Given the difficulty grandchildren are facing whilst attempting to acquire their first mortgage, many grandparents are already stepping in to help, often considering releasing equity from their home in order to help with the required deposit.
Rising rent prices across the UK, coupled with increasing house prices are making it more difficult for first-time buyers to step onto the property ladder. Together with the requirement of a large monetary deposit that can take years to save and the withdrawal of a large portion of the deals available to first-time buyers and it begins to look even more challenging.
Using equity release to contribute towards the deposit
The tax-free cash unlocked with equity release can be used in any way you choose – which makes it possible to use the money towards the deposit for a house. This makes it possible for grandparents to gift grandchildren with an early inheritance to help them fast-track their way onto the property ladder.
As equity release also reduces the value of your estate, it could be a more tax-effective way of passing on an inheritance, as you will be subject to a lower amount of inheritance tax.
There are many lenders who still allow first-time buyers to utilise gifted money towards a deposit making mortgage affordability the deciding factor in whether the application for a mortgage is approved or rejected, and often resulting in a lower interest rate & payment for the grandchild.
Nationwide building society, however, last month stated it is temporarily not approving mortgages for first-time buyers, unless they’re able to prove that have saved three-quarters of the deposit, as a minimum – although this does not apply to anyone with a 15% deposit or higher.
Whilst Nationwide seems to be the only provider to have taken this step so far, other lenders have withdrawn their mortgage deals which were aimed toward first-time buyers with a deposit lower than 10%.
So, how much equity can you release to help?
As a rule of thumb, you’re normally able to release between 20% and 50% of your property’s value. The exact amount you’re able to release depends on the equity release plan you have chosen, along with the company that provides it. Interest is then added on to the amount you have borrowed.
With equity release, you’re able to make contributory payments towards the interest, or, with some plans, you can choose not to make repayments towards the interest and the full balance will be repaid when you have gone into long-term care, sheltered accommodation or have passed away.
At Equity Release Works, our free equity release calculator provides you with an approximate amount that you’re can release from your home.
If you’re a grandparent who may want to help more than one grandchild get on to the property ladder, then you may want to consider an equity release plan which includes drawdown. A drawdown lifetime mortgage allows you to take more than one tax-free lump sum from your home, which could be used towards helping a second grandchild with their deposit too.
Can Equity Release Works help me?
If the youngest equity release applicant in the home is over the age of 55 and your home is valued at over £70,000 then Equity Release Works should be able to help you. We compare all plans and providers on the market to find you the best deals and present you with your options.
Our friendly advisers can help you understand the merits of each equity release plan and check if you’re eligible. To get started with a free, no-obligation consultation – simply call our freephone number on 0800 368 8214 and find out how we can help you today.