Is equity release worth the gamble?
More grandparents are using equity release to help their family. Yet, is it really that sensible to release money from your home when it can be such an important safety net?
Stories of young people borrowing from ‘the bank of mum and dad’ aren’t new. But a report by equity release specialist Key Retirement Solutions has highlighted a new trend: young people borrowing from their grandparents, who have released equity in their homes to do so.
Home sweet home
Equity release is a way of freeing up the money in your home without having to move.
Last year, 23% of retired homeowners who took out an equity release plan said lending to their loved ones was their motivation. And in the first six months of this year that rose to 31%. Total lending also increased from £385.7m to £446.2m.
Before the recession, the most common reason retired homeowners gave for using equity release was renovating their property, followed by going on holiday. Although home improvements remain the most popular reason (58%), now more homeowners are citing grandchildren’s university fees or helping their children get on the housing ladder.
Does equity release add up?
For many UK retirees, their home is their largest asset – so making practical use of it makes good financial sense. But it’s worth ensuring that your own financial future is secure before lending a slice of it to your family.
Even those who feel they have a comfortable pension may still find themselves needing to pay for care bills in later life – which can run to £50k a year and beyond.
For those who regard their home as a financial backstop, it may make better financial sense to gift it on to their children once they die, rather than removing the safety net before knowing whether they’ll need it.
Given the high charges, high interest rates and inflexible nature of most of the products on the market, equity release is best kept as a last resort. Is it one you’d take advantage of?
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