Equity Release – surviving divorce by using a Flexible Lifetime Mortgage

In recent years we have seen the number of people divorcing in retirement increase. This group of people need to be aware of a litany of financial pitfalls as they try to divide a lifetime’s worth of assets.

Recent figures from the Office for National Statistics show between 2005 and 2015, the most recent full year for which data is available, the number of women over the age of 65 getting divorced rose by almost 20%, from 4,654 to 5,554. The number of men of retirement age getting divorced increased from 8,059 to 8,697, an 8% rise, over the same period.

The ONS put the rise down to older people being “more connected, economically and socially, than they were before”. Internet dating and people continuing to work beyond the age of 65, and so being able to support themselves, are thought to be the other reasons for the increase. 

So how can a Lifetime Mortgage support a later life divorce?

Let look at an example case study.

David aged 65 and Sarah aged 63 are both now retired but have decided to go their separate ways. As a result they would like:

• For Sarah to stay in the family home so their grandchildren can continue to stay with her.
• More money to help them pay for the immediate costs of the divorce.
• Find enough money for Barry to move out and afford a place of his own.

After 40 years of marriage David and Sarah have mutually decided to divorce and are looking for the best way to move forward. They have two grandchildren, which Sarah looks after regularly so her daughter can work and save on child care.

David has agreed that Sarah can remain in the family home. His pension is enough for him to live a comfortable day to day life, but he needs some additional money to cover the immediate costs of the divorce and move out.

Sarah receives a moderate pension but has no savings or investments. Sarah is understandably worried she won’t have enough income until she gets her share of the divorce settlement. Their home in Hampshire which they own outright is worth £365,000.00. They did seriously consider downsizing but they wish to avoid doubling their moving costs and causing any additional emotional stress by selling the family home.

The potential solution:

A potential solution for both David and Sarah could be to release a lump sum of money to cover the divorce costs using a Flexible Lifetime Mortgage. This would allow Sarah to stay in the family home and for them to cover the cost of David moving into his new property. 

Based on their age and property value, they could potentially release or have access up to £124,100.00 using Legal and Generals Flexible life time mortgage (subject to normal underwriting and valuation). They could receive the maximum loan available in one lump sum. They make no monthly payments although the interest is added to the loan.

Benefits:

• The flexible Lifetime mortgage allows David and Sarah to unlock some of the Equity in their home without having to sell the property. This avoids paying additional moving costs and the emotional upheaval of losing their family home.
• David and Sarah can release a lump sum from their home to pay the upfront divorce costs such as legal fees. A lifetime mortgage on average 6 – 8 weeks to complete, whereas selling their home could take months.
• The flexible Lifetime Mortgage can help relieve the financial stress at an expensive and emotionally difficult time for both parties.
• Sarah can continue to care for her grandchildren and remain in the family home. Should she wish to move and down size once the grandchildren have grown up, Sarah can take the Flexible Lifetime Mortgage with her – subject to terms and conditions.
• David could use some of the money to pay a substantial deposit on a new home or if he prefers, use the additional income to pay rent on a property.

Risks:

• Both David and Sarah should be aware of the risks involved with a product such as a Flexible Lifetime Mortgage
• A life time mortgage is a loan secured against their home
• Interest is charged on a compounding basis, which means interest is charged on the loan plus interest already added
• There will be fees associated with the lifetime mortgage, such as legal fees and arrangement fees
• A Lifetime Mortgage will reduce any inheritance available
• There may be cheaper ways in which David and Sarah can borrow the money
• It may affect their entitlement to any State benefits, and their tax position

Please note this example is not real and it is for illustration purposes only. This is for a Lifetime Mortgage. To understand the features and risks, ask for a personalised illustration