These days, there are a large number of retirees taking advantage of their ‘ski’ pass and utilising the equity in their homes for their own benefit. SKIing – Spending the Kids Inheritance.
However, a number of adult children are still living with their parents and perhaps you as parents, are accepting of this situation, but secretly I’m sure, you must be hinting for them to fly the nest.
Is your child, or are your children finding it difficult to get on the property ladder? If it’s your wish to pass on some of your estate to your children, Equity Release can be an option.
If your son or daughter is still at home, Equity Release could be an option in assisting them to create / top up the deposit they need to take that first or even second step on the property ladder.
A Lifetime Mortgage is an evolving product and as the traditional mortgage lenders continue asking for larger deposits, it means that it is taking longer for first time buyers, in particular, to save up for their first home.
With earlier versions of Lifetime Mortgages, they were inflexible and wouldn’t allow you to pay the interest or a partial lump sum without the possibility of incurring potential ‘penalties’. Nowadays though, there are a number of schemes that allow you to make regular on-going monthly interest payments and in addition, make lump sum payments (within limits) to reduce the balance without incurring any of those potential penalties.
There is no reason why your ‘child’ couldn’t make those monthly interest payments, if it’s affordable or a combination with the parent(s).
If you chose to only make interest payments, those payments would help protect the estate as the initial amount released will not have increased because the interest has not ‘rolled-up’, meaning you’re still able to leave the legacy you want.
In one respect the ‘child’ is receiving their inheritance ahead of time, but you are able to see them benefit from the cash now, whilst they need it. And they can still benefit from a future inheritance if house prices increase in value.
(Remember, house values can go down as well as up).
Home Reversion Plans
Under the terms of a Home Reversion Plan, pensioners effectively sell off part or all of the equity in their home, which becomes repayable either on the sale of their home, or on the death of the last survivor if joint — like a Lifetime Mortgage.
The main difference is the costs associated with the HRP are all calculated at the outset, so you know where you stand at the beginning. However, it can work out more expensive if the plan ends early due to early death. In addition, it can cost much more to pay off, so getting suitable advice from an Equity Release specialist is necessary.
If you haven’t sold 100% share, you are able to release additional lump sums by selling a further share.
Control of the sale of the property is with the Home Reversion provider and they have the right to inspect the property on a regular basis (usually around every 3 years). Any growth is property value may be shared under certain circumstances.
Obviously, Equity Release is one option. If you have a property of high value, with little or no mortgage, then consideration should be given to the option of downsizing first, as there can be significant savings made when comparing the two methods. With downsizing, there are moving home costs that have to be taken into account such as estate agents fees, legal fees and house moving fees and in some cases Stamp Duty Land Tax may apply, which can often be overlooked.
However, in many of my client discussions, the number of times that homeowners have preferred to remain in the family home is higher than you might think. (around 80%*). The main reasons that some clients give are – moving home is a giant upheaval and it’s very stressful. Moving to a new area, new neighbours, getting used to a new neighbourhood and having to discard furniture that will no longer fit (this is not always a bad thing) — In essence, ‘better the devil you know’.
*(Of 20 cases reviewed 16 wanted to remain in their family home.)
To find out more or to arrange an appointment, please contact us.