24 August 2018

Should clients downsize to help grandchildren?

Our latest ‘Bank of Mum and Dad’ (BoMaD) research shows the vital role parents and other family members play in helping children get on, or move up, the property ladder.

More than one in four housing transactions in the UK are dependent on the BoMaD, but how should your clients go about helping their loved ones?

The BoMaD this year will lend the equivalent of a £5.7bn mortgage lender. Funding from friends and family is supporting 27% of all property sales in the UK.

Many generous grandparents want to help their family get a foot on the property ladder. In the main, they have found the money by dipping into cash savings, using their pension savings or downsizing their own home. However, nearly one in five admits they’ve had to accept a lower standard of living, such as cutting back on a holiday or postponing a car purchase, as a result of lending the money. 10% of the BoMaD admitted that their generosity had left them feeling less secure about their own financial future.

The real cost of downsizing

Downsizing may seem like the obvious solution, when savings are harder to come by, but that’s not a cheap option. The cost of stamp duty, removal costs and solicitors’ fees can run into many thousands of pounds. The emotional cost can also be high. Moving home is rarely stress-free at any age. For older homeowners with an established social circle, and possibly family nearby, downsizing could force them into moving out of the area. It may not be possible to get an affordable, smaller property without moving away from the place that they know and love. The true cost can be a sense of isolation. So for many, downsizing won’t be an appealing option.

One tool that remains significantly under-utilised, is equity release. Our research found that just 4% of over-55s have used equity release. However 39% say they might consider it, and nearly half of those say they would put the money towards the purchase of a loved one’s home. Given that almost £1 trillion worth of housing wealth is owned by UK homeowners over 55, there is considerable potential funding for the BoMaD.

We believe in the importance of seeking professional advice before releasing equity. Only 23% of BoMaD lenders took advice before deciding to support their family member’s purchase. For those that did, only a little over half got professional advice.

Tellingly though, of those that did, 73% said it gave them added confidence in their lending decision, while 30% said that they were able to secure a more favourable deal. Professional advisers play a critical role in weighing up the best options for their client and their families.

See how equity release could help your clients in this situation

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