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Legal & General shakes up retirement lending market with a new lifetime mortgage for over 50s
Legal & General Home Finance is launching a new category of lifetime mortgage to improve options for home-owning over 50s whose needs are not always met by the current market.
20 Nov 2023
- The first-of-its-kind Payment Term Lifetime Mortgage (PTLM) could help borrowers on expiring interest-only deals and younger homeowners wanting to unlock funds while remaining in their home
- Affordability considers pre-retirement income instead of all future income, allowing borrowers with stable job income to qualify, even if their pension falls short
- PTLM offers up to 55.3% loan-to-value (LTV) – substantially higher than LTVs in Legal & General’s existing later life mortgage range
Legal & General Home Finance has unveiled its Payment Term Lifetime Mortgage (PTLM), a new kind of lifetime mortgage which improves the options available for borrowers over 50 whose needs are not always being met.
PTLM1 is unique in that it helps borrowers access property wealth earlier – from 50, rather than 55 – and offers a tax-free cash lump sum in return for fixed monthly interest repayments up until retirement or age 75, whichever comes first.
Borrowers can then choose to make voluntary repayments in retirement if they wish, but unlike a Retirement Interest Only (RIO) mortgage, they’re not required to make payments for life. Any unpaid interest is added to the total amount owed and is typically repaid from the sale of the home when the customer passes away, or moves into long term care.
Borrowers will need to pass affordability checks, but PTLM offers more flexibility by assessing pre-retirement income, helping those with stable earnings to qualify, even if they expect income to reduce in their retirement2.
Meeting changing customer needs
Homeowners can use PTLM to replace an existing mortgage, such as a standard interest-only mortgage, helping people on expiring interest-only deals who may have a shortfall in the repayment plan they have in place.
The FCA reports around one million outstanding interest-only mortgages; borrowers are typically aged 56 with £140,000 left to pay. While one in five interest-only borrowers intend to sell their property to repay the loan, while many want to seek alternatives. More than half of outstanding interest-only mortgages are between 25% and 55% loan-to-value (LTV) 3, these are the borrowers PTLM is most likely able to support, with homeowners able to borrow up to 55.3% LTV – substantially higher than LTVs in Legal & General’s existing later life mortgage range4.
This new wave of home loans is also providing more choice to homeowners wanting to access property wealth earlier – often for home improvements or for separating couples where an individual wants to remain in the home.
Craig Brown, CEO, Legal & General Home Finance: “This launch signals our commitment to lead the way and offer more choice for homeowners who are sitting on equity in their homes but can’t access this because of their age and borrowing needs.There’s a sizeable group of homeowners who fall between traditional lifetime mortgages and Retirement Interest-Only (RIO) solutions. PTLM bridges this gap, offering a great solution to individuals over 50 with substantial home equity who want access to this earlier via a mortgage that is paid for from their current income. This not only gives younger borrowers more options to live the life they want, but it’s also an answer for interest-only mortgage holders seeking a repayment plan to stay in their homes.
For homeowners weighing up their choices, it’s worth speaking to a mortgage broker or financial adviser to compare options from across the market."
How much will PTLM cost?
The table below shows how much a customer, aged 50 with a property value of £300,000, would be able to borrow on an interest rate of 7.95% (AER) 7.67% (MER) as of November 2023. The interest rate charged will be based on individual circumstances and may be different.
|
Scenario 1 |
Scenario 2 |
Scenario 3 |
Scenario 4 |
|
| Age |
50 |
50 |
50 |
50 |
|
Payment term |
5 Years |
10 Years |
16 Years |
25 Years |
|
Property value |
£300,000 |
£300,000 |
£300,000 |
£300,000 |
|
Maximum |
£49,500 |
£66,600 |
£95,700 |
£165,000 |
|
Monthly |
£316.39 |
£425.69 |
£611.68 |
£1,054.63 |
References
1A Payment Term Lifetime Mortgage (PTLM) is a loan secured against the home and requires at least one borrower to be in work
2As with a standard mortgage, the property is at risk of repossession if the monthly interest payments are
not met
3FCA Interest-Only mortgage data
4Legal & General internal data
Further information
Notes to editors
Established in 1836, Legal & General is one of the UK’s leading financial services groups and a major global investor, with £1.2 trillion in total assets under management (as at FY23) of which c40% (circa £0.5 trillion) is international.
We have a highly synergistic business model, which continues to drive strong returns. We are a leading international player in Institutional Retirement, in Retail Savings and Protection, and in both public and private markets through our Asset Management division. Across the Group, we are committed to responsible investing and dedicated to serving the long-term savings and investment needs of customers and society.
As at 7 June 2024, we estimate the Group’s Solvency II coverage ratio to be 224%.
As at 11 June 2024, Legal & General has a market capitalisation of £14.6 billion.
Legal & General Retail helps create brighter financial futures for all our customers. The division covers the savings, protection and retirement needs of our c.14 million retail policyholders and workplace members.
In 2023, we had total individual annuity sales of £1,431 million, and issued £299 million of Lifetime Mortgages and Retirement Interest Only Mortgages. Our Workplace pension platform served 5.2 million members, while our Protection businesses gave peace of mind to several million direct, group and US customers, taking in £1,991 million of UK and $1,584 million of US gross written premiums.