Over 55s gifting billions to younger generations and topping up pensions using equity release

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.”

A big criticism of lifetime mortgages is that they allow interest to roll up month on month, compounding the interest costs and increasing the overall debt. The latest data now shows that more than two thirds of lifetime mortgages will accept voluntarily repayments to pay down the capital borrowed. In addition to being able to pay down a lifetime mortgage, borrowers worried about the impact of this debt on the value of their estate should also check their lender is a member of the Equity Release Council. All lenders that are members of this trade body offer a no negative equity guarantee, meaning your debt will never exceed the value of your home. There are also some lifetime mortgages that will ringfence a set value of your home for your beneficiaries.

Speak to our preferred lifetime mortgage adviser to find out more.

Those considering a lifetime mortgage will also find more choice than ever before with the number of products available peaking at 668 in July compared to 448 six months earlier. While average interest rates for a lifetime mortgage have crept up to 4.26%, there remains a lot of choice below 4% and rates have fallen more than two percentage points over the last five years.

A lifetime mortgage is a type of secured borrowing only available to homeowners over the age of 55. The borrower can remain in their own home and doesn’t need to payback the debt (unless they choose to) until they go into long term care or pass away. It can be an expensive way to borrow if the interest is left to roll up month after month over many years. Find out more about how equity release works and compare the latest equity release rates.