Lending a hand to loved ones
If you have children or grandchildren, you naturally want to help them get a good start in life – especially at a time when many young people are finding it difficult to get onto the property ladder.
You may be able to use equity release to help them out. Almost seven in ten over-45 homeowners say that their home is worth more than their pensions, savings and investments combined. So, if you’re in a similar position, it makes sense to see if you could unlock some of that value and put it to work for your family.
There’s great satisfaction to be gained from knowing we’ve done something practical to help loved ones to buy a home of their own – and it’s doubly pleasing when we can do so during our own lifetimes, rather than through inheritance. For people aged 55 or over who are eligible, equity release could be the means to make this happen.
Source: Aviva Retirement Report 2016.
How do people feel about helping?
54% of over - 45 homeowners say they’d rather help family members onto the housing ladder now than by inheritance
43% believe their grandchildren will never own their own homes without family help
Source: Aviva Retirement Report 2016.
Can a lifetime mortgage help?
A lifetime mortgage – a long-term loan secured on your home which allows you to release a cash sum from its value – is one of the options you could consider if you’re looking to help family members.
Let’s look at an imaginary situation to show how this might work…
Chris and Alice, a married couple aged 55-65
Want to help their son get on the property ladder.
Please note that this is not a real-life example
Married business owners Chris (65) and Alice (64) live in Bournemouth and have a son and a daughter. Their son, in his late 20s, lives at home and has been struggling to save enough for a deposit on a flat in the area on his current salary. Their daughter lives nearby and is pregnant with her first child. She and her husband are financially comfortable.
Chris and Alice are keen to help their son become a first-time buyer and would also like to be able to help their daughter and grandchildren in the future. However, their savings are tied up in long-term investments which, after seeking the advice of a financial adviser, they’ve decided to leave in place. They have good private pensions and have paid off the mortgage on their house - worth £500,000. For Chris and Alice, unlocking their housing wealth through equity release could be an intuitive way to help both their children.
They want to give their son £40,000 towards the deposit on an apartment. This will allow him access to more lenders, products and a much lower interest rate. He will use the money he saves on mortgage payments to repay his parents some money each year, which Chris and Alice could use to voluntarily repay part of the lifetime mortgage.
Chris and Alice have also taken out £20,000 to help their daughter buy a bigger car and decorate the nursery. In addition, they’ve set up a reserve facility of a further £20,000, which they could use in future years to help their children and grandchildren.
What should I consider?
The commitment you’re making
First of all, you need to make sure you’re comfortable with everything that’s involved in taking out a lifetime mortgage. As the name suggests, it’s a commitment for life, and if you choose to end it early you may have to pay substantial early repayment charges.
There are no monthly repayments. Instead, interest is added to the loan and to any interest previously added each year. This quickly increases the amount you owe. The loan and interest are repaid in full, usually from the sale of your home, when you die or go into long-term care, subject to our terms and conditions.
Your own lifestyle
If you do decide to access money through equity release, you need to take your own needs into account as well as those of your family members. You may want to use some of the money to make your retirement more comfortable. Releasing money from the value of your home could also affect your tax position and eligibility for welfare benefits.
It’s your decision
It’s important to talk to family members before deciding on equity release, no matter how you plan to use the money you access. But remember, it’s your home, so the decision is yours to make.
Stay in your own home
Unlike raising money through downsizing, taking out equity release allows you to stay in your present home, which is an important factor for many people.
Thinking about inheritance
Helping your loved ones in this way now doesn’t necessarily mean you won’t be able to help them again later. You can choose a lifetime mortgage with an inheritance guarantee. This lets you safeguard a percentage of your home’s value to pass onto your loved ones. You should bear in mind that this will cut down the amount you can borrow, and taking equity release will always reduce the amount of inheritance you can leave.
If you want to pay back part of your loan
If you decide to pay back part of your lifetime mortgage loan, you can do so — after you’ve had the loan for a year, you can pay back up to 10% of the total amount borrowed, each year, in up to four instalments. The minimum amount you can repay in each instalment is £500.
These payments need to be made by the homeowner, not the person you might be using the loan to help – although you’re obviously free to make repayment arrangements between yourselves.
Here are other guides to explain how equity release could help you, and what to think about before you apply.