We all like to think that, when the time comes, we will be financially able to help our children onto the property ladder. Unfortunately, with the rising living costs, many of us don't have the savings available to help with that all-important deposit.
This can be even more frustrating if you have a large amount of capital tied up in your home but do not wish to move or downsize.
Equity Release provides homeowners 55 and over with tax-free cash that can be gifted to loved ones to buy a new home. The money released requires no monthly payments, and by helping families raise a larger deposit, they will likely be able to achieve a lower interest rate on any mortgage they require.
Let's look at how equity release could help your loved ones buy their new home.
In this guide, you will learn:
If your loved ones are looking to buy a new home, would they benefit from having financial help?
With an equity release plan, you can raise money against the equity that has built up in your property.
The money released is tax-free, and you could gift them a lump sum to help them buy their new home.
To qualify, you must be a UK homeowner aged 55 or over.
There are no mandatory payments that you need to make, so you can maintain your living standards.
As part of the equity release application, you will repay any existing mortgage secured on your property, and any extra funds will be deposited into your bank account.
You are then free to make financial gifts to your loved ones to help them purchase a new home.
By providing your loved ones with an early inheritance, you will benefit from seeing your inheritance work, and they will benefit from the money when they are in need.
How much equity release can you take to gift to loved ones to help buy a new home?
Our equity release calculator will show you how much you can release and what interest rates you will likely achieve.
How much money can you release?
Our equity release calculator gives INSTANT RESULTS
and requires NO PERSONAL DETAILS.
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I suggest borrowing enough rather than the maximum; this will help you achieve the lowest interest charges on the equity release loan.
Getting onto the property ladder is becoming increasingly difficult for first time buyers.
In May 2024, the government published data showing that the mean average UK wage equates to an annual pre-tax salary of £35,464.
At the same time, the average house price in the UK is £282,776.
This means a sole owner would need a whopping deposit of £123,188 to buy an average home!
Maximum mortgage = £35,464 * 4.5 = £159,588. Deposit = £282,776 - £159,588 = £123,188.
Even if you have sufficient income to purchase a home solely or jointly, saving for a deposit can seem impossible.
Furthermore, interest rates for mortgages with minimum deposits will be higher than those who can have a smaller mortgage (smaller LTV).
With an equity release against your home, you can make a financial gift to help first time buyers purchase a property.
You can choose how much you are comfortable gifting, or we can work alongside their mortgage advisor to find the best balance of equity release loan and mortgage on their first home.
As of 2021, around 42% of marriages end in divorce. Furthermore, in the financial year ending 2023, it is estimated that there were 2.4 million separated families in Great Britain.
With housing costs so significant, how can separated couples afford to buy a new home?
Parents could look to take equity release on their home to help raise money to gift to their children to help them buy a new home.
Important: It is essential to discuss any planned gifts with their family lawyers to ensure that the other party does not claim the gifted money.
Equity release plans can be a great financial tool to help your loved ones buy a property. The benefits include:
Get them on the property ladder sooner
The average property was £58,250 in 1994. Now, 30 years later, the average home is £282,776. That is a 485% increase!
We don't know what property prices will be in the future, but if you'd told someone that the average house price in 2024 would be £282,776, they'd likely have fallen off their chair.
By getting your loved ones onto the property ladder sooner, they will benefit by purchasing at today's prices.
See your inheritance at work
By gifting an early inheritance to your beneficiaries, you can see them benefit from it while you are alive.
Plus, for most people, their home is the most expensive item they will ever purchase. Helping them now could save them a lot of stress.
Buy a bigger/better property
When looking to buy a home, I always find that the perfect property is always just out of reach. An extra £20,000 - £50,000 could make a massive difference to the property you can afford.
But even small gifts can make a massive difference to available potential mortgages.
If you are buying a home and have unsecured loans, credit cards, car finance. The mortgage lender will take the payments into consideration when deciding how much they can lend.
Helping a loved one settle a small credit card balance can significantly impact the mortgage they can arrange.
Get a better rate on their mortgage
Having a larger deposit can make a significant difference to the interest rate attainable on a mortgage.
In May 2024, Halifax offers a 2-year fixed rate mortgage at 5.66% with a 5% deposit.
By having a 20% deposit, the same 2-year fixed mortgage would be 5.16%
A 0.5% interest rate decrease may not sound like much, but the difference in the monthly mortgage payment can be considerable.
Being able to help your loved ones with a financial gift can be wonderful. But there are potential downsides, which you should consider.
Cost
There are setup fees and interest charges that you should consider when applying for an equity release loan.
You are not required to make any monthly payments, but if you can, you will help reduce the total interest charged over time.
Use our calculator below to help estimate the total cost of the money that you are looking to borrow.
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Less inheritance to leave in the future
By taking an equity release and gifting money, you will lower the value of your estate and leave less equity in your home.
This means that you will have less money to be able to leave as an inheritance in the future.
Impact on other beneficiaries
If you have multiple beneficiaries to your estate, you should consider the impact of any financial gifts you make.
You may choose to make equal gifts to all beneficiaries or update your wills to reflect the early inheritance to one beneficiary.
Ultimately, it is your money and your choice, but your equity release advisor should ask if you have talked to or plan to discuss your plans with all your beneficiaries.
Less money to spend on yourself
By gifting money from your estate, you will have fewer funds to spend on yourself.
You may be happy with your standard of living, but you should consider the impact of potential changes to your circumstances in the future.
Perhaps you foresee a reduction in your income or increased expenses in the future. You should consider whether gifting money will impact your own wants and needs.
Consider any private care you wish to fund, as this can be a significant expense.
Have to repay any existing mortgage
A requirement of all equity release plans is that any existing charges be repaid with the equity release funds before you receive the net cash in your bank.
For some people this may be of little concern; certainly I would be happy to have no monthly mortgage payment each month.
However, you should consider the interest rate you are being charged on any existing borrowing compared to the new equity release loan.
If you move to a higher interest rate, it will cost you more to borrow money over the long term.
You should always seek specialist tax advice when making financial gifts to get the latest relevant advice.
You are allowed to make significant tax-free gifts to help relates by homes in the UK. Generally, there is no income tax, capital gains tax, or inheritance tax to pay.
Every UK citizen has an annual tax-free gift allowance of £3,000, which can roll over for one year. Therefore, theoretically, a husband and wife could give their daughter £12,000 without worrying about inheritance tax.
If you want to make a larger gift, you can do so, but there may be up to 40% inheritance tax liability if your estate is worth over £325,000 (including any gifts in the last 7 years) and you pass away.
The rate of tax payable on the gift depends on when it was made.
| Years since the gift |
Tax amount |
| Less than 3 |
40% |
| 3 - 4 |
32% |
| 4 - 5 |
24% |
| 5 - 6 |
16% |
| 6 - 7 |
8% |
| 7 or more |
0% |
Learn more about Equity Release for Inheritance Tax (IHT) planning here.
Taking equity release can help you raise money to gift to your family, but it is not the only way to help a child buy a home. Here are other ways to help first time buyers buy a home:
- Loan them money (from equity release or other cash)
- Stand as guarantor on their mortgage
- Take a joint mortgage with them
- Family offset mortgage
- Take out a joint borrower, sole proprietor mortgage
Loaning money or jointly owning a property with someone can have extra tax implications. These include potential Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT).
You should seek specialist tax advice before committing to help any family member buy a home.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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