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Is equity release an effective tool for transferring wealth?

Retirement experts have championed the use of equity release as an effective tool within the intergenerational wealth transfer market for those who are asset rich but cash poor.

IFAs Ricky Chan and Haresh Raghwani have reasoned that this is a helpful way to allow such clients to witness the joy of seeing their children or grandchildren benefit from their wealth in their lifetime.

Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, says: “Equity release can be used for intergenerational wealth transfers. This would be particularly useful for those asset-rich and cash-poor parents and grandparents living in high-value homes but do not wish to downsize or move. For those happy to downsize or move homes, they could simply release equity from the sale of their home.”

Raghwani, director and chartered financial planner at Berkshire-based Craufurd Hale Wealth Management, notes although equity release can also help pay off debts, make improvements to a home for later life, or top up income to live more comfortably, clients often use it as a way to help their family onto the property ladder.

He adds: “Generally, those seeking equity release are cash poor and asset rich. With property prices increasing over the past few years, this has become an area of increased interest. I did a case for an individual who wanted to pass on his wealth while he was alive to help his two children onto the property ladder. His view was that his children can benefit now when they need the help.

“Young individuals are struggling to get on the property ladder and tend to rely on the bank of mum and dad. I believe using equity release for intergenerational planning will become more prominent.”

Interestingly, the recent Equity Release Revolution report by Key found that two out of three equity release customers say it has made a substantial difference to their quality of life, with 23 per cent claiming it has enabled them to support their family.

Data from the studyshowed that more than £32.6bn of property wealth has been released with 557,000 customers.

Will Hale, chief executive officer of Key, is keen to dispel the notion that equity release is something reserved for the super rich.

He says: “If you talk about 'intergenerational wealth transfer', most people will assume it is something for the super rich rather than the ordinary man on the street. However, with a buoyant housing market, more and more over 55s are finding that the value accumulated in their home means that they can help younger family members sooner rather than later.

“Approximately 20 per cent of the proceeds of equity release is used for gifting and during the stamp duty holiday almost £1m of housing equity per day was taken out by the older generation to help children or grandchildren onto the property ladder.

"With rates starting at just 2.8 per cent and features such as the ability to serve interest or repay capital mean that the products are extremely flexible. Over 55s who want help family members are better placed than ever before to benefit from these products.”


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