Equity release – A way to help millennial children onto the property ladder

By Carrie Ann on

The Resolution Foundation (1)  have recently published a report which reveals that the millennial generation may never own their own home and may be forced to live in and raise their families in privately rented accommodation.

The millennial generation are younger people aged between 20 to 35 years old and there are currently 14 million of them in the UK. Given their age, they are often the children of baby boomers – the post war generation that were able to buy affordable homes and have benefitted from the incredible increase in property prices over the last 30 years. According to the Nationwide (2), prices for new homes have risen 328% between 1988 and the first quarter of 2018.

The gloomy prediction of the report is that half will be renting in their 40s and that a third could still be doing so by the time they claimed their pensions. More and more younger people are also bringing up their families in privately rented accommodation. This stood at 1.8m in 2016 but was just 600,000 in 2003.

For many younger people, it is now almost impossible to get onto the property ladder. Data from the Office of National Statistics (ONS) (3), shows that average property price is now 7.6 times the average annual salary – which is more than double the figure of 20 years ago. The median price paid for a home leapt by 259% between 1997 and 2016, while median individual annual earnings could only manage a 68% rise.

These figures also disguise dramatic regional variations. In the affluent London borough of Kensington and Chelsea, house prices are typically 38.5 times greater than annual earnings, but, 330 miles to the north-west, prices in Copeland, Cumbria, which includes the port of Whitehaven, they are typically 2.8 times the average salary.

Rising house prices also mean that a bigger deposit is needed to secure that dream first home. The average deposit for a first-time buyer now stands at a whopping £48,591 (4).

But there is a way that older people could help their children onto the property ladder: through equity release. Equity release is a way for homeowners aged 55 plus, to tap into the wealth in their homes without moving or losing ownership of their home.

The money released is tax-free and can be used for any purpose. One of the added benefits of equity release is that typically no repayments are made and the amount borrowed and interest that has rolled-up are only repaid when you die or move into long term care. The obvious downside of equity release is that it will reduce the value of your estate which is passed onto your beneficiaries (for example your children).

But many older homeowners are now choosing to make a ‘living legacy’ and enjoy seeing their children benefit from their money while they are alive.

This trend is on the rise and a recent report from Legal and General (5) showed that the ‘Bank of Mum and Dad’ spent a staggering £6.5 billion last year on helping their children onto the property ladder – to buy almost 300,000 homes – a 30% increase year on year.

If you are considering equity release, then you need to speak to a specialist adviser – such as the experts at Equity Release Supermarket. With access to the whole of the market, your adviser can find a plan tailored for you and explain the pros and con of using equity release to help your children onto the property ladder.

 

1. http://www.resolutionfoundation.org/publications/home-improvements-action-to-address-the-housing-challenges-faced-by-young-people/

2 https://www.nationwide.co.uk/-/media/…/house-price…/uk-house-price-since-1952.xls

3 www.ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingaffordabilityinenglandandwales/1997to2016

4 https://www.gov.uk/government/statistics/english-housing-survey-2016-to-2017-headline-report

5 https://www.legalandgeneral.com/insurance/home/bank-of-mum-and-dad/Bank-of-Mum-and-Dad-Full-Report-2017.pdf

Categorised in: Equity Release Mortgages
This post was written by Carrie Ann