The Lifetime retirement income specialist firm has launched a novel home equity release option targeting mortgage-free house-owners aged 70 and over.
Unlike traditional reverse mortgages, essentially floating interest rate loans secured on property, the Lifetime Home model pays out a set level of income during a 10-year period in exchange for a 35 per cent stake in the house in question.
Home-owners cede the 35 per cent share in their properties over time with the annual income based on 25 per cent of an agreed, independently assessed, ‘initial value’.
Lifetime accrues the equity in 3.5 per cent annual increments over the 10 years while homeowners receive income each year at 2.5 per cent of the initial agreed value minus fees and costs.
As well as an establishment fee of 0.2 per cent of the initial value, Lifetime Home deducts annual charges of 0.23 per cent (again based on the agreed purchase price). Once the 10-year period has elapsed, Lifetime charges include an annual fee of $1,000 (inflation-adjusted).
The firm also offers the option for home-owners to convert further equity to income past the first 10-year period.
“After ten years, whether you choose to extend your equity release or not, you retain the right to remain in your home for as long as you wish, as long as it is safe to do so, and other terms of the Agreement are met,” Lifetime says in a release.
Under the agreement, home-owners remain liable to pay the full costs of insurance, rates and other property upkeep costs.
While tapping into home equity, typically the single-largest asset of New Zealanders, is an increasingly popular retirement income strategy both here and offshore, both the Lifetime approach and traditional reverse mortgages involve complex trade-offs.
“Equity release products meet specific needs and requirements and must be considered carefully. Anyone considering the product should seek legal and financial advice,” Lifetime says.
Founded in 2014 by NZ financial services veteran, Ralph Stewart, as a quasi-annuity provider, Lifetime changed tack in 2021 after low interest rates and Reserve Bank of NZ rules rendered the insured income approach untenable.
The core Lifetime product switched at the time to a standard managed fund with an allocated income overlay.
Lifetime has also expanded via several acquisitions including the Garrison Bridge UK pension transfer scheme in 2016, the Aon superannuation master trust in 2022 as well as three legacy retirement products from AMP last year.
In total the Lifetime group now controls about $900 million with underlying fund managers such as Mercer, Fisher, Simplicity and Kernel.