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Equity release - some mums and dads now use it to help their children onto the property ladder

For the majority of people, purchasing a home isn't simply an aspiration, it's an ambition for which they're prepared to labour and sweat.

They prepare to turn over hundreds and hundreds pounds in mortgage repayments over a quarter of a century or more to have it outright-- typically holding down tasks they don't delight in-- to take pleasure in the security their own home brings.

Later on, at the end of a working life and the hoped-for years of cheerful retirement, the icing on the cake for many is to be able to then bequeath the property on to their youngsters.

Leaving some sort of monetary security to your offspring is a tradition and a unique part of retirement for lots of mums and dads. So it pains countless homeowners every year to have to divulge the information to their household and offspring that they've decided to get an equity-release loan.

Most of borrowers who count on this type of plan are desperate to reduce their financial troubles, and do so to live more easily in their old age.

No one in their right mind would begrudge such a choice, specifically towards the completion of older people's lives. But it is necessary that the full costs of the loan for its lifetime are understood.

On the one hand, it brings a burst of instant delight with the arrival of a huge, and often extremely required, cash sum to households that may be having a hard time. Equity Release, or an associated property drawdown pan, is also particularly worth considering for homeowners who have no relations.

But for those with an immediate next of kin, it can herald an extreme modification in fortunes for the worse. For youngsters with an eye on an inheritance, the dream of easy cash can pass away in an instant.

The cost of equity release

Equity release might be an option to their parents' terribly pressing predicament, however they'll be the ones picking up the charge.

The expense of a £50,000 equity release loan from a £250,000 home can nearly double during a decade, and balloon to nearly £200,000 over twenty years.

A couple in their 70s with acceptable health today might easily live into their 90s, meaning their home's eventual sale when they die could net their children hardly anything by way of an inheritance.

If the generations coming up below them were currently property owners themselves or were on track for a well-feathered retirement in their own right, this would not be such a significant issue. As we have actually seen, terrific swathes of those in their 40s and 30s are not in such a situation.

A good deal of people in this age band are striving to make ends meet, leasing propery and finding it difficult to save enough to muster a deposit for a house of their own, not to mention conserve enough for a decent pension savings plan.

In the toughest cases, an inherited family home or money from its sale is their finest chance for some children to protect their own financial future.

Such dependence on a single home is shocking, however it is more prevalent than many would tend to admit. Any individual banking on their mums and dads' house as their sole ticket from financial problems is being negligent. All kind of challenges can get in the way, from possible care fees to household fallouts and rewritten wills - it does not take much to trash even the best-laid plans.

The method to prevent such a risk is to be open about any intentions for equity release from the beginning.

With so much at stake, a frank and full discussion about its influence on everyone in the family is the absolute starting point for any effective equity release strategy.

It appears that there is an increasing number of parents in retirement considering the equity release option with various personal aims in mind.

Parents are also utilising equity release to help children on the home ladder

Several equity release advisers have indicated a rise in loans where the large bulk of the lump sum released has actually been provided directly to the property owners' children. The cash is being utilised to either pay off big financial obligations or make up the bulk of a deposit for a property.

In many cases, it's a wise transfer of wealth, solving all sorts of financial problems faced by children who may be having a hard time financially, and are fortunate to have relatives in a position to assist.

The disadvantage is a smaller, or non-existent, future inheritance as the cost of the equity release debt eats it up the property value as time passes.

But for those already approaching middle age and having problem with the prospect of a small pension and their savings hammered by low interest rates, the appeal of asking their mum and dad for help is growing.

If you're a property owner with adult children in a financial cul-de-sac, don't be shocked if you hear: 'Mum and Dad’, can I borrow . . . .?' for one last, very pricey, time.

Published : 19th January 2015
Nothing in this article should be taken as personal advice and recommendation. UK tax rates and legislation are liable to change. Products, concepts, rates, legislation and rules referred to in the article above may not be current at the time you read the article.
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