Next generation less likely to pass on property wealth

Fewer adults expect to pass on property wealth as financial pressures mount

Written in line with our editorial policy.

A growing number of people in the UK are rethinking their financial strategies as they approach retirement, with fewer expecting to pass on their property wealth to the next generation.

According to a recent survey, only 45% of those yet to retire anticipate leaving their property as an inheritance, compared to 65% of current retirees. It highlights a significant shift in attitudes compared to previous generations.

The new research from St James’s Place has found that although 68% of UK adults believe it to be important to leave an inheritance, future retirees have substantial mortgage and rental costs that are making this potentially unachievable. It means that despite baby boomers expected to pass on £1.2 trillion in inheritance over the next few decades, significant financial pressures are leading many to reconsider how they manage their assets as they prepare for retirement.

The report highlights that 13% of people approaching retirement anticipate still having mortgage payments to make, compared to just 4% of current retirees. This raises the issue of how retirees with mortgages intend to manage their bills as they adjust to life on a smaller income.

Additionally, the survey reveals that 16% of those nearing retirement foresee not owning a property at all and expect to pay rent during their retirement years. This could, in part, be a result of homeowners coming to the end of their interest-only mortgage terms, with no other option but to sell their homes to repay their loan.

Given that only 45% of those yet to retire expect to pass on their property wealth, it suggests that a sizeable number of homeowners may be intending to use their property wealth to bolster their retirement income. 

Discussing the report, St. James’s Place divisional director for retirement and holistic planning, Claire Trott, said: “The next generation of retirees are grappling with unique economic circumstances compared to their parents and grandparents. Homeownership is increasingly challenging, leading many to anticipate paying off mortgages and renting well into retirement.

“Additionally, supporting others financially in retirement is becoming more common. Overall, this means that fewer people think they’ll be able to pass on wealth or other assets to loved ones in an inheritance.

Equity release as a retirement income strategy

If leaving an inheritance based on your property wealth is not important to you, equity release might provide a way to access some additional funds in retirement. It lets you unlock the value tied up in your property without needing to sell or move out

Available to homeowners aged 55 and over, equity release differs from traditional residential mortgages as there are no mandatory monthly repayments to make. This is because the loan plus interest is typically repaid via the sale of your home when you pass away or move into long-term care.

Equity release might therefore appeal to those who find themselves with insufficient income to fund their retirement. Two potential uses for equity release are especially relevant given this latest research into retirement finances:

1 – A solution to the interest-only mortgage timebomb

Equity release has the potential to address the challenge of carrying a mortgage into retirement. Some of the money released can be used to clear existing repayment mortgage debt, instantly removing the need to make monthly mortgage repayments.

This form of later life lending may also enable someone to overcome the hurdle of having to resolve an interest-only mortgage. Once a popular choice, these allowed homeowners to pay only the interest on their loans, leaving the principal balance untouched. 

Now, with thousands of these mortgages nearing the end of their terms, many homeowners find themselves without the funds to repay the outstanding balance. In such cases, equity release may be a way to clear the debt without having to sell up and move.

2 – Gifting a ‘living inheritance’

The St James’ Place report reveals that 55 per cent of future retirees expect to provide financial support to other generations in their retirement. Equity release is one way to do this, as some or all of the money released can be gifted to loved ones as a ‘living inheritance’.

You may for example decide to release some equity to help children or grandchildren to get on the property ladder. But remember, the amount borrowed, along with any accrued interest, must be repaid from the sale of the property when the homeowner passes away or moves into long-term care. This typically reduces the inheritance you leave, so this is something to be discussed with your family.

However, there are ways to reduce the effect that equity release has on inheritance. For example, interest-only equity release plans allow you to pay off some or all of the interest each month. This means that more of your property’s value will be available to your beneficiaries once the loan is repaid when you pass away or move into long-term care.

Speak to an equity release adviser

If you are thinking about unlocking some of your property wealth with equity release, then do get in touch. Call us on 0808 178 3055 and we’ll arrange a no-obligation appointment with one of our selected advisers. They can confirm your eligibility for equity release and look for the best equity release rates from leading providers. 

If they do not think equity release is the best financial option for you right now, they will tell you. It is a pressure-free opportunity to learn more about how a plan might work for you.

If you’re unable to talk now, request a call back and we’ll call when it’s convenient. You can also get a quick estimate of how much money you could unlock from your home with our free equity release calculator.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn