New Life Mortgages does offer a “no negative equity” guarantee, which means the debt cannot grow larger than the value of the property, but because the interest is rolled up you have no idea how much you will eventually pass on.

Anthony Williams of Evolve Financial Planning, an adviser, said: “In a worst-case scenario people might have no assets to pass to the next generation. We would recommend this scheme only to clients who have no other way of funding their lifestyle.”

Your age determines how much you can borrow, starting at a maximum of 15 per cent of the property’s value at age 60 up to 48 per cent at 90-plus. The minimum you can borrow is £26,000 and the maximum £500,000.

There are early-repayment charges if you repay the loan in the first five years voluntarily. The loan must be repaid within 12 months if you are forced to move into long-term care or die, but then the early-repayment charges are waived.

The scheme can be bought only through advisers authorised to sell lifetime mortgages. If problems arise, consumers can complain to the Financial Ombudsman Service, and possibly win compensation.

IS THE SCHEME RIGHT FOR YOU?

Pros: You can release equity tied up in a second home or buy-to-let without having to sell. There are no monthly repayments; instead the interest rolls up and the loan is repaid when the property is sold, usually after death. You defer the payment of capital-gains tax.

Cons: It is a costly way to borrow, with a fixed rate of interest of 6.75 per cent, against a typical buy-to-let rate of 5.5 per cent. You are charged interest on the interest added to the loan, so the scheme eats into your children’s inheritance.

COURIER'S GOAL

Neil Beaumont, right in the picture, managing director of a courier business, is a succesful property investor. He started with just one buy-to-let 10 years ago but he and his buy-to-let partner, David Chapman, left, now own 15 properties in southeast London with an estimated worth of £1.2m.

He knows that in the future he will face a dilemma: if he sells to release profits he will have to pay a big capital-gains-tax bill.

Beauchamp, 45, said: ‘At retirement I am going to have to decide whether I can survive on the income that I receive from my tenants or whether I will have to sell up.’

But the scheme from New Life Mortgages will provide him with an alternative: he would be able to remove cash from his properties without having to sell them.

For more on the housing market visit www.timesonline.co.uk/mortgage

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