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May 192017
 

The Bank of mum and dad is often relied upon by first-time buyers to give them a leg up onto the property ladder, but increasingly grandparents are helping out financially too.

Nearly one in 10 (8%) of first-time buyers now turn to their grandma and grandpa for financial support, recent research by Santander Mortgages found, up from 2% just five years ago. Separate research from insurer Legal & General found that around 22,000 grandparents last year provided financial support for first-time buyer grandchildren.

It’s hardly surprising that many first-time buyers need help from the bank of gran and grandad, given that soaring property prices in recent years have pushed up the amount needed as a deposit. Most mortgages lenders require buyers to put down at least 5% of the property value, but even this often isn’t enough to ensure that their property purchase goes through.

According to a survey by Nottingham Building Society, 35% of would-be first-time buyers saw their property deals collapse in the past year because they didn’t have a big enough deposit.

Property website Rightmove’s latest property index shows that the average price of a first-time property – one with up to two bedrooms – is at a record high of £194,881. That means a 5% would amount to £9,744, while a 10% deposit would be £19,488.

Grandparents who are keen to help their grandchildren buy their first home often find most of their wealth is tied up in their own property.

One option that might be worth considering is Equity Release, whereby you unlock wealth from your home, without the upheaval of having to move. Drawdown lifetime mortgage schemes are usually the most popular type of equity release plan, as they enable you to release equity as and when you need. Interest rolls up over time and is only repaid along with the amount released either when you and your partner move pass away or go into long-term care.

Latest figures from equity release specialists Responsible Equity Release found that 4% of those who took out equity release plans last year gave the money as early inheritance. The most popular reason for older people to unlock wealth from their homes was to clear their own mortgages (36%), while 28% wanted the funds as a cash cushion in retirement.
Nigel Waterson, chairman of the Equity Release Council, the trade body for the equity release sector, said:

“Older homeowners are increasingly realising that there are a number of potential uses for their housing wealth beyond supplementing their retirement income, including re-investing in their homes and helping younger family members by providing a living inheritance.”

However, equity release should never be undertaken lightly, or without seeking professional financial advice, as it can affect your entitlement to state benefits and will also reduce the value of your estate.

It’s also important to understand that equity release rates are higher than standard mortgage rates, although they have fallen in recent years. According to Moneyfacts.co.uk, the average fixed rate for equity release deals has fallen to a record low of 5.63%. There are also far more options to choose from, with the number of fixed equity release products having increased from 52 options in 2015 to 82 today, the highest recorded figure in eight years.

Steve Wilkie, managing director at Responsible Equity Release, said:

“The equity release industry has also been far more receptive to innovation, recognising the importance of meeting the changing demands of customers who are more aware of equity release but want more choice and flexibility.

“The greater variety of products, such as interest-only lifetime mortgages and flexible repayment, has attracted a whole new market to the benefits of equity release.”

Equity Release Advice

 

Mike Oliver is a certified member of the Equity Release Council

Equity Release Council Consumer Brochure

Equity release can play a major role in helping older homeowners maximise their retirement income.  The equity release options available now are particularly useful, given that you have to take account of low annuity rates, the erosion of savings and poor interest rates. We need to stress that Equity Release should only be used once all other methods of raising finance have been exhausted.

Discover how equity release works, and how it could work for you. Here are five quick facts about equity release plans:

  • Equity release is safe – the equity release market has been fully regulated by the Financial Conduct Authority (formerly the Financial Services Authority) since 2007.
  • Equity release is flexible – today’s products are designed to support customers in different situations, with a range of different incomes.
  • You can’t lose your home – All Equity Release Council (ERC) member providers include guarantees in their equity release plans that let you stay in your own home for the rest of your life.
  • Your children won’t be saddled with any debt – ERC approved equity release plans from providers come with a ‘no negative equity’ guarantee to prevent you owing more than the value of your home.
  • You can move house – As long as your new property meets the equity release provider criteria, you can take your plan with you to another property.

We can help you to discover what you need to know about the different types of equity release products, and how you can access and extract from the value of your property.

‘Equity Release’ includes home reversion plans and lifetime mortgages.  To understand the features and risks, ask for a personalised  illustration. 

For Equity release we charge a fee of at least £600. We will also be paid a procuration fee from the mortgage provider, if one is available.

Lifetime mortgages can quickly erode the remaining equity and as a result, there may be no value left to pass on.

Equity Release schemes may work out more expensive than alternatives such as downsizing to a smaller property.

Equity Release can affect eligibility for state benefits and grants, so always check this with an IFA who is qualified to give Equity Release Advice.

Equity Release can limit a customer’s options for moving house in later years.

One type of equity release is a lifetime mortgage, where every year interest is added to the amount you owe.  This will reduce the remaining equity in your home.  If you live a long time or house prices fall, there may be no equity left for your heirs to inherit.

Mike Oliver Associates do not arrange ‘Home reversion Schemes’.

Lifetime mortgages are complex products. To understand the features and risks, ask for a personalized illustration.

Mike Oliver is a certified member of the Equity Release Council

The Money Advice Service – Equity Release Schemes

Advice from the Money Advice Service about Equity Release

About The Equity Release Council:

The Equity Release Council has been operating for over 25 years and is the industry body for the equity release sector, which represents over 400 members including providers, qualified financial advisers, solicitors, surveyors and other industry professionals.

It works to ensure a safe equity release market for consumers, by operating rigorous Standards for the provision of advice and products which guarantee security of tenure and financial protections. 2016 marks the 25th anniversary since the first industry Standards were created for equity release in 1991. Since then, over 350,000 consumers have taken out an equity release plan from Council members, drawing on almost £17bn of housing wealth.

The Council also works with consumers, industry and policy makers to improve awareness and understanding of equity release and the potential for housing wealth to help solve many of the financial challenges facing people over the age of 55 across the UK.