Described as “a real alternative to the default equity release solution”, the Retirement Lifestyle Booster is a new mortgage aimed at older homeowners.
For those between 60 and 79, the new solution pays out a fixed sum every month for up to a decade and borrowers will in return pay in each month so the cost of the ‘average’ interest due is covered.
Usually where typical equity release plans are concerned, borrowers don’t have monthly repayments and the due interest rolls up. The new Retirement Lifestyle Booster however, at the end of the ten-year term, the amount owed will be the same as the amount borrowed. The loan was designed to repaid by selling the property and subsequently moving somewhere free of a mortgage and less expensive.
The minimum borrowing amount is £45,000 up to 25% of the property’s total value as a maximum.
A loan of £60,000 would provide a borrower for 120 months with an additional monthly sum of £500. An additional amount of £83pcm would be required by the current interest rate of 3.44% (linked to the variable Family Building Society Managed Mortgage Rate).
There are two key differences for the scheme in comparison with a standard interest only mortgage:
- Paid in monthly instalments, the loan amount is discharged on the 10th day of every month. For ten years, the same amount is paid out unless the buyer wishes to stop it at an earlier stage. Any existing mortgage is reimbursed at the start of the plan from the agreed loan.
- Similar to a normal mortgage, interest is charged on the outstanding balance each month. The amount of interest charged increases as the balance builds up. However, the difference is that each month, an amount is paid by the home-owner to the lender which covers the ‘average’ interest due over the loan’s ten-year duration. Any outstanding amount is paid back after the ten years has finished, typically using property sale proceeds following the borrower downsizing.
Commenting on the aims of the new mortgage was Keith Barber, Director of Business Development at the Family Building Society. He commented on a study carried out by the firm in 2015, regarding pensioners and their wishes:
“Our research with older people in 2015 showed that some worry that their pensions may not be enough to carry on doing what they enjoy: they often want to be able to achieve long held ambitions as well as helping their children and grandchildren. Our new Retirement Lifestyle Booster has been designed to enable older home-owners to do exactly this.
“The Retirement Lifestyle Booster is a real alternative to the default equity release solution for older borrowers. Whilst the equity release market is growing, there is a need for a wider of range of financial products for retired borrowers who do not wish to see their housing wealth eroded by the roll-up of interest which can be a feature of lifetime mortgages.
He also commented on the benefits for advisers a new mortgage such as this could bring:
“This is a real opportunity for advisers to demonstrate the value they add by considering the Retirement Lifestyle Booster as a tool when helping older people draw on their accumulated wealth. The combination of pension freedoms, later life lending options and low investment returns along with the need for IHT management, make this a key area for advice.”
