Page 43By Samantha
Partington
MoneyMail 43
It’s a
fact!
The first recorded
insurance policy, in
1750 BC, allowed
merchants to
safeguard cargo
against loss
or theftDaily Mail, Wednesday, August 28, 2019
S
OARING numbers of parents
and grandparents are raiding
the equity in their homes to
help younger relatives get on
the property ladder.
Estate agents and mortgage brokers have
told Money Mail they are hearing from more
and more buyers who are able to put down a
deposit on their first home only because an
older family member has unlocked cash from
their own property.
Equity release allows homeowners aged 55
and over to borrow money against the value
of their home without having to sell it, or
make any repayments until they die or move
into long-term care. But the interest charges
can be punitive, causing the average debt to
double or even triple over 25 years.
The ‘Bank of Mum and Dad’ is set to help
some 260,000 loved ones buy a home this year,
according to research by Legal & General.
As the Mail reported yesterday, some
parents say they feel so under pressure to
help, they are dipping into pension savings
— putting their retirement plans at risk.
But experts are also warning about the
increasing numbers of parents and grand-
parents draining their property wealth in
order to gift loved ones a deposit.
Around one in six now say they have, or
would, release equity from their property to
help loved ones buy a house, according to
Legal & General’s report.
Over-50s financial adviser Age Partnership
has also reported a rise in the number of
parents gifting property equity to loved
ones, from 6 pc in the first six months of
2014, to 9 pc over the same period in 2019.
One industry insider told Money Mail that
increasing numbers of mortgage brokers are
now even having extra training to become
equity release specialists, so common has it
become for first-time buyers to use their
parents’ housing wealth to help them buy
a home.J
EREMY LEAf, an estate agent in
North London, says: ‘I am increasingly
hearing talk from first-time buyers
and their parents about using prop-
erty wealth for a deposit, as house prices have
risen and buying a home has become a remote
possibility for many.
‘Those parents who have benefited from a
house price boom want to pass on their good
fortune, but it is really disappointing that so
many are resorting to this.
‘They need to take serious financial advice
before making this decision.’
In recent months, equity release rates
have fallen to record lows, with some deals
available at less than 3 pc.
Even so, your debt can still increase
significantly over time, thanks to compoundWhy the Bank of
Mum and Dad
should think
twice about
equity release
As one in six
parents and
grandparents
say they would
use it to help
young loved ones
buy a home...
interest. This is where the interest
is added to your debt each month,
so you end up being charged
interest on interest.
It means that if you take out an
equity release loan too early, you
could end up with no inheritance
to leave your loved ones.
for example, if you withdrew
£40,000 of equity from a £300,000
house at the age of 55, you would
owe more than double this —
£100,054 — by the time you
reached 85, based on a top equity
release interest rate of 3 pc.
By comparison, if you were 75
years of age when you released
the cash, the total cost of the
debt would be £54,298 by the time
you turned 85.
If you take out a large loan in
relation to the value of your prop-
erty, your rate is likely be higher,
causing your debt to grow even
faster. At 4 pc, the debt would riseto £135,343 after 30 years. At 6 pc,
it would be around seven times
the original debt at £283,875.
Keith, a retired courier driver,
took out an equity release loan
two months ago in order to gift
his daughter, Georgina, £30,000
to buy her first flat in Watford.
The 70-year-old, who lives in a
£325,000 three-bedroom detached
house in Milton Keynes, says: ‘I
saw a TV advert for equity release
and I thought: “I’m sitting in this
place on my own, there’s a few bob
in it — why not give it a go?”
‘It was quite a big decision and I
thought about it for a while. But,
in the end, I thought: “She’s my
daughter and she can’t do thiswithout my help.” ’ Keith released
£80,000 from his home and, after
giving Georgina, 23, money to
buy a flat and pay off her £5,000
student loan, he is planning to
spend the remaining cash
renovating his house.
Equity release
specialist Andy
Wilson, of Andy
Wilson financial
Services, is urging
more families to
prevent equity
release debt from
spiralling by select-
ing a deal where you
repay the interest
each month.
He says he recently
arranged two loans where
children used money from their
parents’ property to boost their
deposit in order to get a cheapermortgage rate. They then covered
the cost of the monthly interest
payments on the equity release
loan so that they did not eat
further into the value of their
parents’ home.
Even then, it worked
out cheaper than
what they would
pay had they taken
out a 95 pc mort-
gage, where rates
are far higher.
Mr Wilson says:
‘Equity release is
increasingly pop-
ular, particularly
among parents who
want to gift money to
their children to use as a
house deposit. I expect this
trend to continue.
‘However, I would like to see
more families repay the intereston equity release loans like this. It
means that Mum and Dad can still
protect their equity for costs such
as care fees, and the children are
likely to get a better inheritance.
‘But I strongly urge caution for
younger borrowers looking to take
a roll-up mortgage.’
If parents want to help their
children without taking out a
loan, several lenders offer family
support mortgages.
Barclays and Lloyds offer mort-
gages allowing parents to deposit
savings in an account attached to
the first-time buyer’s mortgage.
The cash is held as security while
earning interest and returned after
five years with Barclays or three
with Lloyds. The borrower does
not need to put down any deposit.
[email protected]
Last Word — Page 46BRITAIN’S biggest
building society
Nationwide is buck-
ing the trend of branch
closures by opening
two new ones.
A seven-day branch
has now opened in
Meadowhall Shopping
Centre in Sheffield.
It will offer some
early evenings.
There will not be a
traditional counter-based service. Instead,
staff will help custom-
ers manage accounts
via an iPad.
Another branch will
open in Lichfield, Staf-
fordshire, in October.
The move is part of
an £80 million-a-year
modernisation pro-
gramme. So far, 144 of
the building society’s
650 branches have
been renovated.Branching out
BANK customers may be
forced to fund a compensa-
tion scheme to help victims
of fraud.
Payment services provider
Pay.UK has proposed a
2.9 p transaction fee on all
bank transfers over £30.
Banks will pay the charge
and the money will be
collected in a central fund
that will be used to reimburse
those who are scammed.
However, experts warn that
banks could pass this levy onto customers. This may mean
that they each have to pay a
fee when making a payment
worth over £30.
Alternatively, the charge
could be passed on indirectly
through savings rate cuts or
higher borrowing costs.
So far, only Nationwide and
Lloyds have pledged not to
pass the fee on to customers.
Money Mail is campaigning
for fairer treatment and
refunds for the victims of
bank scams.2.9p payment fee
PROPERTY investors aim-
ing for the best returns on a
UK holiday let should avoid
England’s south coast and
instead go for northern and
Scottish towns and cities.
Retirees are flocking to the
holiday let market to cash in
on a boom in UK tourism.
A study by the mortgage
lender Together found that
Dundee, Glasgow and fife
gave the best returns.
The average return on a
Dundee holiday let is 15.1 pc.In Glasgow and fife, it is
14.1 pc. In Cumbria and
Merseyside, it is 12 pc and
11.6 pc respectively. All are
popular for short breaks.
To work out the return on
your investment, divide your
annual letting income by the
cost of the property.
Marc Goldberg, Together
commercial chief executive,
says: ‘As our research
demonstrates, landlords can
make good returns if they
invest wisely.’Holiday hots p ots
Picture: ALAMY