Lifetime Mortgage Scheme
The essence of a lifetime mortgage scheme is that a property is mortgaged to release capital which can be put to any use including the purchase of an annuity to provide a guaranteed income for the property owner for life. Where the property is owned by a couple then any annuity purchased would usually be on a last survivor basis.
Under lifetime mortgages (also known as roll-up plans or roll-up loans) repayment of capital and interest is deferred until death.
Clearly, there is some risk (predominantly for those who will benefit following the death of the property owner) attached to this strategy which is particularly acute in a time of falling or static property values and increasing interest rates. In addition, purely because of the effect of compounding, the amount of the debt outstanding can increase quite rapidly. For example, a loan compounded at 7% will double in 10 years and almost quadruple in 20 years.
The eligibility for the mortgage will depend on the potential borrower´s age and the value of the property. Naturally other liabilities will be taken into account.
Critically, any lender that is a member of the organisation SHIP (Safe Home Income Plans) will guarantee, under the organisation´s code of conduct, that a borrower will never owe more than the value of their home, the so-called “no negative equity” guarantee.
