Research from OneFamily has shown that 13% of lifetime mortgages are being used to provide a financial gift to family members to help them buy their first home.
Lifetime mortgages enable homeowners to free the wealth tied up in their homes, without giving up ownership. The loan is secured against their main residence but is only repaid when the borrower dies or goes into long-term care. While it is an option to ringfence some of your properties value as an inheritance for your family, the research shows that many families are passing on their wealth early.
50% of first-time buyers receive family help to buy
In one year, £3 billion was released from equity in homes with a lifetime mortgage; of that £390 million was borrowed to give a living inheritance. With half of first-time buyers getting support from their families to buy their first home, lifetime mortgages seem to be providing a life-line for young people that would otherwise struggle to raise a deposit.
Interest is charged on the sum borrowed which can either be repaid monthly or added to the total loan amount. OneFamily’s research indicates that two-thirds of the mortgages taken out for financial gifts have their interest repaid monthly, suggesting that the beneficiaries might be making these repayments.
Unlocking the wealth of the older generation
Parents and grandparents with the ability to pass on a living inheritance are giving younger homebuyers the financial boost they need to enter the property market. With the average age of a first-time buyer being 31, the ability to borrow from the family wealth makes all the difference without negatively affecting the borrowers. It doesn’t even have to make a significant dent in the wealth of the borrower. According to OneFamily, over 55s with a property valued at £379,000 the amount needed would equate to just 6% of the properties value leaving 94% of the capital untouched for future borrowing possibilities or ring-fenced inheritance.