Equity release is increasingly being used by older homeowners who want to help their first-time-buyer children get onto the property ladder. But how does it work? Mark Gregory of Equity Release Supermarket explains in his latest Ask the Expert column
The Question
I’d like to help my daughter purchase her first home and I have been thinking about using some of the equity in my home to do so. I have very little in the way of savings and what money I do have, I would like to keep for emergencies.
In the meantime, my poor daughter has been saving and saving but just can’t get enough money to get onto the property ladder. She’s 35, still at home, and desperate to move into her own place.
If I could take out £50,000 or £60,000 from my home and she’d have enough set her up. We are not sure if a guarantor-type mortgage would be the best idea or whether I should just gift her the money. If I were to take out equity release, could I use the money to fund my daughter’s home using either of these methods? I realise, if my name were on the deeds, I’d be subject to second home tax, so I am keen to get some good advice. Thank you in advance for your thoughts.
Mark’s Answer
I am happy to share my thoughts as I can see that as a caring parent you want the very best for your daughter and by helping her secure a home of her own, you will take a lot of satisfaction.
Unfortunately, without further information I can’t provide you with how much you could raise because equity release is dependent on your age and the value of your home. If you are aged 55 and your home is worth at least £70,000 you may be eligible for equity release, and I can confirm that the ‘transfer of wealth’ and ‘gifting capital to loved ones’ is one of the reasons many customers consider equity release.
However, as noted, it does depend on your circumstances and it could impact on your own finances including state benefits, your own capital requirements, other siblings you may have, and paying for possible long-term care in the future.
Although raising capital from the equity in your home is tax free, depending on the size of your estate, the gift may attract inheritance tax on your demise, so this would have to be considered.
A possible solution for you may be a flexible Lifetime mortgage where you borrow capital that attracts a fixed rate of interest, and you choose whether to service the interest being charged. For example, you could make partial, full or interest and capital payments, or no payments at all. Alternatively, if it’s affordable your daughter could help and pay part or all of the interest payments.
As noted, you have the option to simply let the interest ‘roll-up’ and make no payments; however, the interest will reduce your estate and could leave you with no equity depending on your circumstances. Whether you have additional beneficiaries could also influence this decision so it’s fair and equal amongst them.
For more detailed information, to check your eligibility, and consider all your options, please contact one of our friendly expert whole-of-market advisers who will provide you with everything you need, check your eligibility and the impact of your lovely gift without obligation.
Rest assured as they will only charge you for their advice if you are entirely happy and only when any application you make is complete.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
I own a buy to let with a £60,000 mortgage. Can I use equity release to reduce the mortgage
Thank you for your question. We will pass it on to Mark to answer.