What types of products are available to clients?

As a result, it is highly likely advisers will start to get queries about the options for older homeowners, if they have not already seen a growing number of enquiries.

A raft of innovation in the sector has led to a number of equity release products coming to the market, aimed at making borrowing possible for the elderly. 

At present, the minimum age to apply for most equity release products is 55. 

Clients who need to borrow in later life have a variety of choices, including retirement interest-only mortgages, later life mortgages and equity release.Stuart Wilson

Equity release is a way to free some of the value of the property and turn it into a cash lump sum, and is part of an array of mortgage products aimed at the older borrower.

What are the range of later life mortgage products that clients can choose from?

Lifetime mortgage 

Lifetime mortgages are the most popular form of equity release products, according to Chris Buchanan, product and oversight director at L&G Home Finance.

Stuart Wilson, corporate marketing director at more2life, says: “Clients who need to borrow in later life have a variety of choices, including retirement interest-only mortgages, later life mortgages and equity release."

Depending on which specialist mortgage provider one chooses, the upper age limit can vary. In the case of specialist mortgage lender Aldermore, the maximum age for a new borrower applying for a lifetime mortgage is 85, and the mortgage can last up to the age of 99. 

A lifetime mortgage is a form of equity release and is a loan secured on a residential home. The loan does not need to be repaid until the borrower dies or goes into long-term care. 

It frees some of the wealth tied up in the home without having to move out of it. 

Lifetime mortgages come in many different forms.

Mr Buchanan explains: “Lifetime mortgages come with the benefit of a fixed interest rate for life and customers also have guaranteed tenure, so they’ll never have to leave their home if they don’t want to.”

He adds: “Most lifetime mortgages also come with a 'no negative equity guarantee' that means the borrower will never owe more than the value of their home.”

With traditional lifetime mortgages, borrowers access part of their housing equity as a lump sum.

Different types of lifetime mortgages 

Malcolm Wallace, director of Parsonage Financial Planning, suggests: "Alternatively, interest-only [lifetime] mortgages are available for those that wish to minimise their monthly outgoings.

"These mortgages require the interest to be paid each month and the capital is repaid at the end of the mortgage term.”

Mr Buchanan says: “Instead, interest is added to the amount they owe each month and so the amount owed will grow quickly. However, lenders are increasingly offering drawdown products that give customers the chance to take what they need now and withdraw more equity in the future as and when they need to.”

In 2018, L&G launched its optional payment lifetime mortgage. This comes with fixed interest rates, but differs from a lifetime mortgage as customers can pay some or all of the monthly interest by direct debit. 

They can also stop at any point and stop making interest rate payments, with the remainder of the interest being “rolled up”. 

Lenders have also started to offer lifetime mortgages that pay a fixed monthly income instead of a lump sum amount. 

This can be useful for clients who are looking to raise additional retirement income, and boost the quality of life in their later years. 

The Legal & General Income Lifetime Mortgage enables customers to release some equity from their home and receive a regular income of minimum £200 over fixed terms of 10,15, 20 or 25 years. 

Wealth transfer

Research by The Equity Release Council, which represents 95 per cent of the equity release market, shows £3.94bn of property wealth was unlocked in 2018, up 29 per cent year-on-year. 

Mr Wilson says: “Recently, there has been a trend in the use of equity release for intergenerational wealth transfers, with more than a quarter of clients citing gifting as a reason for taking out their equity release loan.”

Mr Wallace adds: “Home reversion is also a viable option that allows a person to sell a percentage of their property for a lump sum of money based on the market value.”

Home reversion involves the provider paying the borrower a tax-free lump sum portion of the home below market value. The owner can live in the property without paying rent until they pass away. Once the occupant passes away, the proceeds are split between the percentage of the house that is owned and what the lender owns. 

While most equity release products are available to clients from the age of 55, home reversion requires borrowers to be aged at least 65, according to Age UK. 

Paul Tilley, chief executive of esbs, says: “In order to meet the individual needs of our members, we have the flexibility to base a mortgage term on the personal work position of the borrower." 

“This is significant, as people wish to retire at different ages, which will have an impact on the mortgage itself,” he adds. 

Risk and reward

While later life products can be a great way to boost retirement savings, there are certain risks later life borrowers need to be aware of. 

Mr Wallace says: “There are a number of responsibilities that accompany lifetime mortgages - for example, the property owner must keep the property in a good state of repair throughout the duration of the mortgage agreement.”

He also notes that taking on a lifetime mortgage typically reduces the inheritance passed on to nominees of the estate and inheritance that they are receiving. 

saloni.sardana@ft.com