Georgina Smith is managing director of Stonehaven
Last year we saw an increase in the number of customers taking out a lifetime mortgage to use the equity in their home as a gift to their family. It’s now the third most popular use of lifetime mortgages, coming just behind clearing existing mortgages and making home improvements.
We expect that this is a trend that we will continue to see in 2014. First time buyers are still struggling to get onto the property ladder, and increasing property values is making it even harder to save for a large enough deposit. As a result of this we’re seeing that parents and grandparents are choosing to take out lifetime mortgages to raise cash from their homes and gift an inheritance to their children or grandchildren early, to help them raise a mortgage deposit. This means they can help out when the money is most needed, and also get the benefit of being able to see the results of what the money has been put towards and the pleasure of seeing their grandchildren enjoy it.
Alongside this, younger generations are being gifted money to help them with other life events such as paying for their children to attend university or helping them to set up a new business.
Lifetime mortgages are becoming an effective way of helping ease family financial pressures, with innovative and flexible products which have been developed to cater for this audience. For example, many lifetime mortgages allow interest payments to be made on the mortgage which dramatically reduces or eliminates the impact of any interest roll-up and protects the equity remaining in the property. If one hundred per cent of the interest is being paid, the outstanding balance remains at the amount of the initial advance, giving families peace of mind as they know where they stand throughout the mortgage.
In most cases, we often see that it’s the family members making the interest payments. The children are able to afford the monthly interest payments, but just need help to raise a lump sum. By making the monthly interest payments, the remaining equity in the home is safeguarded for the future but the cash is released to enjoy at a time when it is most needed. In essence, this increased flexibility means that people are waking up to the fact that they can enjoy today - and also provide for future generations.
