First-time buyers could slash their first mortgage term through gifting via equity release

17^th May 2023 – First-time buyers could slash their first mortgage term by eight years in England and by over a decade in Scotland and Wales through gifting via equity release.

With almost one in five (19%) equity release customers using all or part of their funds to support family and friends, new research from equity release lender more2life has highlighted the positive impact this could have on first-time buyers across the United Kingdom. Scots would see the biggest benefit paying off their mortgage 11 years sooner while those in Wales would clear their debt in 10 years and those in England in 8 Years.

Substantial Deposit and Regular Payments Slashes Years off Mortgage:

By sharing the average amount of equity gifted to fund a deposit (£60,589, according to more2life data) with children or grandchildren, over-55s could help them to secure a lower LTV and therefore a cheaper rate mortgage. Should the first-time buyer be able to pay the same monthly repayments as someone who purchased without this level of deposit, they could substantially reduce the time taken to pay off their mortgage.

Figure 1: Reduction in time taken to pay off 25-year mortgage by augmenting a deposit with average equity release gift amount of £60,589

To compare the possible savings a UK first-time buyer could enjoy depending on which part of the UK they buy in, more2life consulted available data from the Land Registry’s most recent UK House Price Index to find the average amount of money paid by a first-time buyer across the three different countries.

Using a mortgage calculator, more2life found the average financial cost over 2 years for a mortgage purchased at a standard fixed rate 90% LTV over 25 years.

To calculate the savings possible from an older relative or friend gifting a sum gained through equity release to boost a deposit, more2life ran the same scenarios again, but added the £60,589 lump sum to the first time buyer’s initial deposit, which changed the LTV and trimmed the mortgage’s lifetime cost and thus either the monthly payments, or the time spent paying the capital borrowed to the lender.

Ben Waugh, Managing Director of more2life, said:

“With the recent Bank of England rate increase and the cost of living continuing to bite, there is no denying that many people are finding it harder than ever to take that first step onto the property ladder. 

“Affordability criteria are stricter and even with the advent of 100% deals, younger borrowers are seeing their dreams of owning their own home getting further and further away.

“That said, this research shows unequivocally that members of the older generation are uniquely placed to provide real aid by donating a gift unlocked from their own home equity. 

“We have already seen that an equity release enhanced gift of an average size could trim as much as 20% from the time taken to pay off a mortgage in London, one of the most competitive property markets in the world.

“What our new research demonstrates is the wide relevance of equity release as a tool of financial empowerment, when combined with expert financial advice.

“The bank of Granny and Grandad has an expansive scope, stretching from Edinburgh to London to Cardiff, and advisers are prepared to guide older customers through these financial decisions.”

Kindly shared by more2life

Main article photograph courtesy of Pixabay