Equity Release and Lifetime Mortgages are often used interchangeably in everyday language and the media. However, it’s important to understand the distinction. A Lifetime Mortgage is a type of Equity Release, and since Lifetime Mortgages account for the very vast majority (if not nearly all) of Equity Release transactions, the terms are often used interchangeably. That said, professionals in the industry generally prefer the term Lifetime Mortgage for accuracy.
The other type of equity release mortgage is a Home Reversion Plan. We will do a simplified guide for that in a later blog.
What is a Lifetime Mortgage?
A Lifetime Mortgage allows homeowners aged 55 and over to release equity from their property without needing to sell or move out. The underwriting process is based on the client’s age and the property value, with no income or affordability checks required.
For joint ownership, the youngest borrower must be over the age of 55 to qualify. While individual lenders may apply additional criteria, the key considerations are:
The client is aged 55 or above; and
The client owns the property that they seek to mortgage; and
The property presents a good risk to the lender.
Why Choose a Lifetime Mortgage?
There are many reasons why clients choose Lifetime Mortgages, provided the funds are used for legal purposes not related to gambling or cryptocurrency. Common uses include:
Refinancing an existing mortgage, particularly interest-only mortgages.
Gifting funds to family for education or homeownership.
Purchasing high-value items such as cars or motorhomes.
Supplementing income to maintain a preferred lifestyle.
Ideal Clients for a Lifetime Mortgage
While Lifetime Mortgages can be beneficial for anyone aged 55 and over, some client profiles are especially well-suited:
Older Borrowers (70+)
Older clients benefit from smaller debt growth as the compound interest has less time to accumulate.
Owners of High-Value Properties
Properties valued at over £500,000 allow clients to borrow amounts that are more meaningful for their financial needs, though the minimum property value accepted is £125,000.
Clients Without Immediate Beneficiaries
For those without direct heirs, utilising the value of their home to enhance their own quality of life can be a practical and rewarding option.
Specific Financial Needs
Borrowers entering retirement with outstanding mortgages.
Individuals delaying access to their pension funds to maximise investment growth.
Parents or grandparents helping children or grandchildren with education or property costs.
Understanding Compound Interest
A defining feature of Lifetime Mortgages is that they do not require contractual repayments, meaning the interest can be (and often is) rolled up into the loan. This results in a compound interest effect, where the debt increases over time:
For younger borrowers (aged 55–69), the debt may grow significantly over the years due to the longer accumulation period.
For older borrowers (aged 70+), the debt grows more slowly as it accrues over a shorter timeframe, making the product more suitable for this age group.
Consumer Duty and Best Practices
Any client over the age of 55 who is seeking a mortgage or reviewing their current arrangements should be offered the opportunity to discuss all their mortgage options including a Lifetime Mortgage. These products may provide a better outcome for the client while meeting the FCA’s Consumer Duty requirements, ensuring advice is fair, clear, and in the client’s best interest.
Please contact us today if you or any one of your clients are considering Equity Release.
Paul Smith
0333 34 44 34 8
The information provided in this article is not intended to constitute professional advice and you should take full and comprehensive legal, accountancy or financial advice as appropriate on your individual circumstances by a fully qualified Solicitor, Accountant or Financial Advisor/Mortgage Broker before you embark on any course of action.
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