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Re-mortgaging from an interest only mortgage to a lifetime mortgage

  • Retired married couple in their 70s
  • Interest-only mortgage coming to an end, but clients unable to meet affordability requirements for a standard residential mortgage
  • Unwilling to access pension funds to repay the mortgage due to additional tax charges
  • Recommendation to remortgage to a lifetime mortgage

Clients’ circumstances

A married couple in their early 70s, who had recently retired after selling their business

Issues addressed

Their interest-only mortgage would shortly come to an end. Although they now had large savings and individual pension funds, they did not have sufficient regular income to meet the affordability requirements needed for a standard residential mortgage.

They did not want to draw upon pension funds to repay their existing mortgage as this would push them into the higher rate tax bracket and a 40% income tax charge would be applied. Pension funds are also outside of their estate and would not be subject to 40% IHT in the event of their death. They also did not want to utilise existing savings as this was supplementing their income at the time.

They were happy living in their home and did not wish to move.

Tailored solution provided by John Lamb Hill Oldridge

Our recommendation was for a lifetime mortgage, as lenders do not use the standard mortgage affordability assessments with these types of arrangements.

As with most lifetime mortgages, there is no need for the clients to make regular repayments, as all of the capital and interest only becomes due when they die or move into long-term care. However, our clients were very keen to make regular payments to control the roll-up of interest and preserve the equity in their property. Should the clients wish to pay more than just the interest they could do so as the lender allows for repayments of up to 10% of the initial loan amount, without any form of early repayment charge.

The interest rate on their lifetime mortgage is fixed for life, so there should be no need for them to remortgage in the future.

This is an example of how John Lamb Hill Oldridge can assist clients with their long-term financial planning by putting in place equity release arrangements.

Other Case Studies

Elderly client obtains a lifetime mortgage to pay for care costs

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A man aged in his 80s with a property worth £750,000 and a mortgage for £150,000 secured against it. The client had minimal income, but because of his care needs, he was spending £22,000 per year on his care (while remaining in the property) and on the costs of running the home. His savings were being rapidly depleted by these ongoing costs, even though his family were providing financial assistance. Another brokerage firm had already said that it could not assist him, and he was increasingly worried that he would be forced to leave his home.

Lifetime mortgage for consolidation of debts and home improvements

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A single woman in her 60s with a property valued at £400,000. The client had £25,000 in credit card and loan debt. It was costing her £600 per month to repay these debts, so this was having an impact on day-to-day living, even though her monthly income was £1,800. She also wanted to carry out some home improvements but had no savings and was unable to obtain further credit due to her impaired credit history.