Right now, we all need our homes to be a sanctuary.
A place we can safely and comfortably protect ourselves, our families and the communities we love from the effects of the Coronavirus outbreak.
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It’s the solid foundation we stand on to take in unbelievable news coming at us from all directions – from the latest NHS stats to massive financial announcements.
That includes the latest interest rate cuts by the Bank of England.
A few weeks ago the Bank’s base rate (the basis of all UK financial, or monetary, policy – and the rate it charges banks) was at 0.75%.
That was already a very low interest rate – and one that had barely changed in the decade or so since the 2008 financial crisis.
Compare it to November 1979, when the Bank of England’s base rate was up at 17%, and the difference is clear.
But in these unprecedented times the rate has been cut further: from 0.75% to 0.25% before dropping to 0.1% – the lowest rate in the Bank of England’s entire 325-year history.
That’s important news for borrowers, because the Bank of England’s interest rate influences the interest rate providers charge their customers to borrow money through loans and mortgages.
Even equity release, although with this product it can sometimes take slightly longer to filter down to a cost saving for the borrower.
While we all stay in our homes trying to get a grip on the here and now – partly so we can plan for the days, months and years after this is all over – this new ultra-low interest rate could have an impact for those thinking about how their properties could help pay for their future.
The impact on lifetime mortgages
The Bank of England base rate has been low for several years, and is closely linked to the interest rate consumers pay on their borrowing.
So lifetime mortgage plans are now available for as little as 2.62%, depending on your circumstances and individual agreement. You could even fix that rate for life.
A lifetime mortgage is a type of equity release that allows you to take out a loan of tax-free cash, using your home as security.
Once you’ve paid off any existing mortgage that you may have, the tax-free money that you release is yours to spend however you wish.
This kind of agreement means you stay in your home, continue to own it, and have the right to live in it for the rest of your life as normal.
You don’t need to make any repayments (unless you’d like to) because the loan and the accrued interest is repaid at the end of your life – or if you need to go into long-term care, when the property is sold.
The money you release is tax-free and you may be able to take it as a monthly income or a lump sum, depending on the plan you chose and are eligible for.
- Find out if equity release is an option for you
Things to remember when considering a lifetime mortgage
Applying for equity release is a very personal decision based on your current circumstances and future ambitions.
The lifetime mortgage offer you receive will also be tailored to your individual circumstances, including the interest rate and borrowing conditions.
For example, you might be able to take out a lifetime mortgage if you still have an existing mortgage on your home, but you must use some of the money you release from your home to repay that mortgage.
Paying off your mortgage means you no longer have to meet those monthly repayments, which frees up more disposable income, giving you more financial flexibility to help deal with whatever life throws at you.
You’ll also have the flexibility to make repayments on your lifetime mortgage if you have a little extra from time to time – which means you’ll pay less in compounded interest overall.
It’s important to be aware that taking out a lifetime mortgage will affect the amount of inheritance available to leave to loved ones when you pass away.
Though you may decide to protect a certain amount of your property with an inheritance protection guarantee.
There’s a lot going on at the moment, but if you’d like to discuss your lifetime mortgage or other equity release options with a qualified adviser, they can provide a personalised illustration outlining the features and risks of equity release and highlighting how much tax-free cash could be accessed.
Advisers like those from Age Partnership will also provide clear information on the costs involved and whether equity release will affect your means-tested benefits now or in the future.
This can all be done over the phone.
What’s more, these personalised illustrations are free of charge and advice fees will only apply once your plan is completed.
Only if you choose to proceed, and your case completes, would a typical fee of 2.25% of the amount released be payable (minimum £1,695).
