IBB Law

Surge in homeowners releasing cash for their children

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It has recently been reported that there has been a surge in over 55s using equity release to access decades of house price growth tied up in their homes. This has not only been for their own benefit, but to pass wealth onto younger generations with inheritance tax planning in mind. Legal & General Home Finance figures show there was a 66% rise in people taking out equity release on homes worth more than a £1m in 2021 compared to the same period in 2020.

More people are considering their own mortality in light of the pandemic, but this is not the only reason for this surge. Interest rates for equity release mortgages are falling to appealing rates and this, coupled with rising house prices, makes it more cost effective for older people to release money from their homes.

There has also been an increase in people switching their existing loans to a lifetime mortgage, the most common type of equity release, to take advantage of the lower rates. According to figures obtained under the Freedom of Information act by mortgage broker Responsible Life, borrowers paid an average rate of 3.4 percent last year compared to 5.79 percent in 2015 for a lifetime mortgage and there are even lower rates to be found out there.

However appealing these rates are, it is important to remember that equity release is not suitable for everyone and remortgaging will also come with additional administration fees, charges and legal fees which all add to the total debt. It is also important to note that gifts made to others can be considered by the local authority, under the deliberate deprivation rules, if you go into care and seek funding from them. It will be interesting to see what changes come as a result of the government’s proposals to cap total care costs.

It is always important to seek professional advice in the first instance.

 

Speak to our Wills, Trusts and Probate specialists.

If you have any questions please contact IBB’s Wills, Trusts and Probate team on 01494  790 023 or email wills@ibblaw.co.uk.