A lifetime mortgage could provide a useful way to unlock property wealth. The money you access could be used to fund your later years or help you overcome financial challenges. Yet, there are important drawbacks you might need to consider first.

A lifetime mortgage is a type of equity release. It’s a loan that’s secured against the value of your home. However, it’s different to traditional loans as you usually don’t need to make repayments during your lifetime. Instead, the loan is repaid after you sell your home, pass away or move into long-term care.

You can still live in the property after taking out a lifetime mortgage. You can choose to access the equity available through a lump sum or withdraw several smaller amounts, known as “drawdown”.

As your home could be one of the largest assets you own, being able to access some of the equity could be valuable.

Usually, you’ll need to be aged 55 or older to use equity release. The value of your home will affect how much you can access. If you have a mortgage, you might still be able to take out a lifetime mortgage, but you’ll usually need to pay off the outstanding amount with the equity you’ve accessed.

According to the Equity Release Council, homeowners used equity release to access £2.6 billion in 2023.

1 in 13 people who divorce after 50 are turning to equity release

Research from Legal & General indicates more people are turning to lifetime mortgages following a relationship breakdown.

According to the survey, 1 in 13 couples who divorce after the age of 50 will turn to equity release to settle their finances. Splitting up with your partner can have a huge effect on your finances, and if you’ve already retired you might have fewer options. So, equity release could seem like an attractive solution.

In the UK, over-55s hold more than £3.5 trillion in housing wealth. In many cases, ex-couples who are dividing assets will sell the home and split the equity, or one partner will buy the other out. However, where one partner wants to stay in the home but doesn’t have the savings to buy the other out, a lifetime mortgage is becoming a popular option.

Equity release may be useful in other circumstances where you might face financial challenges too.

For instance, if you’re ready to retire but still have a mortgage that would make giving up work difficult, a lifetime mortgage might be valuable. It may allow you to pay off your existing mortgage debt to reduce your outgoings in retirement.

4 potential disadvantages to using a lifetime mortgage

1. The amount you owe can rise rapidly

As you often don’t make repayments, the amount you owe through a lifetime mortgage can increase quickly.

The amount you owe when you die or move into long-term care could be far higher than the initial equity you accessed.

An example from Unbiased shows the effect rolling up interest can have. If you borrowed £50,000 with an interest rate fixed at 5%, after 10 years, the amount owed would be more than £81,000. If you lived for 20 years after taking out a lifetime mortgage with a 5% interest rate, the amount due when you passed away would be more than £132,000.

Many providers will allow you to pay the accrued interest. If you’re income allows you to do so, making regular payments may help you manage the debt.

2. It may affect the inheritance you leave behind

As mentioned above, the amount you owe through a lifetime mortgage can rise significantly during your lifetime. As a result, it can affect how much you leave behind for your loved ones.

In some cases, you may be able to ring-fence a portion of your property wealth to pass on to your family. However, this will usually mean the equity you can access is lower.

If you decide to use a lifetime mortgage, you might want to speak to your family and other beneficiaries about how it could affect their inheritance.

3. It might reduce your options if you want to move in the future

Asking yourself if your current home is where you plan to stay and whether it’ll meet your needs in your later years could be important. In some cases, you can move after taking out a lifetime mortgage, but it’ll often limit your options and your new home may need to meet certain criteria.

4. It could affect means-tested benefits

If you’re eligible for means-tested benefits or could be in the future, including financial support if you need care, it’s worth considering the impact receiving a lump sum could have. In some cases, you may no longer be eligible for benefits if you’re wealth exceeds thresholds.

Contact us to discuss lifetime mortgages

If you’re thinking about using a lifetime mortgage to unlock some of your property wealth, we could help you understand if it’s the right decision for you, as well as explain alternative options. Please contact us to arrange a meeting.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

A lifetime mortgage is a loan secured against your home. To understand the features and risks, ask for a personalised illustration.