Gifting Via Equity Release could Help First Time Buyers Shave up to 14 Years of their Mortgage Term, according to new research by more2life

by | Jul 30, 2022

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New research by equity release lender more2life has revealed that equity release gifting could help younger generations pay off their mortgages five years sooner in London, a little over eight years sooner in the South, and even by 12 ½ years – half the length of an average first mortgage – in the East Midlands.

Substantial Deposit and Maintaining Payments Shaves Years of Mortgage:

By sharing the average amount of equity gifted to fund a deposit (£69,376)** with children or grandchildren, over-55s could help them to secure a lower LTV and therefore cheaper rate mortgage. Should the first-time buyer be in a position to pay the same monthly repayments as someone who purchased without level of deposit, they could substantially reduce the time taken to pay off their mortgage.

This saving could equate to as much as half the span of a mortgage without gifting in areas such as the North of England, while even in the UK areas with the highest house prices – in London – a first-time buyer could save 20%, or five years, allowing them to start putting increasing savings of their own towards other expenses.

Figure 1: Reduction in time taken to pay off 25-year mortgage by augmenting a deposit with average equity release gift amount of £69,376

Region Average FTB house price*** Time saved on paying off a 25-year mortgage
London £436,375 5 years
South East £280,860 7.4 years
South West £236,376 9.3 years
East of England £263,478 7.8 years
West Midlands £185,476 10.9 years
East Midlands £184,151 12.4 years
North West £160,501 13.7 years
Yorkshire & The Humber £159,899 13.8 years

 

During June 2022, more2life consulted data from the Land Registry’s most recent UK House Price Index to find the average amount of money paid by a first-time buyer across all UK regions. Using a mortgage calculator, more2life found the average financial cost over 2 and 5 years for a mortgage purchased at a standard fixed rate 90% LTV over 25 years.

To calculate the possible savings unlocked by an equity release enhanced gift, more2life ran the same scenarios again, but added the £69,376 lump sum to the first time buyer’s initial deposit, which changed the LTV and both slashed the mortgage’s lifetime cost and the time spent paying the capital borrowed to the lender. 

Dave Harris, Chief Executive Officer at more2life, commented:

“We are now at a point in the UK property market where as many as 75% of Britons believe homeownership is out of reach.**** However, some members of the older generation are in a position to change this by augmenting the buying power of first-time buyers through their own home equity.

“Shaving as much as 20% from the time taken to pay off a mortgage in London, one of the most competitive property markets in the world, demonstrates just how useful this tool can be for supporting family and loved ones. 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.

“However, while parents and grandparents are often keen to be generous, this should only be done if they are financially secure themselves.  Equity release can only be taken out via a specialist financial adviser and starting this conversation will help people to understand how they can use their property wealth to support their family or their own needs.”

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