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What Are UK Drawdown Lifetime Mortgages?

Interested in a lifetime mortgage with flexible drawdown options? Read on to find out what a drawdown lifetime mortgage is, and how it all works.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-07-17
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What Are UK Drawdown Lifetime Mortgages?

Lifetime mortgages have become a popular retirement borrowing product as people live longer and aspire to luxurious retirement that isn't always viable with a conventional pension product.

One option is to use a drawdown lifetime mortgage, which works differently from a lump-sum payment.

Today we'll run through all the key facts and information you need to assess whether a drawdown lifetime mortgage is right for you - please use our contact form if you would like any further guidance from Revolution Finance Brokers.

What is a Lifetime Mortgage UK?

A lifetime mortgage allows you to borrow against the equity in your property in retirement, usually with no interest payments or instalments required.

You remain the owner and repay nothing - but the property is normally sold if you pass away or enter full-time care. The proceeds repay the debt, plus the interest, with any balance passed onto your estate.

Drawdown lifetime mortgages mean that you can choose how much you borrow and make regular or occasional withdrawals as you need them, rather than committing to one borrowing value.

The lender agrees upon a cash facility, which is the maximum available.

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Drawdown Lifetime Mortgages and Finance Interest Rates

Interest rates accumulate on a drawdown lifetime mortgage and are added to the final amount owing and recouped through the property sale.

In most cases, those rates are fixed, so you know how much interest you're paying on every drawdown - however, caution is necessary because if you borrow close to the maximum facility, the interest may amount to much more than you borrowed.

Repaying Drawdown Lifetime Mortgage Providers

Affordability checks work differently when applying for a lifetime mortgage. You won't need to make repayments, so your income isn't a deciding factor.

Rather, the lender sells your home when you die or go into care and uses the loan to pay back the debt.

There are eligibility checks, which look at aspects such as:

  • Your health - any conditions or serious illnesses can impact the amount available to borrow. However, they usually only become meaningful if you want to borrow a particularly high value or a large LTV based on the value of your home.
  • Age - you must be 55 or above to apply. Some lifetime mortgage lenders have upper age caps at which they'll accept new applicants, although that doesn't always apply.
  • Property value - usually, the home needs to be worth a reasonable amount to make the loan worthwhile for the lender in terms of interest earned. Usually, the baseline minimum is that the home has to be valued at £70,000 or more - although some lenders will have a higher minimum cap.
  • Property type - any home eligible for a lifetime mortgage (whether a lump sum or drawdown product) has to be sellable and without any complex quirks that would make it tricky for the lender to sell the property when the time comes. A standard bricks and mortar building is the easiest prospect.
  • Location - applicants must be UK residents and secure a lifetime mortgage against a primary home. That doesn’t mean you can't have a second property, but the security has to be a primary residence.

We always advise you to speak with a lifetime mortgage expert before deciding whether a lifetime mortgage is the right solution and then evaluating the pros and cons of drawdown vs lump sum loans to ensure you get the best deal.

Maximum Borrowing on Drawdown Lifetime Mortgages and Finance Products

The Loan to Value or LTV indicates the maximum a lender will offer as a percentage of the property valuation.

For example, if you own a property worth £500,000 and your selected lender has a 50% LTV cap, you can apply to borrow up to £250,000.

On a drawdown lifetime mortgage, you might negotiate a £50,000 upfront payment and then have access to a further £200,000 in borrowing to drawdown when you need it.

LTVs very much depend on your age, health and property value, although lenders are more likely to approve a drawdown lifetime mortgage for applicants towards the younger end of the age range.

LTV Examples on a Drawdown Lifetime Mortgage

It's impossible to specify the exact available LTV given the number of variables. Still, some lenders will ask for a doctor's report if you have any illnesses or conditions to factor in.

The average LTV is around 50%, although you might be able to borrow up to 55% or 60% of your property value in some scenarios.

As an indication:

  • Younger borrowers in good health can usually borrow lower LTVs up to about 40% of the property valuation figure.
  • If you have mild health conditions or potential lifestyle factors (such as being a smoker), a lender will usually offer a medium LTV at around 50%.
  • Older applicants or those with more severe health issues may be able to borrow higher LTV ratios of around 60%.

How to Get a Lifetime Mortgage With Bad Credit

One of the positives of a lifetime mortgage is that it's possible to secure a sizable amount of borrowing at a fixed interest rate, regardless of whether you have any bad credit issues.

There aren't usually any repayments, so adverse credit isn't as serious an issue as for a conventional mortgage, where a lender needs assurance that you'll be able to keep up with your repayments.

However, there may be mandatory eligibility rules applied by some banks and mortgage providers, so they may reject an application based on bad credit as an organisational rule, regardless of whether it affects your ability to afford the loan.

How Long Does it Take to Get a Lifetime Mortgage on a Drawdown Basis?

Approvals can be very speedy if you have an up to date property valuation and all the requisite paperwork and don't require any further surveys or health reports.

In most cases, it takes a few weeks to approve a drawdown lifetime mortgage brokers and negotiate the rates, so it's wise to build in as much time as you can to avoid rushing an important financial decision.

Alternatives to Lifetime Mortgage Providers

Lifetime mortgages are one of several products that may be appropriate for you, depending on your borrowing requirements and eligibility.

Comparable options include:

  • Retirement interest-only mortgages, whereby you repay the interest but not the capital. Like a lifetime mortgage, the property is sold when you pass away or enter into care but belongs to you throughout.
  • Equity release products are loans secured against your property, and the value available depends on your equity ownership and the property's value. Lifetime mortgages and home reversion loans are examples of equity release borrowing.
  • Reversion plans raise finance by selling a proportion (or all) of your home to a lender in return for a lump-sum payment. You continue to live in your property until you move to a care facility or pass away, with sales proceeds split between the partial owner and your estate.

Speak to an Expert About Interest Only Lifetime Mortgage Options

If you would like further information about drawdown lifetime mortgages or any borrowing structures explored here, please get in touch with Revolution Finance Brokers.

As a whole-of-market, independent broker, we will ensure you pick the most suitable borrowing product at the best possible terms.

Please visit our contact page for the various ways to get in touch.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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