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Benefits of flexible equity release will trickle down to younger buyers – Hale

by: Will Hale, chief executive of Key
  • 18/08/2023
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Benefits of flexible equity release will trickle down to younger buyers – Hale
In 1993, the average person who earned around £18,000 could save 10 per cent of their income for three-years to raise a 10 per cent deposit before buying their first home (£55,067).

However, the picture is very different for their children who now – in the midst of a cost-of-living crisis – need to save 10 per cent of their c.£31,500 income for eight years to become homeowners (£251,894). 

While there is no doubt that a great many things have improved over the last 30 years, it has become harder to take your first step onto the property ladder.  

These challenges have been recognised and as a recent article in Mortgage Solutions highlighted, although there are a variety of lenders who are prepared to help younger buyers raising a big enough deposit remains a major stumbling block. 


Relying on family 

To achieve this, the Bank of Mum and Dad – or BOMAD as it is colloquially known is increasingly becoming the lender of choice for first-time buyers.   

However, while the older generation has had more years to build up their financial reserves, providing a gift of a lump sum of £25,000 or more is not easy for many nor a decision that should be taken lightly.  Especially not in an environment where inflation hovers around seven per cent, job security is not quite what it once was and people are increasingly worried about how they will achieve a comfortable retirement and potentially even be able to pay for care when needed. 

So what is the answer? This will naturally depend on the finances of each family and the options that they are prepared to consider. However, when you are speaking to clients, it is worth bearing in mind that since Q1 2020, over £1.05bn worth of housing equity has been released by the older generation via equity release to ‘reinvest’ in property for the younger generation. 

On average, c.£56,000 worth of ‘pre-inheritance’ has been provided to the first-time buyer at a point when they really needed it to support their home buying dreams.   

Rates on equity release products have risen along with those on residential mortgages but this source of financing should certainly be considered – especially as modern plans are more flexible than ever before. 


More options than before 

Indeed, clients can choose to service interest or make ad hoc repayments (within lender criteria) to offset the impact of compound interest. And this is certainly something that all good specialist advisers will encourage them to do if at all possible. 

Other features such as fixed early repayment charges which finish after as little as four years as well as the No Negative Equity Guarantee and guaranteed tenure for life are all features which serve to reassure clients. No product is perfect for everyone but at a time when house prices are eight times the average salary it is increasingly necessary for advisers to think outside the box in order to help their customers achieve their objectives. 

Equity release products can only be taken out following an in depth and specialist advice process which is designed to encourage the potential borrower to consider not only why they are borrowing but all potential options and the impact on their future finances. 

So next time you are faced with a parent who is keen to help but might struggle to access the capital, think outside the box and ask if perhaps they have considered using later life lending to provide an early inheritance. 

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