In the last year alone, UK homeowners have seen an increase of 10.6 per cent in the value of their homes and that increase is pushing more and more wards in England and Wales into the £1m plus category.
For some, buying, renovating, redecorating and selling property is closer to a pastime. For others, there is an understandable emotional connection to a long-term base perhaps where they have brought up a family which can mean it is difficult to look at the property as an asset that can help them achieve their financial goals.
However, in an age of changing lifestyles and new pressures using property wealth can be a great way for some homeowners to help family, supplement their income or enjoy a colourful retirement. We’re seeing more and more parents and grandparents supporting younger family members, for example, with education costs or to help them get on the property ladder.
Lifetime mortgages, a type of equity release, can be a useful way for some families to do this.
Case study of LGHF customer
One couple we worked with recently was keen to help their grown-up children. They wanted to intervene at the point they believed their children would most benefit from that support rather than waiting to leave them an inheritance at some later date.
They also wanted to stay in their family home as they had deeply rooted ties within their community where they have lived for over 30 years. After careful consideration, they decided that a £400,000 lifetime mortgage was better suited to their needs and offered an affordable solution to provide a living inheritance.
The funds accessed from their home have been divided amongst their children and grandchildren, as well as going towards their own retirement goals.
Hesitancy
Hesitance around using property wealth can come from a desire to ensure there is an asset to pass on to relatives. However, with people living longer, there are many benefits to providing a living inheritance instead, providing financial support at a time where it may be needed more and allowing the gifter to see the benefit they are passing on to their loved one.
Of course, the recipient of a gift from a lifetime mortgage may have to pay inheritance tax in the future.
Moving forwards, advisers need to challenge the assumptions around the role of property, so that clients can benefit from long-term increases in property value and maximise their financial stability. Instead of viewing the home as a gift passed down, it should be seen as an active part of ongoing financial planning.
With the growing relevance of property to people’s long-term planning we anticipate equity release will evolve beyond a ‘specialist product’ and become more commonplace.
In turn, the market itself must evolve to reflect this new type of customer offering flexible products that give advisers more opportunities to introduce property wealth as part of any sensible conversation at the point of retirement.
