Why increasing numbers are using equity release to purchase a property
When equity release is discussed in the mainstream media, it’s often viewed as a way for the over-55s to tap into the equity they have built up in their home in order to supplement their existing pension planning.
While this is a common use for equity release, in truth it’s a much more flexible product than that, offering borrowers a way to unlock some of the value of their home in order to pay for home improvements, provide financial help for a loved one, or even to put towards the purchase of a property.
One lender said that it has seen a “striking increase” in the number of borrowers looking to release equity in order to fund the purchase of another home, with more than 10% of borrowers taking out an equity release product for this purpose.¹
Helping a loved one to buy a home
There are a number of different reasons borrowers might want to use equity release in this way.
For example, they may want to use some of the equity they have built up in their property to help a loved one get onto the housing ladder.
There’s no doubt that the so-called ‘Bank of Mum and Dad’ plays an important part in the UK housing market, with more than one in four buyers receiving some sort of financial assistance from their friends or family when buying a property in 2017.²
There was a time when this help might have been provided by an inheritance, but with life expectancy increasing over recent decades, and house price rises pushing up the typical age at which first-time buyers get onto the housing ladder, many older people want to unlock some of the value of their home to help their children or grandchildren buy while they are still alive.
This may be in the form of a deposit, or even buying the property outright depending on how much of the equity they want to tap into.
Investing in property
Alternatively, some older people want to supplement their existing pension planning with property investment. Despite a succession of changes to the way property investment is taxed in recent years, bricks and mortar remain a popular way to invest.
A study from the Office for National Statistics last year found that just shy of half of non-retired savers pinpointed property as the most lucrative way to invest for their retirement.³
However, while many older people are asset rich, owning significant wealth tied up into their property, they may not have the cash at their disposal to actually proceed with a property investment. Equity release can help them turn some of that equity into a deposit for a buy-to-let property.
Whilst Equity release does help with immediate equity, equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.
How do I find an equity release loan?
Equity release is a long-term commitment, so getting specialist, expert advice is essential.
At Large Mortgage Loans, we specialise in equity release products. We are authorised and regulated by the Financial Conduct Authority. Large Mortgage Loans are also members of the Equity Release Council.
Because of our intimate knowledge of the industry and strong relationships with the lenders active in equity release, we can source the most appropriate equity release deal to suit your current circumstances.
If you would like to find out more about which equity release products available, call us today on 020 7519 4985 or email us at enquiries@Large Mortgage Loans.
Notes
Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.
Home reversion plans and lifetime mortgages are complex products. To understand the features and risks, ask for a personalised illustration.
A lifetime mortgage is a loan secured against your home. Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
The value of property investments and income from them can go down as well as up and investors may not get back the amount originally invested.
It may be difficult to sell or realise the investment, or obtain information about its value, or the extent of the risks to which it is exposed.
As property is a specialist sector it can be volatile in adverse market conditions, there could be delays in realising the investment.
Property valuation is a matter of judgement by an independent valuer therefore it is generally a matter of opinion rather than fact.
- http://www.financialreporter.co.uk/later-life/growing-numbers-using-equity-release-to-buy-new-property.html
- https://www.legalandgeneral.com/retirement/retirement-news/2018/the-generosity-of-the-bank-of-mum-and-dad.html
- https://www.ft.com/content/311157b8-0a8c-11e8-839d-41ca06376bf2
