Family BS launches equity release alternative for over-60s

The Retirement Lifestyle Booster is designed for borrowers between the ages of 60-79 and will pay out a fixed sum, every month for up to 10 years. In return, borrowers make a payment each month to cover the ‘average’ interest due.

Unlike equity release plans where borrowers have no monthly repayments and the interest due rolls-up, by using the Retirement Lifestyle Booster the amount owed at the end of the 10 year term will be the same as the amount borrowed. The loan is designed to be repaid by selling the house and moving somewhere less expensive and mortgage free.

The minimum amount that may be borrowed is £45,000 up to a maximum of 25% of the property’s value.

For example, a loan of £60,000 will give the borrower an extra £500 per month for 120 months. At the current interest rate of 3.44% (linked to the variable Family Building Society Managed Mortgage Rate) this requires a monthly payment by the borrower of £83pm.

Compared with a standard interest only mortgage there are two key differences:

- The loan amount is paid out in monthly instalments on the 10th day of each month. It is the same amount every month for 10 years unless the borrower wishes to stop it earlier. Any existing mortgage is repaid from the agreed loan at the start of the Retirement Lifestyle Booster.

- Interest is charged on the balance outstanding each month, just like a normal mortgage. As the balance builds up the amount of interest charged increases. What’s different is that the home-owner pays the lender an amount each month that covers the ‘average’ interest due over the 10 years of the loan. After 10 years the outstanding amount is paid back, typically from the sale of the property as the borrower downsizes.

Keith Barber, Director of Business Development, Family Building Society, said: “Our research with older people in 2015 showed that some worry that their pensions may not be enough to carry on doing what they enjoy: they often want to be able to achieve long held ambitions as well as helping their children and grandchildren. Our new Retirement Lifestyle Booster has been designed to enable older home-owners to do exactly this.

“The Retirement Lifestyle Booster is a real alternative to the default equity release solution for older borrowers. Whilst the equity release market is growing, there is a need for a wider of range of financial products for retired borrowers who do not wish to see their housing wealth eroded by the roll-up of interest which can be a feature of lifetime mortgages.

“This is a real opportunity for advisers to demonstrate the value they add by considering the Retirement Lifestyle Booster as a tool when helping older people draw on their accumulated wealth.  The combination of pension freedoms, later life lending options and low investment returns along with the need for IHT management, make this a key area for advice."