A growing group of over-55s are using lifetime mortgages to fund property moves to more expensive homes, a study from OneFamily has revealed.
Homeowners who are retired (or close to retirement) are moving closer to family and friends, making buying a new property the fourth most popular reason for using a lifetime mortgage.
While lifetime mortgages were primarily used by homeowners to stay in their current home – and release the equity they built up to fund their retirement – the products are now increasingly being used for other purposes.
For example, a homeowner with a mortgage-free property worth £200,000 who wants to buy a home worth £250,000 can take out a lifetime mortgage on a property they are moving to, in order to make up the additional £50,000. The money is then transferred on completion, similar to the way a standard residential purchase would work.
Customers of OneFamily can choose to pay the interest and protect the remaining capital of their home or pay nothing and have the interest taken when the loan is closed. Just 65% of homeowners chose to pay back the interest on the loan regularly.
The largest loans (an average of £117,000) to buy a new property were taken by upsizers. This compares to an average loan size of £95,000 across all OneFamily lifetime mortgages.
“Lifetime mortgages are helping our customers buy properties more suited to their retirement plans, be it living closer to family and friends or the need for a newer property that requires less maintenance,” said Nici Audhlam-Gardiner, managing director of Lifetime Mortgages.
“A lifetime mortgage can bridge the funding gap that many over 55-year olds have been excluded from by mainstream mortgages at they require affordability tests or are only available for homeowners of a certain age.”
The NHBC Foundation found that of half (46%) the over-55s investing money into the purchase of their new property, 28% upsized to a home with more bedrooms. Those who are buying larger properties are moving in with other family members. In this instance, the younger family members typically pay the interest on a monthly basis to protect the equity in the property and in lieu of paying their own mortgage.
Audhlam-Gardiner added: “Alongside buying a new property, we have also seen an increase in homeowners using this product to gift money to family as a living inheritance.”
“By using customer insight to develop our products, we can ensure that the products we offer are meeting a real need amongst homeowners over 55.”