Many families are facing financial challenges as the cost of living rises. As a grandparent, you may be wondering how to support your family financially. Well, research suggests some grandparents are turning to equity release, but there are essential questions you need to answer first.
A survey from Legal & General found 79% of grandparents have helped their grandchildren financially. Of these, 8% are turning to property wealth to lend a helping hand.
The study further reveals that younger grandparents, specifically those between the ages of 50 and 64, are twice as likely to utilize equity release as a means of supporting their loved ones. This trend highlights the growing recognition of property as an integral part of the financial planning process among younger generations.
The financial support provided by grandparents encompasses a wide range of expenses. Grandchildren benefit from these funds for various purposes, including covering significant costs such as holidays (17%) and weddings (5%), as well as addressing the impact of inflation (13%). So this is our article on how to support your family financially.
how can you access the wealth tied up in your property without selling your home?
While property is often one of the largest assets individuals possess, its value remains locked away until the home is sold. However, there is an option known as a lifetime mortgage, which falls under the umbrella of equity release. With a lifetime mortgage, you can secure a loan against your property and receive a lump sum of money. Furthermore, it may be possible to access additional funds in the future, depending on your choices.
Unlike a traditional mortgage, a lifetime mortgage does not require regular repayments. Instead, the loan amount, along with any accumulated interest, is repaid when you pass away or move into long-term care. Many lifetime mortgages come with a “no negative equity guarantee,” ensuring that the debt owed will never exceed the value of your property.
By opting for a lifetime mortgage, you could access the wealth tied up in your property to support your loved ones without increasing your ongoing financial obligations.
Typically, individuals must be at least 55 years old to be eligible for a lifetime mortgage, and the amount you can borrow depends on the value of your home. While owning your property outright is not always a requirement, the equity you hold will influence the loan amount, and any existing mortgage would need to be settled using the funds accessed.
Keep in mind that different lifetime mortgage lenders have their own criteria and terms. Therefore, it is crucial to thoroughly understand the options available to you and determine the best course of action before proceeding.
6 vital questions you should answer before using a lifetime mortgage to support the family
Clarify Gift vs. Loan:
Before providing financial assistance to your loved ones, establish whether the money you’re giving is intended as a gift or a loan. If it’s a loan, seeking advice from a solicitor can help formalize the arrangement and ensure everyone involved is on the same page.
Define the Purpose of the Money:
Have a clear understanding of how you would like the funds to be used. If you have specific expectations, communicate them upfront. This prevents potential miscommunications and helps maintain strong relationships. For example, if you want the money to be used as a deposit for a home, express this from the beginning.
Assess Your Financial Security:
Evaluate your own financial circumstances before offering support. Consider the long-term implications and whether providing assistance now might leave you vulnerable to future financial shocks. Keep in mind that a lifetime mortgage may limit your ability to take out other loans secured against your property or access additional funds through equity release.
Consider the Impact on Means-Tested Benefits:
If you currently receive means-tested benefits or anticipate doing so in the future, accessing property wealth through a lifetime mortgage can potentially affect your eligibility. Understand the potential implications on your income and any other support you receive before committing to a lifetime mortgage.
Evaluate the Impact on Inheritance:
Since lifetime mortgages typically do not require regular repayments, the amount owed can increase rapidly. This can impact the inheritance you leave behind. If leaving a legacy is important to you, carefully consider how a lifetime mortgage may affect your estate. Additionally, check if the lifetime mortgage comes with a “no negative equity guarantee” to safeguard other assets you may wish to pass on.
Explore Alternative Solutions:
A lifetime mortgage is just one option for supporting your loved ones financially. It’s essential to consider other alternatives as well. For instance, you could explore options such as using savings or selling investments to provide the support you desire. By weighing all available options, you can make a well-informed decision that aligns with your goals and priorities.
Contact us to talk about your financial plan and lifetime mortgages
Property is an important part of your financial plan, whether you want to access the wealth now or leave it to loved ones as an inheritance. If you’d like to talk about your finances, including how to support family members, please get in touch.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
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