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1 in 12 grandparents lending financial support to family are using property wealth

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Many families are facing financial challenges as the cost of living rises. As a grandparent, you may be in a position to offer financial support. 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 research found younger grandparents are more likely to turn to property wealth. Grandparents aged between 50 and 64 are twice as likely to use equity to support loved ones. It suggests property is increasingly considered as part of a wider financial plan among younger generations.

The financial support provided by grandparents is being used to cover a range of expenses. What grandchildren spend the money on ranges from big-ticket expenses, such as holidays (17%) and weddings (5%), to help in times of crisis (13%).

How do you access wealth locked away in your property?

While property may be one of your largest assets, the wealth is typically locked away, as you’ll usually have to sell your home to access its value. So, how would you access the money if you wanted to support your family without selling your home?

One of the options is a lifetime mortgage, which is a form of equity release. You’d take out a loan secured against your home and receive a lump sum. You may be able to draw down more in the future if you choose.

Where a lifetime mortgage is different to a traditional home loan is that you don’t need to make repayments. Instead, the loan, and any interest accrued, is paid off when you pass away or move into long-term care. Often, a lifetime mortgage has a “no negative equity guarantee” that means the amount you owe cannot exceed the value of your property.

As a result, a lifetime mortgage could give you access to the money tied up in your home to support loved ones without increasing your outgoings.

You’ll usually need to be at least 55 to take out a lifetime mortgage, and how much you can access will depend on the value of your home. You may not need to own your property outright, but the amount of equity you have will affect the amount you can borrow, and you would need to pay off your existing mortgage with the wealth you access.

Lifetime mortgage lenders have their own criteria and terms, so it’s important to understand which options, if any, are right for you before you proceed.

6 vital questions you should answer before using a lifetime mortgage to support family

1. Is the money a gift or a loan?

Be clear from the outset if the money you’re giving to loved ones is a gift or loan.

A loan can be useful if you want to lend support but will need the money at a later date, for instance, to ensure your later years are secure. While it may seem formal when you’re loaning money to family, taking advice from a solicitor can be useful and ensure you’re all on the same page.

2. How do you want the money to be used?

Do you have a clear view of how you’d want the money to be used? Would you be frustrated if your grandchild used the money to go on holiday rather than as a deposit for a home?

Make sure you set out any expectations you have for the money from the start. A conversation about the support you’re giving can avoid miscommunications that could affect relationships.

3. Are you financially secure?

Before you offer financial support, you should consider your own circumstances. Don’t forget to consider your financial security over the long term – could gifting property wealth now mean you could be vulnerable to financial shocks in your later years?

By using a lifetime mortgage, you won’t be able to take out other loans secured against your home and you may not be able to access further funds through equity release. So, it could limit your options if you need to boost your capital in the future.

4. Would a lifetime mortgage affect means-tested benefits you’re entitled to?

If you’re entitled to means-tested benefits or will be in the future, accessing property wealth could affect your eligibility. Make sure you understand the potential effect it could have on your income or other support you receive before using a lifetime mortgage.

5. How will it affect the inheritance you leave loved ones?

As you don’t usually make repayments on a lifetime mortgage, the amount you owe can rise quickly. As a result, it can affect the inheritance you leave behind. If leaving a legacy is important to you, this is something you need to think about. You should check if a lifetime mortgage has a no negative equity guarantee too, as this could protect other assets you may want to pass on.

You may also want to consider how using equity release to provide a gift to one grandchild, will affect other gifts and inheritances. To reflect gifts given during your lifetime, you may want to update your will.

6. Are there other more suitable solutions?

A lifetime mortgage is just one option if you want to support loved ones. It’s important you consider the alternatives too. For instance, could you deplete savings or sell investments to lend the support you want?

Weighing up all your options means you can feel confident about the decision you make.

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.

A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.

The interest that may be accrued over the long term with a lifetime mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.

Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a lifetime mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your financial adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead.

Approved by The Openwork Partnership on 21/06/2023.