Equity release can free up funds which can then be used to help children or grandchildren with a downpayment of their first home.

It is a vicious circle; we want our children and grandchildren to stay close to home, yet the soaring property prices often make this an unaffordable option forcing them to remain solidly in “generation rent” or move to somewhere cheaper. 

How Equity Release Can Help

For the older generations looking to help their children and grandchildren onto the property ladder, they need to balance their desire to help with their own financial security for later-life.

With the fast-growing equity release market, there is a way for people to help their children. With a release of equity from their home, people over the age of 55 can get a huge lump sum to give to their children to purchase their new home or upgrade to a bigger one.

Equity release arrangements can also help bring down tax for your loved ones in the long run too. You can bring the taxable element of your property down and subsequently reduce the inheritance tax liability. This can be a better method than drawing on your pension which is free from inheritance tax and not taken into account when calculating the value of the net estate).

Additionally, it is a way to see your loved ones benefit from your legacy in your lifetime rather than after death.

Inheritance for Children & Grandchildren

It is important to note that if you are using equity release, your inheritance will be less, since you are now withdrawing the lump sum and the interest from the overall inheritance they could receive e.g £50,000 plus interest

But once the lender has been paid anything left over is available as inheritance to children and grandchildren. There are also options in your plan that can put money aside for inheritance or you can opt for a drawdown or interest only equity release mortgage so that you only pay interest on the amount you use and it brings down the overall amount owed to the lender.

Alternatives to Equity Release

Equity release is not the only option available for those looking to free up funds to help their children or grandchildren into the housing market.

• Downsizing

Downsizing is often a favoured approach for those entering the later stages of life. With children no longer living at home, there is less need for a larger property and many people in the +50 age bracket choose to move to a smaller property. This not only frees up money, but often reduces monthly payments such as utility bills. 

All of this enables access to funds which can then be given to children or grandchildren to help them buy their first home. However, this strategy does not factor in the huge sentimental attachment of moving out of a family home.

• Remortgaging

Another option is remortgaging your property however this is not always possible as it will depend on the amount of your retirement income which may be insufficient. This also needs to be factored into monthly expenses going forward as it will involve a repayment plan. 

Remortgaging an existing equity release arrangement could be advantageous with the currently low interest rates. It could free up money to give to children or grandchildren and make their loan-to-value (LTV) on their first homes lower. This will positively impact them in the long term as it will reduce the size of the required loan as well as their interest rates and reduce their monthly payments.