Options for using property wealth to help loved ones
According to property agents Savills in an article by This Is Money, parents are predicted to pay out almost £30 billion over the next three years to give their children a hand up the property ladder. In 2023 alone, £9.4 billion was handed to first-time buyers due to higher mortgage rates.
In total, 164,000 first-time buyers had financial help from family members to buy their first home last year. It equates to over half (57%) of all first-time buyers who took out mortgages.
While many parents and grandparents choose to use savings or investments, property wealth is clearly also a popular option for providing this financial help.
If you are thinking about helping out your own children or grandchildren, then downsizing might be a good first option to consider. This not only releases equity but can also reduce the costs of maintaining a larger property, freeing up more disposable income for yourself.
Equity release, however, enables you to remain in your home, typically without any monthly repayments to make, and may provide larger sums of money than downsizing. That said, it’s essential to understand its long-term implications, such as how the loan plus interest will reduce the value of your estate.
Lorna Shah said in the report by L&G: “As equity release moves more into the mainstream, more people are likely to turn to it for help. The ‘Bank of Family’ is predicted to have a busier year than ever, so we might see more people drawing equity from their property to support their loved ones.”
Remortgaging is another option for parents and grandparents looking to support first-time buyers. By switching to a new mortgage deal, older homeowners can release equity from their home without having to downsize or move to a less expensive area.
However, this option may involve extending the mortgage term or increasing the loan amount to access additional funds. It’s therefore crucial to carefully consider the terms and impact on long-term financial security, particularly if retirement is on the horizon. Consulting with a mortgage adviser can help ensure the decision aligns with both current needs and future plans.
Property wealth will no doubt continue to be a crucial resource for older generations wanting to support younger family members in today’s challenging housing market. However, any decision to access some of your equity for this purpose should be made carefully – with professional advice – to ensure the financial future of both you and your loved ones is protected.