The Sandwich Generation looks to equity release to help family hit financially by Covid crisis…
Using Equity Release to help Family Members
Recent research suggests that the over 55s are likely to use equity release to help family members who have been hit financially by the Covid-19 crisis.
Comments on a OneFamily report concludes that there may be a rise in equity release, with 20 per cent of those surveyed considering using equity release to assist family members who have suffered financially during the crisis.
The over 55s – known as the ‘Sandwich Generation’ – are not new to the idea of helping out adult family members. As many as 69% say they have helped to pay off debts or just assisted in ‘making ends meet’. This age group are called the Sandwich Generation because they are supporting both children living at home and elderly parents. A 2019 report by the Office for National Statistics said that as many as 1.3 million people (or three per cent of the UK population) were providing support (financial and emotional) to two generations.
A recent survey by Opinium also discovered that 16 per cent of this age group who had used equity release had done so to help out family members.
How it works
So how would equity release work in practice?
Let’s take a look at Richard and Sarah; a couple in their late thirties who are looking to upsize following the arrival of their second child. The new property they want will cost £495,000.00, but they only have £55,000.00 equity in their current property. Taking into account the additional costs of moving, as well as the current shortage of higher loan-to-value mortgages, they have very few options for upsizing their mortgage.
Richard and Sarah did try approaching the Bank of Mum & Dad, but both sets of parents were in the typical situation of being asset rich and mortgage free, but with relatively low cash savings. Neither family thought they were able to help.
However, Richard’s parents decided to look into Equity Release to provide a cash release of £30,000.00 to help their son and daughter-in-law upsize. They were able to borrow this at a rate of 2.58%, fixed for life, with total costs of just under £2,000.00. As Richard’s parents were keen to avoid the interest rolling up and increasing the loan, the younger couple have agreed to put money aside to cover the interest, which equates to just over £700 a year. This did not affect their ability to borrow the sum they needed for their own mortgage.
The longer-term plan will be for Richard and Sarah to remortgage in future to repay the Equity Release arrangement. If they do this in five years’ time, for example, there would be an early repayment penalty of just £1,500.00 and if they wait a further five years, there would be no penalty at all.
If you would like to release equity in your home, talk to an independent financial adviser to find out if it is the best option for you.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.
EQUITY RELEASE CAN AFFECT THE FUTURE INHERITANCE OF YOUR BENEFICIARIES, NOT TO MENTION YOUR OWN FINANCES. THEREFORE, IT’S IMPORTANT THAT BEST ADVICE IS SOUGHT DUE TO THE COMPLEXITY AND VARIATIONS BETWEEN ALL EQUITY RELEASE SCHEMES.