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The Equity Release Council has issued guidance (August 2024) for consumers and later life advisers on using Lifetime Mortgages for retrofit home energy efficiency improvements. A strong recommendation is the need for a proper retrofit assessment to ensure improvements are appropriate.
It is commendable that they should be considering energy efficiency and to improve the lives of our older population. However, before using a lifetime mortgage to fund them, you need to consider the implications of this more fully.
There will be an initial outlay for any type of installation, including solar panels, an air source heat pump, replacement windows or a new boiler. It can then take many years to recover these initial costs with energy savings, and the time taken can vary wildly depending on many factors.
However, to be sure of recovering the costs and making the installations worthwhile, the homeowner needs to be fairly sure they will remain in the home for a fairly long time. If they leave the property within a few years it is unlikely they will have saved much on an ongoing basis, or see the same increase in the house value.
The average age of a lifetime mortgage applicant is around 71*, but by definition that means many are older. If they need to borrow money to do the improvements, there is a good chance they will not have sufficient income to service the interest charged on the mortgage. Consequently, the debt will rise with unpaid and added interest (which is allowed on this type of loan).
However, this means the total outlay will be much higher over time. If, say, £20,000 were borrowed for energy saving improvements at an interest rate of say 6.0%, the debt would double to £40,000 years in just 11½ years. If our 71 year old lives to 94, it will have cost them £80,000. If they choose instead to pay the interest each month, over 11½ years the interest paid would be £13,800. Over 23 years it would be £27,600.
No amount of energy savings will get close to the costs if a compounding debt lifetime mortgage is used.
In all of this we have not, of course, considered how much warmer a home would be and the improvement in lifestyle - but at what cost?
Looking to make the homes of our older population more energy efficient is a commendable aim, but consumers need to consider carefully whether they will actually benefit from using a lifetime mortgage loan to pay for it.
*source: Equity Release Council
Lifetime Mortgages are only applicable to those 55 and over, and it could affect eligibility to state means-tested benefits and the inheritance you may leave. To understand the features and risks, ask for a personalised illustration. Equity release includes Lifetime Mortgages and Home Reversion Schemes. We can advise and arrange Lifetime Your Mortgages and will refer to an approved specialist for Home Reversion schemes.
There may be a fee for Lifetime Mortgage advice. The precise amount of the fee will depend upon your circumstances, but we estimate this will be £990.
Andy Wilson Financial Services Ltd is registered in England No. 07547809. Registered Office: Landmark House, 1 Riseholme Road, Lincoln, LN1 3SN.
Andy Wilson Financial Services is a trading name of Andy Wilson Financial Services Ltd, an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Conduct Authority.
The guidance and /or information contained within this website is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.
