My clients,a couple both aged 80, have an interest-only home loan. It is a lifetime mortgage in as much as they will remain liable for payments until the second of them dies or otherwise no longer lives at the property. At that point the property will transfer back to the mortgage lender. No arrangements are in place for my clients to repay the capital element of the loan. It is not an equity release loan because my clients never owned the property or had a mortgage on which capital repayments were made.

I imagine that the loan is one which would be eligible for housing costs on their PC claim, but because my clients (nor their estate) will ever own any part of the property, it doesn't seem to me to be strictly speaking a 'home purchase' loan which is a normal condition of eligibility.

Are they likely to have any problem getting extra PC to help with their repayments?

I can't understand, I'm afraid, what the relationship is between the home and the loan if they have no equity interest. If they 'never owned the property' how can it 'transfer back'?

Eligible housing costs are, among other things, those which he or his partner is "liable to meet in respect of the dwelling occupied as the home which he or his partner is treated as occupying"(schedule 2, paragraph 1(a) of the Pension Credit Regs 2000.

Are your clients not in the same position regarding "ownership" of the property as anyone else with a mortgage? The detailed arrangements as to how the borrowers repay their loan don't seem to be relevant to the question of ownership. Your clients are the registered owners of the property. However, because they borrowed the money with which to buy it, the lender has a charge on the property. If, when the second of them dies there is no way of clearing the outstanding debt then the property passes to the charge holder.

If there is a mortgage/charge on the property, then it does not belong to the mortgage lender, but to the person who has contracted to borrow the money to acquire the home. If you saw the legal title of this property I cannot see how it could be vested in anyone other than your clients; or they would be paying rent to a landlord so he could discharge the mortgage. Even if in effect all they have is the right to live in the house during their joint lifetimes (which on the facts is not what has happened), that right is an interest in the property and the loan was taken out to enable them to do that - rather like a leasehold or a lease for a term of years.

Thank you for your valiant attempts to respond to my hopelessly worded original enquiry. I wonder if by improving on my posting I might attract further comment.

My clients acquired their property with a repayment mortgage under right to buy provisions a number of years ago. A couple of years ago they were persuaded that it would be in their best interests to convert their mortgage to a life-time mortgage. My understanding is that a lifetime mortgage is an indefinite interest-only loan which ends only when the property is sold, at which point the capital element of the loan is repaid via a charge on the property. There is no endowment policy or similar arrangement in place and so my clients will never own the property outright.

Their financial interest in the property is, as I understand it, restricted to the equitable interest they had up to the point that they switched to the lifetime mortgage (ie their only financial interest in the property predates the new mortgage). Although the repayments on the new mortgage give my clients the right to continue to live at the property, I can't quite see that a lifetime mortgage is a loan for house purchase. Or more precisely I can't see that it is a loan which enables my clients to 'acquire an interest in the dwelling occupied as a home' as required by SPC Regs Sch2 para 11 (1)(a). Conversely this type of loan seems to me to be one via which an interest in the home has actually been relinquished in exchange for lower repayments.

So does this jeopardise their right to additional PC to help them repay the loan?

This looks as if on the facts it was taken out to replace the loan that they actually used to buy their interest in the home. The suggestion may have been to help them by reducing interest payments. If indeed it was used to pay off the original mortgage, then to the extent that the previous loan would have qualified for mortgage interest payments, so does this: remortgaging is envisaged by the rules. But if they added to the amount borrowed, then only the capital amount used to pay off the old loan is eligible (para 11 (1) (b) of sched II of the State Pension Credit regulations).

Since the interest will be paid at the standard interest rate, whatever the the actual loan payable, the fact that this loan is for a lower rate than the other doesn't matter at all.

Neither does the fact that it is repayable out of the estate. That applies to any mortgage which has not been repaid at the date of death of the mortgagor. Does the mortgage provide for any sum in excessive of the amount repayable to be paid to the estate? If they won the National Lottery tomorrow, would they be allowed to pay it off in their lifetimes? If the answer to either of those questions is yes, then it is a real mortgage though with unusual terms. You say it is secured by a charge on the property: that is exactly what the thing usually referred to as a mortgage is (a "charge by way of legal mortgage") You also imply that it would be paid off if the property is sold: so could they sell up, pay off the mortgage - and would they then get anything out of it?

By the way, did they ever get any legal advice on this arrangement - independent legal advice? This whole thing is vaguely reminisicent of a particularly unpleasant thing called "shared appreciation," whereby you raise capital by selling 25% of your interest in the property to a nasty financial institution, at 25% of current valuation. If you later sell up, you get 25% of the value at the date of sale, and they get 75%. No this is not a mistake. Neat trick, huh?

"By the way, did they ever get any legal advice on this arrangement - independent legal advice? This whole thing is vaguely reminisicent of a particularly unpleasant thing called "shared appreciation," whereby you raise capital by selling 25% of your interest in the property to a nasty financial institution, at 25% of current valuation. If you later sell up, you get 25% of the value at the date of sale, and they get 75%. No this is not a mistake. Neat trick, huh?"

I was wondering that too ariadne; and I can't believe that the product they have is in fact appropriate for them...

I wish this forum would let us quote properly (mods?)

This Age Concern information sheet is a handy explanation of the different varietes of equity release scheme
http://www.ageconcern.org.uk/AgeConcern/is7.asp

alban

Is this a private loan or from a regulated lender?

What is the interest rate? If it's below 5% then the lenders initial rate will be used rather than the standard rate.

A lifetime mortgage is defined by the FSA as an equity release scheme (the other type of ER is a reversion which is a house sale rather than a loan).

Typically it means that interest accrues on the loan but is rolled up and cleared by the estate on death, or entry into residential care. No interest is normally paid.

I'm with Ariadne, this one has a smell about it.

Hmm - are they in fact currently paying interest or is it rolled up?

The "under 5%" rule was effectively repealed from Novemner 2004 - from taht date it only applied to loans taken out before Nov 2004 and ceased to apply if the interest rate rose above 5%, or ther is a revision for change of circumstances, or on the first anniversay of the adte on which housing costs started, whichever is first. So it is the standard rate.

If there is no liability to pay (ie actually and currently) mortgage interest then ther is no right to payments (Brain v Chief Adjudication Officer confirming CIS 636/1992.