Using Equity Release to Purchase a Property: Moving Home in Later Life Without a Traditional Mortgage

How Is Equity Release Used For a Purchase?

Most people think of equity release as a way to access cash from a property they already own and intend to stay in. But equity release can also be used to purchase a new property, allowing older homeowners to buy a home using a lifetime mortgage rather than a standard residential mortgage.

This approach is particularly useful for people who are moving home in retirement or later life and who have significant property wealth but limited regular income. Standard mortgage lenders typically impose upper age limits or apply strict affordability criteria based on earned income, which can make conventional mortgage borrowing difficult or impossible for retirees. A lifetime mortgage for purchase removes these barriers, allowing the transaction to proceed without monthly repayments and without the income-based affordability assessment that a standard mortgage requires.

At J Finance, we advise on equity release for purchase as part of our broader equity release service. We are members of the Equity Release Council and will ensure that any product we recommend meets the full range of consumer protection standards, including the No Negative Equity Guarantee and the right to remain in your property for life.

Who Is This Suitable For?

Equity release for purchase is most commonly used by homeowners aged 55 and over who are in one of the following situations.

You are downsizing to a smaller or more manageable property and want to use a lifetime mortgage on the new property to avoid depleting all of your sale proceeds. Rather than putting all of the equity from your existing home into the new purchase, you use a portion of it as a deposit and fund the remainder with a lifetime mortgage. This preserves cash for retirement income, care costs, or other purposes.

You are relocating to be closer to family, to a different area, or to a property better suited to your needs in later life, and your regular retirement income alone would not satisfy a standard mortgage lender's affordability criteria.

You want to purchase a new home but your existing property is not yet sold and you need to move before the sale completes. In some cases a bridging arrangement combined with equity release can facilitate this, though each case needs to be assessed individually.

You have limited savings or liquid assets but significant property wealth, either from the sale of your current home or from other means, and want to use a lifetime mortgage to supplement your available funds to reach the purchase price of your chosen property.

You are a retiree who would previously have qualified for a standard interest-only mortgage but can no longer do so due to age restrictions or the absence of a satisfactory repayment vehicle accepted by standard lenders.

How Does Equity Release for a Purchase Work?

The mechanics of using a lifetime mortgage to purchase a property are straightforward, though the process requires careful coordination between the equity release lender, your solicitor, and any other parties involved in the transaction.

Step 1: Establishing the deposit requirement

The lifetime mortgage lender will lend a percentage of the new property's value based on your age. As with standard lifetime mortgages, older applicants can typically access a higher percentage of the property value. The balance between what the lender will provide and the purchase price must be funded from your own resources, typically from the sale proceeds of your existing property, savings, or a combination of both.

For example, if you are aged 70 and purchasing a property for £300,000, a lifetime mortgage lender might offer a maximum loan of around £100-120,000 depending on the product and lender. The remaining funds would need to come from your own funds. The exact percentage available depends on your age, health, and the specific lender's criteria.

Step 2: Property valuation and lender approval

The lender will commission an independent valuation of the property you intend to purchase. They will also assess whether the property meets their lending criteria. Most standard residential property types are acceptable, but some lenders have restrictions on property construction type, minimum value, or location. We check these criteria before recommending a lender.

Step 3: Legal process

The equity release application runs alongside the standard conveyancing process for the purchase. Your solicitor will handle both the property purchase and the equity release legal work, and the lender will require independent legal advice to be taken before the transaction completes. This is a standard requirement for all equity release products and exists to ensure you fully understand the commitment you are making.

Step 4: Completion

At completion, the lifetime mortgage funds are released to your solicitor alongside your own contribution, and the combined amount is used to purchase the property. From that point, the lifetime mortgage operates in exactly the same way as a standard equity release plan on an existing property.

How Is Interest Handled?

As with any lifetime mortgage, interest can be structured in different ways depending on the product chosen.

With a roll-up arrangement, interest is added to the outstanding balance each month and compounds over time. You make no monthly payments, and the total amount owed, including all accumulated interest, is repaid from the sale of the property when you pass away or move into long-term care.

With voluntary repayment options, most modern lifetime mortgage products allow you to make voluntary repayments of up to a set percentage of the original loan each year, typically 10%, without incurring early repayment charges. Making regular or occasional payments can slow the growth of the outstanding balance significantly and reduce the long-term impact on your estate.

With a Retirement Interest Only structure, some lenders offer products for purchase that require monthly interest payments, keeping the capital balance static throughout the plan. This requires sufficient regular income to meet the payments and is assessed accordingly, but it means the balance never grows and the impact on your estate is predictable and fixed from the outset.

We will explain all three options clearly and recommend the structure most appropriate for your income, your goals, and your attitude to the balance growing over time.

How Does This Differ from a Standard Mortgage?

There are several important differences between using a lifetime mortgage to purchase a property and using a conventional residential mortgage.

Affordability assessment: standard mortgages are assessed on the basis of income and expenditure, with lenders applying income multiples and stress-testing repayment capacity. Lifetime mortgages for purchase are assessed primarily on age and property value, with income being relevant only where a Retirement Interest Only structure is being used. This makes them accessible to retirees whose pension income would not satisfy a standard lender's criteria.

Age limits: standard mortgage lenders often impose maximum age limits at the point of application or at the end of the mortgage term, which can prevent older borrowers from accessing conventional mortgage products at all. Lifetime mortgages have no upper age limit and are specifically designed for older borrowers.

Repayment structure: standard mortgages require monthly capital and interest repayments throughout the term. Lifetime mortgages do not require any repayments unless you choose to make them, and the loan is repaid from the property sale at the end of the plan.

Term: standard mortgages have a fixed term, typically between five and thirty-five years. Lifetime mortgages have no fixed end date and run for the rest of your life.

Cost: lifetime mortgages typically carry higher interest rates than standard residential mortgages, and the compound interest effect on a roll-up plan can make the total cost considerably higher over a long period. This is an important consideration and one we model clearly for every client we advise.

What Happens If I Want to Move Again?

Many lifetime mortgage products are portable, meaning you can transfer the plan to a new property if you decide to move again in the future. The new property must meet the lender's criteria, and the lender's consent is required before any move can proceed. Not all properties will be accepted, particularly if the new property is of lower value or in a different category to the original security.

Where portability is important to you, we will specifically identify products that offer this feature and ensure you understand the conditions that apply. If the plan cannot be ported to a new property for any reason, early repayment charges may apply, which is another important factor to understand before committing to a product.

What Are the Key Risks and Considerations?

The outstanding balance grows over time with a roll-up lifetime mortgage. The longer the plan runs, the larger the total amount owed becomes. This is the most significant financial consideration for most clients and needs to be understood clearly before proceeding. You can however make payments towards the interest with most modern plans.

A lifetime mortgage for purchase will reduce the value of your estate. The loan, plus all accumulated interest, is deducted from the sale proceeds when the property is eventually sold. If the property has increased in value, there may still be a meaningful sum left for your beneficiaries, but this cannot be guaranteed.

The No Negative Equity Guarantee protects you and your estate from owing more than the property is worth at the time of sale, regardless of how much interest has accumulated. This protection applies to all products recommended by J Finance as members of the Equity Release Council.

Independent legal advice is required before the plan completes. This is a regulatory requirement and ensures you fully understand the commitment before signing.

Tips Before Proceeding

Think carefully about how much you actually need to borrow. Borrowing less means less interest accumulates over time and the impact on your estate is smaller. If the sale of your existing property plus savings can cover the purchase without equity release, that is worth considering.

Model the growth of the outstanding balance over a realistic timeframe. We provide projections at ten, twenty, and thirty years as standard, so you can see clearly how the balance evolves and what the likely remaining equity in the property might be at different points.

Consider whether a Retirement Interest Only structure might suit you better. If you have sufficient regular income to meet monthly interest payments comfortably, a RIO mortgage keeps the balance static and gives you greater control over the long-term cost.

Check the portability terms of any product before committing. If you think you may want to move again within the next ten to fifteen years, understanding exactly how portability works and what conditions apply is important.

Involve your family in the decision. A lifetime mortgage for purchase will affect the value of the estate your family eventually receives. Having an open conversation about this before proceeding avoids misunderstandings and allows family members to ask questions and understand the arrangement properly.

Get Started with J Finance

We work with older homeowners across the UK who are considering using equity release to fund a property purchase in retirement or later life. Our approach is thorough, honest, and unhurried. We will explain all the options available, model the numbers clearly for your specific situation, and give you our genuine recommendation based on what is right for you.

Appointments are available by phone, video, or face-to-face at our Newbury office, with out-of-hours slots available on request.

To arrange a no-obligation conversation, call us on 01635 521300 or email contact@jfinance.co.uk.