Parents and grandparents may be able to use equity in their property to help children or grandchildren purchase a home. Potential approaches include conventional mortgage borrowing, Retirement Interest Only mortgages and lifetime mortgages, depending on individual circumstances.
Supporting the next generation with a property purchase is an important financial objective for many families.
However, the decision to borrow against a home to provide that support should be considered carefully.
The immediate benefit to a family member needs to be balanced against the borrower’s future financial security.
How can property equity support a deposit?
A homeowner may be able to raise additional capital through a mortgage secured against their property.
The funds could then be gifted or otherwise provided to a family member, subject to the relevant mortgage and legal requirements.
The receiving party’s mortgage lender may require evidence of the source of funds and confirmation of whether the money is a gift or loan.
Which borrowing structure might be suitable?
A conventional mortgage may be appropriate where the homeowner can afford the repayments and meets lender criteria.
A Retirement Interest Only mortgage may be considered where regular interest payments are sustainable.
A lifetime mortgage may provide another option, but interest roll-up can reduce the equity remaining in the property over time.
What should families consider?
The key issue is whether the borrowing remains appropriate for the person providing the funds.
Future expenditure, care needs, retirement income and the possibility of moving home should all be assessed.
The effect on inheritance and other beneficiaries may also be relevant.
Where appropriate, family members can be involved in the discussion, provided the homeowner is comfortable doing so.
Legal and tax considerations
Gifting money may have inheritance tax and other legal implications.
Mortgage advice should therefore sit alongside appropriate legal and tax advice rather than attempting to determine those outcomes in isolation.
Frequently asked questions
Can grandparents release equity to help grandchildren?
Potentially, subject to eligibility and suitability.
Can mortgage funds be gifted as a deposit?
This may be possible, but the relevant lenders’ requirements must be satisfied.
Will gifting money affect inheritance?
It may affect the value and distribution of the estate, and professional advice should be obtained.
Plan intergenerational support carefully
Henry Dannell can help assess how property-backed borrowing may support family objectives without overlooking the homeowner’s long-term financial position.