Cascading wealth: an adviser perspective
Buying a home is generally referred to as “the biggest purchase you’ll ever make”.
For today’s generation of home-buyers, that purchase is bigger than ever.
As of December 2022, Halifax reported the largest monthly drop in house prices seen since October 2008, with an average fall in prices of 2.3% in November. Since March 2020, average property prices have increased by £46,403.
In this increasingly expensive world, millennials often need a little more help to raise a substantial deposit. Now, nearly one in three housing transactions relies on funding from parents, grandparents, or other family members.
We spoke to Sally Jones, an equity release adviser for Police Mutual who shared her own insight of how equity release is being used to cascade wealth in families.
Could you give me a bit of background about yourself?
“I am a specialist equity release adviser at Police Mutual, where I’ve been for the last four years. I moved into financial services in 2008 having previously been a conveyancing assistant for the majority of my working life.”
How did you get started with advising on lifetime mortgages?
“The IFA department at Police Mutual wanted to streamline, grow and take ownership of equity release. As someone with a background of mortgages and conveyancing, it was the perfect opportunity.”
How have your clients used lifetime mortgages to help their family?
“A lot of my clients release money to give their children deposits for a house purchase. Since the financial crisis in the mid-2000s, most purchases require between a 10% to 15% deposit - and a lot of people just cannot afford this.”
“For example: at 76 years old, one of my clients had a lot of equity in their property, and they wanted to gift the money towards a house deposit as a surprise for their child.”
“I advised an interest-only lifetime mortgage which allowed the client to make regular payments to manage the interest on the loan. As well as benefiting from plenty of equity, I knew the cash lump sum would not alter once the property is eventually sold. This meant all parties knew exactly where they stood in regard to how much needed to be repaid upon death.”
What do you see as the benefits for your clients?
“The reassurance of being able to see their child in their new home is really important. Clients can make a lifetime gift now, when their children need it most. This means they can help their children get onto the property ladder - instead of leaving a taxed inheritance after they are gone.”
It really goes to show that a lifetime mortgage doesn’t just help the client; it can help the whole family.
Your client should be made aware that if they gift money away, the recipient may have to pay inheritance tax in the future. If they choose to pay less than the full interest charged each month, interest will be charged on the loan amount plus any unpaid interest added. It’s also important to remember that a lifetime mortgage creates a debt on the home. If there are more affordable ways of borrowing available, these should be considered first.
Interested in finding out more?
Rob Miles, our Head of Wealth Adviser Sales specialises in helping wealth advisers understand the lifetime mortgage market.