How equity release by the older generation is helping first-time buyers
A new survey by Aviva shows that older homeowners are increasingly using their properties to help their grandchildren buy homes. Matt McGill, head of the company’s Equity Release unit, comments on the findings to Harriet O’Brien.
One in four grandparents have helped or are going to help their grandchildren become first-time buyers, according to a survey by insurance, wealth and retirement company Aviva. The findings also reveal that property wealth is progressively being seen as a usable asset for today rather than a legacy investment. The study shows how homeowners, particularly those who have paid off their mortgages, are using or planning to use their property and investments to help family members start on the property ladder.
The survey was conducted for Aviva by Cenuswide, which polled 1,507 consumers aged 45 and above. It follows on from a similar survey carried out for Aviva six years ago and involving 1,506 consumers of the same age range. Comparing the two reports, today’s research reveals an increase in the number of consumers wanting to help the wider family, not only their own children. In the 2022 survey, 5 per cent of respondents say they have already helped their grandchildren become first-time buyers, and 20 per cent say they are definitely or probably going to. In 2016, 3 per cent had helped their grandchildren to get onto the property ladder and 14 per cent intended to.
There is also a notable shift to using property wealth over other sources of income to help family members wanting to buy a home. Matt McGill, MD of Aviva Equity Release, comments that it is “striking that more and more people are willing to use their property wealth in a variety of ways, and that this is starting to become the norm for those wanting access to cash to help other family members. It is becoming increasingly accepted that wealth held in property should be considered part of someone’s total assets, and can be used for a variety of purposes ‒ including to help younger family members buy a home like their parents and grandparents did.”
He points out that financial help sourced through property wealth has more than doubled compared with six years ago, with 40 per cent of respondents using property assets in a number of ways, especially through downsizing and equity release.
Tax is, of course, an important consideration. There are many factors dictating whether using equity release for inheritance tax (IHT) purposes is an efficient route to take, says Matt McGill. “These include, but are not limited to, the age of the customer, the value of the property, whether the IHT threshold will be reached, and whether the residential nil rate band can be utilised.’
The type of equity release Aviva offers is a Lifetime Mortgage (LTM), a long-term loan on the value of the home, which is repaid, usually from the sale of the home, when the customer (and partner, for joint lifetime mortgages) dies or needs to go into care. “Before making a decision whether an LTM could help estate planning to deliver financial and tax benefits, customers should take advice from a financial adviser who would consider all the interacting factors involved,” says McGill.
Aviva’s 2022 survey shows that the typical amount given to grandchildren is now £31,398.63, an increase of 25 per cent from the 2016 findings. “It’s really important to appreciate the significance and real value to the donor of seeing the positive impact of their gift for their families, during their lifetime. This is becoming increasingly important as life expectancy (and the time to wait to benefit from a parent’s or grandparent’s estates) continues to go up. Recent Institute for Fiscal Studies figures show that those born in the 1960s inherit on average at the age of 58, and this rises to 62 and 64 for those born in the 1970s and 1980s respectively.”