Lifetime mortgages costing kids £2,897 a year

Lifetime mortgages are removing £2,897 a year from inheritance, new figures show.

These products offer older homeowners the chance to take out a loan secured on their property which does not have any payments due on it until they die or move into permanent care.

However, while the homeowner themselves does not have to make any payments on the loan, it does keep building up interest. This has to be paid back - along with the original loan amount - when the home is eventually sold.

And the average amount of interest charged each year on these lifetime loans is £2,897 according to figures from MoneyExpert.com.

However, while this is the average amount, there are significant savings available depending on who the loan is taken out with.

The average interest charged on a lifetime mortgages is currently 6.63 per cent, but deals can be struck for as little as 5.7 per cent to as much as 8.9 per cent.

This means a 70-year-old taking out an average policy of £44,000 and living until 85 could see their children inherit £57,000 more by going for the cheapest loan on the market rather than the average one.

"For an increasing number of pensioners, equity release schemes are an important means of raising cash for a more comfortable retirement," said Sean Gardner, chief executive of MoneyExpert.

"But the complexities and variety of the products makes choosing the right scheme a difficult task.

"As the market matures, more consumers will research the pros and cons of equity release and it stands to reason that they should be able to do some initial digging themselves.

"People need to know just how much they risk losing if they don’t research the market properly."

But MoneyExpert adds that homeowners might not always have the choice of going for the cheapest loans, with rates often increasing the more a homeowner borrows and lending criteria meaning others will simply not offer cheaper rates to some applicants. XXX