June 27, 2013

Georgina Smith is managing director of Stonehaven


A question I’m frequently asked is, ‘But what do the kids say?”. There’s a real belief out there that customers who are considering a lifetime mortgage are deciding against it purely because of the reaction they may get from their family. This is usually tied up with the kids expecting to receive their parents’ home as part of their inheritance.

But what we’re seeing is a change in the way equity release is being used.  With younger generations struggling to find finances for the large deposits required to get a step on the property ladder and ever increasing university tuition fees, parents and grandparents are looking at ways to support their children and grandchildren to get ahead. This means more and more that using equity release is becoming very much a family decision and loved ones are more commonly becoming the beneficiaries.

Through equity release, parents and grandparents can withdraw a tax-free lump sum using the equity that is sitting in their homes to pass on to their families to use for whatever purpose they wish. Being able to use a lifetime mortgage to gift an early inheritance also means that homeowners are able to witness their beneficiaries enjoying the money and share in that pleasure.

Gifting an early inheritance is made even more attractive due to the innovative products that are now available in the market. By choosing a lifetime mortgage which allows for monthly interest payments, customers are able to gift a lump sum and service some or all of the interest due, which stops or dramatically reduces the impact of any interest roll-up. Any equity remaining in the house is left untouched, and can be passed on to the estate when the customer dies or to provide support if the homeowner needs to move into long-term care.  

In some of the cases that we see at Stonehaven, the family will often help out and pay the interest payments each month.   Taking out a Lifetime Mortgage to help the family is particularly attractive as the interest on a Lifetime Mortgage is generally lower than that of a bank loan or similar.  The children benefiting from the lump sum can help service the monthly interest payments. Also, this has the added attraction of protecting their future inheritance by reducing the impact of interest roll-up, whilst benefitting from the equity.

Many equity release products now offer the option to protect the equity left in the home. This means that a percentage of the eventual sale value of the home is ring-fenced and is available to the beneficiaries in the future.  By being able to protect themselves and their home in this way, a customer can pass on their inheritance when they choose to do so.

This emerging use of equity release highlights how it can be used to gift an early inheritance, dismissing misconceptions that children never benefit from their parents taking out a lifetime mortgage.

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