If you have grown-up children turning to the ‘Bank of Mum and Dad’ to purchase their first home then you’re not alone. Parents are having to find £13,281 on average for this reason, a report by Lloyds Bank revealed earlier this year*.
It’s harder for first-time buyers to get a foot on the property ladder now than it has been for generations thanks to the gap between wages and house prices. According to the Institute of Fiscal Studies, workers aged 22-29 are earning 9% less than in 2008, yet house prices in London have shot up by over 50% in the last five years**.
With the average house price now standing at £195,279**, a first time buyer looking to secure more affordable interest rates with a 10 per cent deposit would need to find almost £20,000 to put down. A good sized deposit of 25 per cent on a house of the same price would be almost £50,000.
If you want to help your child or grandchild on to, or up, the property ladder then you do have a number of options. You could gift the money out of savings, or lend the money for a deposit on the condition that it is paid back at some point in the future. If you choose this option then a ‘deed of trust’ drawn up by your solicitor can set out how much money you have contributed and how you will get it back if they sell the property.
You could use your own home to borrow money in the form of a secured loan, which means using your property to guarantee the loan. There are however risks to be taken on board with this option, as well as regular payments on the loan that will need to be considered.
Another option is unlocking the money from your own property in the form of equity release – effectively giving them a portion of their inheritance now at a time when they really need it. The amount you release is tax-free and is usually only repaid when the plan comes to an end, usually once you and your partner pass away or move into long-term care.
With an equity release plan there are no monthly repayments to make as the interest is rolled up over the life of the plan. There are flexible new plans available however that allow you to pay the interest or make regular payments on the loan if that is something you wish to do.
With these plans and a whole many more to choose from it’s vital to seek independent advice. That’s why we always recommend you speak to an independent equity release adviser like Bower before making a decision. Your adviser will be able to answer all of your questions and help you discover if equity release could be a good option for your circumstances.
Equity release isn’t right for everybody, so an independent specialist will thoroughly explain the advantages and disadvantages of each type of plan; including how equity release will reduce the value of your estate and may affect your entitlement to some state benefits.
*Telegraph 22 Jan 2015
**Nationwide House Price Index