Gifting equity release could cut five years from First Time Buyer mortgage according to more2life

by: Samantha Downes

One lender has claimed that equity release gifting could help younger generations pay off their mortgages five years sooner in London and by 12.5 years – half the length of an average first mortgage – in the East Midlands. Equity release lender more2life said over 55s who shared the average amount of equity gifted to fund a deposit, £69,376, with children or grandchildren could help them to secure a lower loan to value (LTV) mortgage. If the first-time buyer is able to make the same monthly repayments as someone who purchased without the same amount of deposit, they could reduce the time they take to pay off their mortgage. More2life said in areas such as the North of England, gifting equity release could reduce the mortgage by as much as the average first time mortgage term, or 12.5 years. Even in London – a first-time buyer could save 20 per cent by shaving five years off their mortgage. Table: 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

Source: more2life The equity release provider used 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. It then used a mortgage calculator to work out the average financial cost over two and five years for a mortgage purchased at a standard fixed rate 90 per cent LTV over 25 years. To calculate the possible savings unlocked by an equity release enhanced gift, more2life 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, said the UK property market was at a stage where three quarters of Britons believed homeownership was 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,” he added. “Shaving as much as 20 per cent 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 is 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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