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‘We took £20k out of our home for our daughter and the growing debt is relentless’

·4-min read
houses property equity release
houses property equity release

Millions of over-50s planning to help their children onto the property ladder by turning their home into a cash machine could be stung by rising interest rates. 

More than five million people are considering taking money out of their properties to help their children and grandchildren as the cost of living bites, research by OneFamily Advice, a mortgage adviser, has found.

Matthew Ellis, of the firm, said: “They want to see the benefits of all their hard work, and pass on wealth that’s tied up in bricks and mortar to give their families a helping hand during their lifetime.”

Record high house prices have enticed more older homeowners into using equity release. In the first three months of this year, 23,400 retirees cashed in a record £1.53bn from their homes, according to the Equity Release Council, a trade body.

But the cost of equity release has started to rise in line with increases in interest rates and is about to become even more expensive, according to experts.

The average person locked in at 5.63pc in July 2022. This has risen sharply as the Bank Rate has increased: in the second half of last year, the average rate was 3.39pc, according to the Equity Release Council.

‘It keeps growing all the time’

David Thorpe, 79, and his wife Jill, 69, from Lincolnshire, said they were forced to take out equity release when their daughter fell into debt after a nasty divorce.

Mr Thorpe, who took out £20,000 on their £200,000 home, said he was extremely conscious of the growing debt he owed as a result of the loan. “It keeps growing all the time and that is concerning, but we have to grin and bear it now,” he said.

But he said that they had no choice but to help their daughter pay off imminent bills. “It is not something we did lightly but we were in a corner and it was a way of solving an immediate problem. You have to help your children out,” he said.

However, he acknowledged that it means both of his children will inherit less once he and his wife die.

Rebecca O’Connor of Interactive Investor, a stockbroker, warned that the cost of equity release may be far higher than it seems, even at interest rates that sound tolerable.

“It can add up to astonishing amounts, seriously eroding the value of any legacy you wish to leave to children,” she said.

“While you might consider equity release as a way to free up cash to help them now, the cost of that may be that further down the line, when they may still benefit from financial help, they end up with next to nothing.”

The average amount of equity released to use as a gift to younger relatives for a deposit was £69,376, according to equity release lender More2life. This lump sum can shave up to 14 years off a mortgage term, reducing the time to pay off a first mortgage by 20pc in London, 33pc in the South and 50pc in the East Midlands, it found.

'My 49-year-old daughter would never have got onto the property ladder otherwise'

Mary Gidlow, 69, from Kent, helped her 49-year-old daughter onto the property ladder by cashing out £50,000 from her home. She took an additional £12,750 on her £345,000 home at a rate of 2.68pc that went on her own renovations.

Ms Gidlow said she chose to use equity release after several of her friends did it for their children. “My daughter wouldn’t have been able to buy her own home and she is my sole heir so she would have inherited the money eventually anyway,” she said. “You do what you can to help your kids and I don’t regret it.”

The money was used towards a £110,000 two-bedroom ex-council flat in Dover, which she has since modernised. Ms Gidlow said she expected she would owe the equity release provider Key around £100,000 at the end of her life but was not concerned that the debt would grow.

“It’s the best thing I ever did and she has put in a beautiful kitchen and a swish bathroom. Her flat has already increased in value to £185,000,” she said.

After 20 years, the debt would snowball to £110,200, with a total cost of £47,450 in interest, calculations by Interactive Investor found.

Dave Harris, of the group, said: “Equity release has the potential to make the bank of Granny and Grandad even more of an economic powerhouse in the UK, and potentially the key to lifting so many first-time buyers onto a competitive housing ladder.”