The products have always appeared too different to compare. The main concern has been in replicating the way a lifetime mortgage’s flexibility can be achieved with a home reversion scheme and thereby allow comparison. This has been a greater challenge when comparing drawdown options.Arthur Downes is aged 72 and has property valued at 250,000. He wants to buy a car for 15,000, boost savings by 10,000 including an emergency fund of 5,000, and fund holidays for the next 10 years at over 5,000 per year. The lifetime scenario is as follows. Interest rate 5.99% and first drawdown is 30,000 to meet initial requirements. After this, 5,000 or more is drawn down annually to fund the holidays. Arthur elects to increase his amounts drawn down each year by 5% from year two to take account of inflation and increases in holiday spending. The withdrawal at the end of year one is 5,009 and the final withdrawal in year 10 is 7,770. The reversion scenario mirrors these withdrawals. Arthur dies at 81. The scenarios in the box illustrate the effect on his inheritance. The home reversion example is based on the Secured Escalating Release Plan from Bridgewater. If Arthur’s priority is leaving an inheritance, he can ensure this with the home reversion. He can also mirror the basis for the releases across either scheme. The assumption is that subsequent releases under the lifetime mortgage are offered at the same interest rate – which is not guaranteed. With consistency of rate and property values rising, lifetime may provide a greater inheritance, but this is down to chance. So, home reversion is a realistic option that can be compared with lifetime mortgages.dean mirfin is business development director at Key Retirement Solutions
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The Mortgage Business has extended its opening hours to 8am until 6pm Monday to Friday. Fax options are available for urgent direct debit instructions and streamlined telephone systems have been put in place to help brokers and packagers get through to decision makers as quickly as possible. TMB says it is also helping to make […]
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Those with decent-length memories will recall that in the 2014 Budget statement George Osborne announced the new (and entirely unexpected) pension freedoms. The new rules come fully into force in less than two weeks.
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