With rising inflation and cost increases, the current economic context means we’re all looking at our own financial situation more closely. If you are a homeowner who is in or approaching retirement, you may have been considering a variety of financial options, from paying off your existing mortgage or other debts, to increasing your income through retirement or gifting funds to your children for their futures.

There are now more than 600 mortgage products available exclusively to homeowners over the age of 55, to help achieve these goals. We established a Later Life Finance team as specialist advisors in this area of mortgage finance. Here, David Forsdyke, Head of our Later Life Finance team, addresses some of the most often asked questions to help homeowners understand the options available.

What is Later Life Finance?

The last three years have seen a rapid increase in the range of mortgage products available specifically for older homeowners. These products are collectively badged as ‘Later Life Lending’ products. They include Lifetime Mortgages (the modern form of Equity Release), Retirement Interest Only mortgages (RIO mortgages), Retirement mortgages and hybrid products.

What are people using Later Life Finance for?

Managing property wealth wisely gives people choices. The reasons our clients are choosing to borrow in later life are diverse. Many are focused on establishing a sound wealth management plan. This often involves gifting money to children or grandchildren as part of estate and inheritance tax planning. Many want to tidy up their finances in retirement by repaying their existing mortgage or consolidating other debts. Some are looking to top up their income, buy a long-desired second home or pay for home improvements. Modern later life finance products are extremely flexible and can be used to achieve these financial goals. Funds can be borrowed in a single lump sum, or managed through a Draw Down facility (sometimes called a Reserve facility), which enables you to draw funds whenever you decide to – and you will only pay interest on what you’ve drawn out.

How does it work?

That depends on what you need, and which product is going to work best for you. For example, a lifetime mortgage will allow the interest to roll up so there aren’t any monthly payments. Alternatively, you might want to make regular payments from your income, or even ad-hoc payments when you have some surplus funds. Many of our clients look at a RIO mortgage, as it allows you to borrow against your income, but you only need to pay the interest each month as the initial loan is eventually repaid when the property is sold.

How have you helped other homeowners?

We recently worked with a client who wanted to top up her income by £1,000 per month to improve her quality of life. She was 83, so we identified a solution that would provide for at least the next 15 years. Allowing for inflation, we calculated she would need an initial sum of £10,000 to clear some debts and provide her with a small emergency fund, and an optional Draw Down Facility of £400,000, which we secured with a lifetime mortgage. The client intends to draw funds every three months and now has peace of mind, as this solution gives her the flexibility she needs without borrowing a huge amount all at once.

Can I use Later Life Finance to help family?

We’re seeing a number of our clients borrowing against their own homes to help family members. If you’ve seen significant growth in the value of your property over the last 30 years, you’re likely to have considerable wealth tied up in your home. A lifetime mortgage can allow you to release some of that equity and make financial gifts to family members. You then have the flexibility to pay it back gradually, just pay the interest, or let the interest roll up so there is no impact on your monthly income.

Is my property at risk?

Most later life finance products involve borrowing through some form of mortgage structure and as such, they attract interest. As with any mortgage, the lender has a charge over your property, however the risks are far less when compared to a regular mortgage, as the client has a choice over how to repay the interest; either through regular monthly payments, ad-hoc payments or allowing it to compound so there are no payments at all. Almost all new later life finance plans allow penalty-free partial repayments. We arranged terms for a client enabled them to pay back up to 10% each year without incurring any penalties. We always take the time to understand every client’s specific circumstances, outlining all the alternatives and explaining the short and long-term implications of their choices.

David has been at the forefront of the Equity Release market for 17 years, including six years with the industry regulator (the FCA) and two years as a member of the Equity Release Council’s Standards Board. As specially-qualified later life finance advisors, David and his team provide trusted financial advice with no obligation. For more information, contact David directly on 01483 947764 or email later.life@knightfrankfinance.com