This case study looks at how a RIO could help fund a family member getting onto the property ladder.
This case study does not represent real people and is for illustrative purposes only.
Julian is a retired accountant and his wife Sarah is a retired civil servant.
They own their own home outright in Dorking. It's a four-bedroom detached property, which has recently been valued at £730,000.
They've two grown up children aged 32 and 34, who both have careers but are renting flats in London to be close to work. They're both saving for a deposit for a bigger home as they both want families of their own and they know how hard it's for their children to get on the property ladder. They're keen to release some of the capital in their home to help their children buy their first homes.
Julian is using a drawdown pension he set up years ago and has a drawdown fund of £450,000, from which he is drawing 3.5% on an annualised basis, giving him an annual net income of £14,200. Sarah gets an income from the government Defined Benefit Pension (final salary pension) scheme she belongs to, which gives her an annual income of £18,000.
House value: £730,000
Julian's pension scheme: £450,000 fund (annual net income of £14,200)
Sarah's Defined Benefit pension scheme: £18,000 after tax
Combined State Pension: £13,600 a year
Living expenses: £1,600 a month
They could use a RIO to deliver on their wish to offer a living inheritance to their two children, while staying in their own home. They can reasonably expect to provide a further inheritance to their family once they have died.
Your client should think carefully before securing other debts against their home. Their home may be repossessed if they don't keep up repayments on their mortgage.
Their ability to make the payments may be affected if:
Taking out a mortgage in later life could limit their future choices too. For example:
This website is designed to give professional financial advisers information and tools that they can use to help control and develop their business and should not be relied upon by private investors or any other persons.