Five ways equity release can help first-time buyers

The challenge for first-time buyers

Rising house prices and an inflated rental market have made it much harder for today’s generation of first-time buyers to save for a deposit, with many people nearing mid-thirties before they can afford to get onto the property ladder.

Later life lending opportunities

As the appetite for homeownership among younger generations remains high, so does the need for more ways in which parents and grandparents can lend their support.

In 2024, the total ‘Bank of Family’ contributions were predicted to reach £130.7 billion. In fact, almost half of all homes purchased by first time buyers under the age of 45 were bought with family support.

Using property to help raise a deposit for first-time buyers

48% of the sample relatives confirmed using cash savings was the most commonly cited source of potential funds for supporting the home purchases of family members.

But, understandably, not everyone making these decisions wants to downsize or sell their property to access the funds. Some homeowners aged over 55 may consider accessing some of the equity in their home through equity release, and a lifetime mortgage may be the solution they choose.

A lifetime mortgage is a type of equity release, a loan secured on your client's property, which allows them to borrow against their home, the loan is usually paid back when they die or move into long term care.

Today, lifetime mortgages have improved consumer protection features, such as the ‘no negative equity guarantee’, which makes sure your clients will never owe more than their home is worth taking into account market value.

Lifetime mortgages also have flexible options, such as the ability to make regular interest payments or overpayments, which can help your clients reduce the total amount of the loan.

Of course, while later life mortgages have their benefits, they are not without their risks. Having one may affect any state means-tested benefits your client is entitled to and, if your client has more affordable ways of borrowing available, they should consider these first. With a lifetime mortgage, interest is charged on the loan, plus any interest added.

Five ways equity release could support first-time buyers

1. Freedom from renting – Renting can offer more flexibility, but owning your own home has many advantages. Homeowners can feel more stable, build equity in their property, and enjoy the freedom to improve and customise it as they wish.
2. Preferential mortgage rates – While 90-95% mortgages do exist, there are fewer options available and the rates are less favourable. Generally, the bigger the deposit the wider the range of mortgage options to choose from. Lenders typically reserve the better rates for larger deposits so the first-time buyer may end up paying lower interest rates overall.
3. Project properties – Many first-time buyers aren’t in a position to make costly renovations when they buy a property. However, with a lifetime gift they could take on a ‘project property’ which may widen their search.
4. Getting it right first time round – Some first-time buyers may not be ready to buy a home until they’re thinking about starting a family, by which time they’ll need more than a ‘first-step flat’. A financial gift can support their needs.
5. A living inheritance they can actually see – The average person will receive an inheritance at the age of 61 years old. By this stage, many people are financially secure and leading a comfortable lifestyle, whereas an earlier inheritance might be more useful. A lifetime mortgage can help your clients’ support their loved ones sooner, but it will reduce any later inheritance and the recipient of the gift may have to pay inheritance tax down the line.

These are just a few examples of how equity release products can help younger generations get onto the property ladder.