Retirement is changing, with people living longer, juggling different demands on their money and having different aspirations for their post-work years, compared with previous generations of retirees.
The value of a person’s property has become an increasingly important element in financial planning, as people look to unlock the value in their homes to support their evolving needs in retirement.
In response, equity release products have grown in popularity, offering a wider range of flexible options to suit these new lifestyles.
This is only likely to increase as people start to see even more value in their home as a result of double-digit increases in house prices.
In the last year alone, the average home in the UK increased in value by 13.2% over the year to June 2021, with the average property worth £266,000, which is £31,000 higher than this time last year.
Intergenerational support, with parents or grandparents helping younger generations, especially with big ticket items, like buying a house or getting married, has long been observed.
Supporting families post-Covid
However, recent events have seen these financial lifelines become even more important. Research commissioned by Legal & General in 2020 found that 5.5 million parents expected to offer additional financial support to younger family members due to Covid-19, at a total cost of £1.9 billion.
Despite early signs of recovery, Covid-19 continues to place financial pressure on people of all ages.
Employment rates have improved, up 241,000 to 29.1 million in August 2021, returning to pre-pandemic (February 2020) levels in all regions except London, Scotland and the South East, according to the latest data from the Office for National Statistics (ONS).
However, these numbers could be negatively impacted by removal of government support schemes, such as furlough. With this in mind, it is likely many people will continue to turn to older generations for financial help.
Gifting
At Legal & General, we are seeing signs that customers are using lifetime mortgages to gift money to family. A lifetime mortgage is a type of equity release, a loan secured against the home for homeowners aged 55 or over which is usually repaid when the last borrower dies or moves out of the home into long-term care.
Legal & General Financial Advice saw a 96% rise in the number of enquiries about gifting money to loved ones in the first five months of this year, compared to 2020.
This could be driven by things such as the stamp duty holiday, with parents stepping in to help their adult children make a saving on their first home, but could also be as a result of people wanting to help loved ones maintain their day-to-day expenses, something we know parents are commonly called on to do.
At the same time, the equity release market is seeing new types of products emerge to make using property wealth convenient for a range of different types of people. Our Optional Payment Lifetime Mortgage, for instance, was introduced for people who choose to pay some, or all, of the monthly interest by Direct Debit.
With an increasingly varied range of products available, and with younger peoples’ need for support perhaps greater than ever, we anticipate we’ll see more people gifting to their relatives.
Helping a family member in this way can be hugely rewarding, and can often make good financial sense, though the recipient may have to pay inheritance tax in the future.
Gift wisely
However, the key is not to lose sight of one’s own longer-term retirement plans. There is always going to be a risk that people could be underestimating how much they need to fund a comfortable retirement, and, therefore, it’s important to gift sensibly and within the parameters of what works for the individual.
This includes thinking about their own ambitions for their later life lifestyle, as we cautiously begin the transition back into a ‘new normal’ post-pandemic.
Homeowners should always think carefully and take time to consider their options before taking out a lifetime mortgage.
While equity release won’t be right for everyone, and there may be cheaper ways to borrow, for many parents, unlocking money tied up in a property to support their loved ones can make a real difference.
Claire Singleton is CEO of Legal & General Home Finance
