The Consumer Prices Index

Understanding more about the Indexed Lifetime Mortgage

This section applies to the Indexed Lifetime Mortgage and Indexed Lifetime Mortgage Plus products only. These products are a new type of lifetime mortgage where the interest rate is variable, as opposed to the majority of lifetime mortgages where the interest rate is fixed for the duration of the loan.

What is the Indexed Lifetime Mortgage?

The interest rate applying to your loan will be variable, and will be set each year on the 1st of April based on the percentage change in the Consumer Prices Index for the preceding annual period from September to September.

Indexed Lifetime Mortgages also include an Interest Rate Guarantee which ensures that the variable rate will never go above a certain capped level, or fall below a certain floor level. These values are shown on our product summary page.

What is CPI?

Changes to the Consumer Prices Index (“CPI”) is the main measure of inflation in the UK. It is calculated and published monthly by the Office for National Statistics, and determined through a detailed survey of the prices of a large range of consumer goods and services.

What is the role of CPI in the UK economy?

The main objective of UK monetary policy is to deliver price stability, in other words inflation that isn’t too high or too low. Therefore, since 2003, the Government has set a target for CPI inflation of 2% per annum.

The Bank of England’s Monetary Policy Committee is tasked with managing the UK economy in order to keep the actual level of CPI inflation close to the Government target. If CPI inflation is higher or lower than the 2% target by more than 1 percentage point, the Governor of the Bank of England must write an open letter to the Chancellor explaining the reasons why inflation has increased or fallen to such an extent and what the Bank of England proposes to do to ensure inflation comes back to the target.

Why does Hodge Lifetime offer a lifetime mortgage linked to CPI?

We believe that choice is important. Depending on your specific needs and attitude to risk, a variable rate loan may be better suited to your circumstances. Your adviser will help you to decide which product options are best for you.

Why is the interest rate linked to CPI?

CPI-linked funding sources usually have a cap and floor in place, and the benefits of the cap and floor can therefore also be included in the Indexed Lifetime Mortgage. This means the loan complies with the Equity Release Council’s SHIP Standards.

How do I find out more?

You can find out more about CPI, and its current level, by following this link to the Office for National Statistics website: https://www.ons.gov.uk/economy/inflationandpriceindices