Lifetime mortgage LTVs are typically age-linked and therefore assume an actuarial bias on age rather than circumstance. Some lenders have attempted to address this issue, but with limited focus and transparency.
To understand the fundamentals of impaired lifetime mortgage offerings it is important to understand how these relate to home reversions and the benefits they provide.
With home reversions, there are two benefits of achieving an impaired rating. One is being able to raise a higher maximum sum and the other is achieving the target sum through selling a lower proportion of a property. Ultimately, the benefit is an improved reversionary rate.
If lifetime mortgages were to be linked to circumstances, the benefits of impairment status should be seen in offerings which cost less. But this is not the case.
This is because the model for lifetime mortgages is different. Lenders do not want short-term lending as this reduces their margins, so a reduction in cost is far from realistic. In the lifetime mortgage arena, the one area that can be allied to impairment is the LTV.
If risk is based on lending at a level whereby a lender should not have to use its no negative equity guarantee, rate and life expectancy must be central to the formula. If life expectancy is reduced through impairment, this should result in the ability to lend more without extending risk.
This is where Partnership Home Loans is extending its equity release offering. Its product boasts the potential for LTVs as much as 30% higher than standard providers’. Also, clients do not have to have medicals and cases can be submitted on a power of attorney basis.
The product features the underwriting expertise of Partnership in association with New Life Mortgages, which is the lender. While the product offers enhanced lending criteria it comes at a price, having one of the highest rates on the market.
This may or may not be an issue as the people who require higher lending tend to be more concerned with LTVs than rates.