Can you lend money to your children using equity release instead of gifting it?

Helping family financially without simply giving money away

Equity release is often used to gift money to children or grandchildren, for things like weddings or first home deposits. But in some cases, you may be able to release money from your home and lend it to your family instead.

If you’re aged 55 or over and thinking about helping your children financially, you might already be considering equity release. It’s often used as a way to gift money to family, but some people also ask a different question: can you lend the money you release to your children instead?

The short answer is yes. In some cases, equity release can be used to support your family financially while also keeping more control over how the money is treated in the future.

Here’s how it may work, and some things to think about.

How equity release can be used to help family

The most common type of equity release is a lifetime mortgage. This lets you release tax-free money from the value of your home while still living there.

Many people use the money to:

• Help children get on the property ladder.
• Support grandchildren with education costs.
• Clear a mortgage, credit cards or loans, or improve day-to-day finances.
• Make home improvements or enjoy retirement more comfortably.

Traditionally, this money is treated as a gift. In some cases, gifting money can reduce inheritance tax, and equity release may support this goal.

But money you release to help lived ones doesn’t have to be gifted to them. Instead, some families choose to make a loan to a friend or family member, rather than an outright gift.

Lending equity release money to your children

Once you release money through equity release, it becomes your money. You can then choose to lend all or some of it to your children (or anyone you wish) privately if you wish.

If the agreement is that they will repay the loan to you, then your children could:

• Repay the money in one lump sum at a later date.
• Make regular repayments back to you over time.

This approach can be helpful if your children want support now, but are expecting their financial situation to improve in the future.

However, it’s important to remember that your equity release provider is still typically repaid from the sale of your home when the plan ends. That’s usually when you pass away or move into long-term care. Any agreement between you and your children sits separately from your equity release contract.

Flexible plans can give you more control

Modern equity release plans are more flexible than they used to be. 

Importantly, all new lifetime mortgages approved by the Equity Release Council let you repay up to 10% of your original loan each year without early repayment charges. This can help if your children plan to repay you over time.

If you’re planning to repay the loan in full once your family member can repay you, your main concern is likely to be early repayment charges on your plan. Fortunately, many plans also offer:

• No early repayment charges (ERCs): Some allow full repayment at any time without charges, useful if you plan to clear the loan or pay off a chunk of it early.
• Tapered ERCs: Charges often fall each year and eventually disappear altogether. If your child plans to repay you in full a few years down the line, this feature could be useful.

This is why it’s so important to speak to an experienced equity release adviser. They can find you the right plan with the right features for your current and future needs.

Interest-only options can help manage the loan size

Some equity release plans also offer an interest-only option. This allows you to pay off some or all of the interest each month for as long as you wish, so your loan balance will not grow as quickly, or at all.

If you were lending money to your children, they could potentially help by making monthly interest payments to you to cover the equity release payments leaving your account. 

You can choose to stop making the interest payments at any point. If you do, the interest will simply be added to your loan each month on a compound basis until your plan ends.

Things to consider before lending money to family

Helping family can feel rewarding, but it’s important to think carefully before turning equity release funds into a loan arrangement.

A few key points to keep in mind:

• Equity release is still a long-term loan secured on your home.
• Your children would need to be clear and realistic about repayment expectations.
• Any family loan should ideally be documented properly to avoid misunderstandings later.
• Your equity release provider or adviser will not be part of any private agreement between you and your children.

It’s also worth thinking about how this might affect family relationships if circumstances change.

A simple summary

Yes, you can use equity release to support your children financially in a way that goes beyond gifting.

By treating the money as a family loan, and using modern features such as flexible overpayments, reduced or no early repayment charges, and interest-only options, you may be able to help your loved ones while still keeping more control over how your own loan develops over time.

As with all equity release decisions, the key is to make sure the arrangement suits your current situation and your financial future.

How much could you release?

If you want to understand how much you could release, you can use our instant-result equity release calculator, or call us to arrange tailored quotes from the UK’s leading providers. 

Our selected advisers will also help you assess the suitability of equity release and the different options available. 

Call us on 0808 178 3055 or request a call back and we’ll arrange an appointment for you.