Is Equity Release surge driven by Bank of Mum and Dad?

Building savings and increase emergency funds, businessman with stacked money coins on office desk

Is Equity Release surge driven by Bank of Mum and Dad?

Legal & General recently reported that, in the main, buyers under the age of 35 (more than half at 56%) have received help by way of a gift of cash from parents or grandparents to help them get a foot on the property ladder.

The research carried out by L&G in early August found that on average Mum and Dad was lending £19k to first time buyers who were under the age of 35, with a fifth of these buyers saying that they actually received upwards of £30k. Interestingly out of those who had received the ‘gifts’ three in 10 of the buyers hoped to pay back some of the gift (making it more of a loan).

These were the results of analysing responses from 1,985 recent or prospective homebuyers and 522 grandparents or parents.

New homeowners of all ages claim they would have been unlikely to buy without support.

71% of new homeowners reported that they would have possibly not been in a position to purchase without financial gifts from family. In fact, on average those surveyed said that they thought no help could have potentially delayed their plans by an average of four years.

With the stamp duty freeze until March 2021, the property market has seen a massive rise in sales, so lots of young people have been making the leap and committing to getting on the housing ladder. The rub is of course having the deposit in many cases and this is often where the Bank of Mum and Dad (BoMaD) may well step up.

The pandemic has seen a surge in parents saying that they are now planning to give more than they may have originally planned – the Covid effect is really making people think and consider their futures and the survey reflects this with 18% of those surveyed wanting to provide 50% more financial support than before.

The key here of course is getting the legality right from the onset; it is important that any financial support from BoMaD needs to be clearly laid out as either a gift (which would be subject to IHT rules) or a loan to be repaid by the recipient.

The last thing any family would want would be any potential disagreements between themselves over money intended to originally help.
Nigel Wilson, CEO at Legal & General said:

“[While] the Bank of Mum and Dad is playing a clear and present role for many buyers, it remains a symptom of a broken housing market. Thousands of people simply don’t have a Bank of Mum and Dad to rely on.

“For those that do, generous family members are still having to draw on retirement savings and rainy day funds even as the country experiences its most significant economic challenge since the Second World War.”

Covid causing increase of Equity Release applications

Commenting on the research, Will Hale, CEO of equity release adviser Key, said he had seen almost a quarter of equity release customers in the first half of the year use some of their funds to gift money to family.

Mr Hale also said:

“To a large extent the Bank of Mum and Dad is filling the gap left by high street mortgage lenders, many of whom have stopped offering high loan-to-value deals and/or have tightened criteria.”

As we move into the winter months and the now clear second wave of the virus, only time will tell in respect of equity release figures, but back in May following the first wave there was a definite increase in equity release applications.

In fact, data from Equity Release Supermarket found that there has been a rise in younger age groups with the number of plans being taken out by 55-59 year olds rising by 4% on earlier months in May.

The use of equity release appears to have ‘altered dramatically’ according to the company with it stating that in May compared to previous months gifting to young children accounted for 19.3% of plans taken out. This was an increase of 7.5%.

Malcolm Donnelly, Owner and Director of Fiduciary Connection

Malcolm Donnelly is the Owner and Director of Fiduciary Connection. Irish born and bred, I was born in Dublin and attended Clongowes boarding school in beautiful County Kildaire. Despite my Scottish father having been a successful footballer and my even playing with football hero Stanley Matthews in my back garden as a child, I have always had a passion for numbers! Following my father’s Scottish roots, I achieved my postgraduate diploma in Accountancy at Strathclyde University. I have worked in the financial services industry for much of my career and when dealing with my Ireland based clients, I consider their finances in an all country context. Most recently I have concentrated on my own IFA practice, with my key aim being to provide simple solutions to complex problems. I am currently studying towards my STEP qualification for Financial Services Trusts and Estates Planning, always striving to keep learning and delivering the very best for my clients. I am a people person and love to help high net worth individuals make their money work hard and efficiently for them. I love nothing more than seeing people achieve great results through. Website: Tel: 07973863704 Email: i[email protected]