First time buyers have caused a surge in demand for low interest lifetime mortgages.
Despite various government schemes, the reality is that the first rung of the property ladder remains tantalisingly out of reach for many young people. In fact, figures suggest that around 43% of first-time buyers have used family money to fund their purchases in the last few years. But what if the so-called bank of mum and dad doesn’t have that kind of cash to hand? In recent years, equity release has become a popular option for those looking to generate the money required to help their younger relatives escape the rental trap.
When it comes to raising money from a property you live in, there are generally three options. You can downsize, remortgage, or release equity. However, the first two come with some pretty major immediate disadvantages. Downsizing involves leaving your family home, something many older people may not be comfortable doing. Meanwhile, remortgaging involves meeting affordability tests to pay off the new debt, which may not be possible for people on a retirement income.
Equity release offers a lump sum without repayments.
Equity release, which is also sometimes known as a lifetime mortgage, offers a way for people to turn a portion of the value of their home into a cash lump sum. Although the money is considered a loan, and will accrue interest, the outstanding balance will not be due in their lifetime. Instead, once the homeowner has passed away, or entered long term care, the loan and interest will be settled when the house is sold. That means there is no need to move out of the property, and no extra repayments to be made.
In the last year, this has become an increasingly popular choice for many people looking to help their children or grandchildren find the money to buy a property. In the first quarter of 2021, over £1bn was released through lifetime mortgages in the UK. A figure that was 20% higher than the same period in 2020.
Who can access equity release on their property?
Lifetime mortgages are available to people over the age of 55, who have paid off all or most of their mortgage. In general, you can use equity release to draw up to 60% of the value of your property.
Right now, interest rates are at an all-time low people looking to access equity release from their property.
One of the most appealing things about lifetime mortgages right now is the incredibly low interest rates we are seeing. Because most lifetime mortgages offer fixed interest rates for life, it means the outstanding debt will remain low.
At some point, whether that’s in weeks or months, this will change of course, but right now there has never been a better time for older people to consider looking into how this option could benefit their younger relatives.
Are you looking to help your children or grandchildren get onto the property ladder? Speak to Evolve Lifetime, our expert team can help you assess whether equity release is the right choice for you.