Lifetime mortgages are most commonly associated with releasing equity from a home you already own, typically to fund retirement, home improvements, or to help children onto the property ladder. The question of whether a lifetime mortgage can be used to purchase a new home rather than releasing equity from an existing one is less commonly understood but has a clear answer: yes, in some circumstances, it can.

This guide explains what a lifetime mortgage is, how it can be used to fund a property purchase, who is eligible, the costs and risks involved, and the alternatives worth considering.

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What Is a Lifetime Mortgage?

A lifetime mortgage is a type of equity release product available to homeowners aged 55 and over. It allows you to borrow money secured against your home without making monthly repayments. The loan, plus compound interest that accrues over time, is repaid when you die or move into long-term care and the property is sold.

Unlike a standard mortgage, there is no fixed term and no requirement to make regular repayments, though some products allow voluntary partial repayments. The interest compounds over time, meaning the total amount owed can grow significantly if the loan runs for many years.

Most lifetime mortgages include a no negative equity guarantee, which means you or your estate will never owe more than the value of the property when it is sold, even if the loan has grown to exceed that value. This guarantee is a condition of membership of the Equity Release Council, which most reputable lenders belong to.

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Can a Lifetime Mortgage Be Used to Buy a New Home?

Yes, some lenders offer lifetime mortgages specifically designed for the purchase of a new property rather than releasing equity from an existing one. This type of product is sometimes called a purchase lifetime mortgage or a later life purchase mortgage. It works in the same way as a standard lifetime mortgage but is used to fund part of the purchase price of a new home, with the remainder typically coming from the proceeds of selling your existing home.

A typical scenario involves an older homeowner who sells their current home, uses the majority of the proceeds toward a more expensive property in a preferred location, and takes out a purchase lifetime mortgage to make up the difference without having to make monthly repayments.

Who is eligible

Eligibility for a purchase lifetime mortgage typically requires the applicant to be aged 55 or over. Some lenders set a higher minimum age, such as 60 or 65. The property must be in England, Scotland, or Wales and meet the lender's property criteria, which typically excludes very unusual construction types or properties below a minimum value threshold. The property must be your main residence and you must live in it.

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How Much Can You Borrow?

The maximum amount available through a lifetime mortgage is expressed as a loan-to-value ratio, which increases with age. At age 55, the loan-to-value available may be around 20 to 25 percent of the property value. By age 70 or 75, it may be 40 to 50 percent or more. The maximum available from any specific lender depends on the lender's criteria, the value of the property, and the applicant's age and health.

Enhanced lifetime mortgages, sometimes called impaired life plans, offer larger loan-to-value ratios for applicants with certain health conditions, on the basis that the loan is statistically less likely to compound for as long as it would for a healthier person.

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The Costs and Risks

Compound interest

The most significant cost associated with a lifetime mortgage is the compound interest that accrues on the loan over time. If the interest rate is 5 percent and you live for 20 years after taking out the mortgage, the loan will have grown substantially. On a 100,000 pound lifetime mortgage at 5 percent, compound interest over 20 years would produce a total debt of approximately 265,000 pounds. This is the core financial risk of the product and the main reason it reduces the inheritance available to your estate.

Impact on means-tested benefits

Releasing equity through a lifetime mortgage increases your liquid assets, which may affect eligibility for means-tested benefits such as pension credit or council tax support. This should be assessed before proceeding.

Early repayment charges

If you repay the lifetime mortgage early, for example because you need to move into care sooner than expected, significant early repayment charges may apply. The terms vary between lenders and products and should be checked carefully.

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Alternatives to Consider

A purchase lifetime mortgage is not the only way an older person can fund the purchase of a new home without standard mortgage repayments. Retirement interest-only mortgages are available from some lenders for older borrowers, where interest is paid monthly but the capital is repaid when the property is sold on death or on entry into care. These can be less costly than a lifetime mortgage where the borrower can afford monthly interest payments.

Downsizing to a cheaper property and buying outright from the proceeds is often the simplest and lowest-cost approach where it is practically viable.

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Summary

A lifetime mortgage can be used to help purchase a new home in later life, typically by bridging the gap between the proceeds of selling an existing property and the cost of a more expensive replacement. Purchase lifetime mortgages are available to homeowners aged 55 and over through a range of lenders.

The product carries the same fundamental risks as any lifetime mortgage: compound interest that grows significantly over time, a reduction in the estate available to beneficiaries, and potential impact on means-tested benefits. Independent financial advice from a qualified equity release specialist is essential before making any commitment.