Borrowing using a lifetime mortgage, a type of equity release has steadily increased during the first six months of 2021 with more than 35,000 borrowers unlocking £2.3bn of cash from their homes. The Equity Release Council, the trade body representing lifetime mortgage lenders believes more of us are using property wealth to top up pensions and to provide living inheritances to children and grandchildren. They put this down to a mindset change of consumers that now have access to more flexible lifetime mortgages at lower interest rates than previous years.
Some retirees will also have found their estates are now above the £325,000 inheritance tax limit due to rising house prices this year. The debt from a lifetime mortgage is deducted from the value of the estate and it isn’t liable itself for IHT. While this may be an efficient approach to reduce a potential future tax liability, cash gifts above £325,000 made in the seven years before your death will see the excess still liable for IHT. (The maximum cash gift without incurring IHT per tax year is £3,000.) Find out more about tax and equity release in our guide.
Commenting on the latest research, David Burrowes, chairman of the Equity Release Council, said: “UK households are converting unprecedented amounts of mortgage borrowing into property wealth as we look to move on from the worst of the pandemic. Combined with property price rises fuelled by the Stamp Duty holiday, homeowners have record equity to potentially draw upon in later life.
“The transformation of later life mortgages in recent years has given people more opportunities to access their biggest source of wealth. We are seeing mindsets change to the point that tapping into property wealth is now a common consideration to meet various retirement needs, from topping up pension income to providing a ‘living inheritance’ via gifting to younger generations.”
“The modern equity release market has shown resilience in the face of uncertainty to climb back towards pre-pandemic levels. The disruption of the last 18 months has not slowed the pace of innovation in lifetime lending, and it is important the market continues to evolve to address the financial challenges people will face in the post-pandemic world.”