January 31, 2012

 Peter Welch is head of sales & distribution at Bridgewater Equity Release


The Bank of Mum and Dad is a term that has long since entered the lexicon to describe the never-ending supply of cash that parents provide to their offspring for a range of purposes from food and shelter to cars and house deposits.


But given the austere financial climate and continued affordability issues facing first-time buyers a new branch of this particular “lending institution” has apparently opened – the Bank of Grandma and Granddad.


With a report by house builder Taylor Wimpey recently revealing that one in 10 potential property owners had turned to their grandparents for financial support, intra-generational assistance certainly seems to be on the rise.


Further bad news for first-time buyers also emerged last week in the shape of research by HSBC which claimed that not only were under-34s struggling to raise a deposit but they were also doubtful about their chances of securing a mortgage and wracked with doubt about the security of their unemployment.


It is now believed that the percentage of first-time buyers acquiring their home without any assistance has plummeted from 69% to just 35% in the past seven years.


Given the aforementioned austerity, it may well be the case that some grandparents are feeling the pinch too and are unable to offer their grandchildren the financial assistance they would like to but equity release is a method by which they may be able to access some capital.


After all it may be a more fulfilling experience all round if they are able to give a living inheritance and enjoy their grandchildren reaping the benefits of their generosity while they are still around as opposed to leaving them funds in a will.


As with any decision to take out an equity release product, choosing to free up funds in this manner should be discussed with the whole family. Grandparents may be only too happy to help once they realise they can access the cash tied up in their properties but it is important they understand how the whole process works.


For advisers it is a sensitive topic to bring up with first-time buyers as they may not have grandparents or may be unwilling to put pressure on older relatives to help out. Again this is where the role of the adviser comes to the fore in fully explaining how home reversions and lifetime mortgages work and the potential benefits involved.


One of the main obstacles preventing the equity release market really taking off are the myths surrounding the sector that have never really been dispelled and the providers and brokers operating within it must continue to educate the public and transform their pre-conceived notions. A handful of one-sided and misinformed documentaries and newspaper articles have led borrowers to believe things about equity release that aren’t true such as the risk of losing one’s home or sliding into negative equity when both these outcomes are impossible with SHIP-protected products.


If equity release is to grow as a sector, then increasing comprehension is of paramount importance, as is identifying opportunities where it may be of use, such as grandparents gifting deposit contributions to their grandchildren.


Releasing funds for overseas cruises or the construction of conservatories may be less common now, but there are still myriad, more practical uses appropriate for the current economic climate. The Bank of Grandma and Granddad may seem to be a relatively recent concept, but if the mortgage criteria continues to remain at current levels, it may well be getting its own OED entry in the not too distant future.   

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