners have various reasons to want to secure a homeowner loan. According to figures released in the 2018 Autumn report released by the Equity Release Council, the majority of homeowners over the age of 55 are choosing to use drawdown income from equity release products to help fund their retirement years.
The advantage of drawdown is you can borrow a smaller lump sum based on a percentage of your home equity and only pay interest on the money released, and not the total amount your loan is approved for.
As an illustration:
If your home is valued at £150,000, and you’re able to borrow a 30% LTV through a lifetime mortgage, you could be approved for a loan of £45,000.
Average interest rates at the end of 2018 were 5%, some lower, some slightly over the 5% interest rate. All equity release firms will offer two methods to get the money from your home’s worth.
- As a one-off lump sum payment
- Or as drawdown
Using the example above, if you were to be approved for a lifetime mortgage of £45,000, you could take that in whole, or withdraw a smaller amount of £5,000 to £10,000 as a first payment, and then use drawdown to release future payments as and when you need or want it.
On both types of equity release, interest roll-up is used. What this means is you don’t need to repay anything towards the loan, but instead, the interest you would pay on a standard mortgage product is added to the loan amount and repaid to the lender when your home is sold following your passing or the passing of a surviving spouse.
With Lloyds Bank, equity release loans are available on standard residential mortgage products. The only major high street lender to have entered into the equity release market is Nationwide. A few others have tried and withdrew their products. The vast majority of lenders to offer lifetime mortgages are either insurance firms such as Aviva and other niche specialist lenders such as Hodge Lifetime and More2Life.
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How Lifetime Mortgages Differ from Home Equity Loans
Unlike standard mortgages that can run for a fixed term, lifetime mortgages do not expire. They remain in place for the rest of you and your partner’s life. Some equity release companies will have staggered rates for early repayment charges, mostly starting at around 6% of the total amount of the loan you’re approved for. This can result in high exit fees if you do choose to repay all or part of the loan early.
As the name implies for Lifetime Mortgages, they are not intended to be repaid by you. They’re designed to remain in place for the rest of your life.
As the interest roll-up will substantially increase the cost of borrowing, all lenders who are voluntary members of the Equity Release Council will offer a no negative equity guarantee. This ensures that there’s no money going to be owed if your home sells for under the market value the loan was approved for.
The no negative equity guarantee is important for borrowers; however, just as important is to think about your future finances because a significant proportion of your home equity will be paid to the lender in interest charges. If you’ve planned to leave behind a nest egg for your kids based on the sale of the home, the amount left will be significantly less once the loan plus interest is repaid. A number of equity release companies are allowing a percentage of the loan to be repaid annually, mostly around 10% of the initial loan amount to be repaid each year without any early repayment charges being applied.
Another option a few equity release companies are offering is tiered rates for early repayment charges based on the length of time you have the loan in place. During the first five years, early repayment fees are high. Some lenders lower these after 5 years, then again after ten years, and again after 15 years. By year 16, it can be possible to repay the loan amount in its entirety without incurring an early repayment penalty.
If you are planning to use equity release to fund your retirement but would like the option to build your equity back up, a number of plans are available from specialist lenders.
As all equity release schemes are regulated by the Financial Conduct Authority, homeowners must consult with a financial advisor for bespoke advice on equity release before an application can be made. Lenders cannot sell you a lifetime mortgage directly.
We have experts on hand to walk you through the process of how equity release works, discuss alternative financing options for retirement, repayment methods (always optional) and the impact equity release can have on your future finances. Should you feel equity release is suitable, we can conduct a whole of market comparison to find the best lifetime mortgage products with all the guarantees you’d need and flexible repayment options where appropriate.
The only requirement for all equity release companies is that you’re a homeowner, or approaching the end of your mortgage term, and over the age of 55. Some of the lenders we work with have upper age restrictions; however, there are retirement mortgages available for homeowners over 90 years old.
Get in contact with our advisors today for expert advice with no obligation.
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What The Funds From Equity Release Can Be Used For
They can be used to pay for absolutely anything!
The only stipulation there will be is that if you have an existing mortgage in place, any equity released from your home must be used to repay the existing mortgage.
The rest of the money you can spend as you wish for example to:
- Treat yourself,
- Treat your family,
- Start home improvement projects that have been put off for too long
- Pay the deposit on your son/daughters first mortgage
- Upgrade your car
Or take a little here and there to help you fund your retirement years, enjoying life more comfortably, knowing there are funds available to withdraw if and when you need some extra cash.
The choice will always be entirely in your hands whether you choose to withdraw some or all the equity up to the LTV limit offered by the lender. The majority of equity release companies approve on finance on properties worth a minimum £100,000, with a few lenders lowering the minimum home valuation to £70,000.
LTV ratios range from 10% to 54% LTV. The minimum you can borrow is £10,000, which can be taken as one lump sum or through drawdown up to an agreed limit.
Enhanced Lifetime Mortgages are available for those with a health condition known to shorten life expectancy, which lets you borrow more at better rates.
Inheritance protection can be arranged to ensure that some of your home equity is reserved to leave to your loved ones. If you need this type of protection, the loan amount you’ll be eligible for will be lower.
With 1st UK, we can work with people nearing retirement and in retirement to arrange suitable finance options with the right lenders, offering the right features at affordable rates and with clear advice from the outset, keeping you in control.
Call our advisors today for a free no obligation discussion about how we can be of service to you.
Please note that the Lloyds Bank logo is a trademark of Lloyds Bank plc, to which we have no direct affiliation. The equity release firms we work with provide quotes from many providers.
Pete and the team communicated very well through each step of the way. All my queries were answered in a patient manner too, very courteous and friendly while making me feel comfortable about proceeding.
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