Why more homeowners are turning to equity release
Borrowers aged 66 and over took out £6.2bn in mortgages last year, an 11% increase. This included £1.5bn in lifetime mortgages – a form of equity release. While some of this money is being used for general expenditure, some is being used as part of wider estate and succession planning for children and grandchildren.
Data provided to TWM Solicitors by the Financial Conduct Authority shows that the number of borrowers aged 66 and over taking out a lifetime mortgage rose 15.4% last year.
Using equity release as part of estate planning
Lifetime mortgages can form part of IHT planning because releasing funds from a property may reduce the net value of an estate and, potentially, any future IHT liability. Provided gifts are made more than seven years before death, they will generally fall outside of the estate for IHT purposes.
Older homeowners, particularly in the South-East, have seen significant house price growth over the last two decades. For many, their property is now by far their largest asset, often containing more than £1m in equity.
Lifetime mortgages enable homeowners to access a tax-free lump sum, which is typically repaid after death or when moving into long-term care. However, borrowing later in life can materially reduce the value of an estate, particularly where interest rolls up over time, so the long-term impact requires careful consideration.
Many homeowners are also using released equity to fund the ‘Bank of Mum and Dad’ or even the ‘Bank of Granny and Grandad’, providing financial help to younger relatives that are either struggling with rising living costs or trying to get on the housing ladder.
The effectiveness of gifting strategies depends on a number of factors, including life expectancy, overall wealth, future care needs and wider estate planning objectives. In some circumstances, gifting or releasing capital may also have implications for means-tested care assessments, making professional advice particularly important.
How TWM can help you
At TWM, our expert Private Client team can advise on estate planning, gifting strategies and the implications of equity release as part of wider succession planning.
To discuss your circumstances, please contact our Private Client team for an initial, no-obligation consultation. We’re here to help you plan for the future with confidence.