Releasing property equity from the so-called ‘Bank of Mum and Dad’ has the potential to help nearly 450,000 individuals onto the property ladder this year, according to new research from Legal & General and economics consultancy Cebr.
During 2017 3% of homeowners over the age of 55 have taken out a lifetime mortgage (a figure which remains unchanged from the previous year). However, the popularity of lifetime mortgages is growing, with this year’s Bank of Mum and Dad report showing a further 4% of over-55s are considering releasing equity from their home this year.
Although 59% of over-55s state they have not taken out equity release because they do not feel they need the extra cash, for many parents and grandparents equity release has the potential to provide financial support to relatives looking to get on to the property ladder, L&G said. This year’s Bank of Mum and Dad report from the insurer shows that releasing capital could help as many as 442,900 individuals to buy a home this year.
According to the Office for National Statistics, in 2016 the average house price in England and Wales reached 7.6 times average annual earnings. The same research into buyer affordability revealed that over the last 20 years, house prices have increased by 259%, with wages only rising by 68% over the same period. By freeing up capital that is tied into a family home, individuals will have the opportunity to support family members or friends onto or up the property ladder.
The lifetime mortgage market has grown significantly, reaching a record-breaking £2.15 billion worth of mortgages. As house prices continue to rise well above wage inflation, equity release is a route to providing financial assistance to first-time buyers hoping to get onto the property ladder, L&G said.
Steve Ellis, managing director, Legal & General Home Finance, said: “Releasing equity from a family home has the potential to play a role in tackling our housing market’s affordability crisis. By releasing equity using a lifetime mortgage, parents and grandparents have the opportunity to help their loved ones onto the property ladder.
“Legal & General Home Finance’s aim is to make releasing equity from a home part of the mainstream mortgage market. This growing market has the potential to support nearly 450,000 people onto the property ladder this year alone. By taking out a lifetime mortgage, older homeowners could see their relatives enjoy the benefits of their inheritance now rather than after they are gone.”