Opening up the Bank of Nan and Grandad

Opening up the Bank of Nan and Grandad for First-Time Buyers

Opening up the Bank of Nan and Grandad for First-Time Buyers

Following a tumultuous 2022, and no real signs that 2023 will be any easier for people, getting a foot on, or moving up, the housing ladder seems to be harder than ever. Bank of England interest rate hikes following the Autumn 2022 mini budget fiasco, added to the current cost of living crisis, below inflation wage increases, and the imminent end of the government’s Help to Buy scheme, has pushed the dream of owning your own home beyond even more first time buyers.

With all these things happening, I thought it would be a good idea to investigate whether or not Equity Release could be a viable option for existing homeowners over the age of 55 to help their relatives buy their first home, or move up the housing ladder. Is it time to open up the Bank of Nan and Grandad for First-Time Buyers? I have done some research, so let's look into this in more detail.

What are the consequences of higher interest rates?

The Bank of England base rate is currently 4%. This is the highest it has been for fourteen years. Whilst the recent Bank of England base rate increases may have been helpful to savers, anyone borrowing money will now have to pay significantly more than was the case even a few weeks ago.

The impact of these increases hasn’t just made the cost of living even harder for existing homeowners with a mortgage. If you are a first-time buyer, rising interest rates mean it will be harder for you to get onto the property ladder, especially if you don't have a large deposit. Affordability tests will be harder to pass if interest rates rise again, as monthly repayments are likely to be quite high. This will also mean that the maximum amount you can borrow is likely to be less.

An increase in interest rates for Buy to Let mortgages will inevitably lead to an increase in rental costs. This is likely to mean that Generation Rent are likely to find it even harder to save for a deposit.

Is there a potential solution?

The short answer is Yes. There are a number of ways in which parents or grandparents can help their children or grandchildren get onto, or move up, the property ladder. These options could include, gifting savings as a deposit, being added to the mortgage, or using Equity Release.

Many parents and grandparents aren’t in a position to give away a big lump sum to help their children onto the property ladder, often finding themselves asset rich but cash poor as they approach retirement. They may also find that they don’t have a sufficient income to warrant being added onto a mortgage, and don’t want the cost of any additional stamp duty charges, or to have the worry of being liable for any mortgage payments that the child doesn’t pay.

If someone is in this position, one of the options for parents or grandparents aged 55 or over who want to gift money to buy a home is to consider releasing equity from their own property.

One lender has claimed that Equity Release gifting could help younger generations pay off their mortgages five years sooner in London and by twelve and a half 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 twelve and a half years. Even in London, a first-time buyer could save 20 percent by shaving five years off their mortgage.

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

More2life 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 percent 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.

Whilst parents and grandparents are often keen to be generous, this should only be done if they are financially secure themselves, so it is important for clients to speak to an independent, whole of market, Equity Release adviser so that they can ensure the most appropriate solution is taken. Starting this conversation will help people to understand how they can use their property wealth to support their family or their own needs. Clients need to receive qualified advice before committing to equity release and they can check online that the broker they are dealing with has the correct licence and is authorised to give you the advice you need, which is exactly what you get from Optimus Mortgages.

What advice would I give my clients?

The most important thing to remember when it comes to Equity Release is that deciding to take out a plan is a major financial decision. It is important to take independent financial advice about this decision, and your own financial circumstances, and what you hope to achieve through equity release will need to be considered in detail. That said, Equity Release can still make sense in these turbulent times.

It is important to understand the ramifications of rolled up interest, and I would always recommend that clients service their debt if at all possible. If you were considering equity release for more aspirational borrowing, it might be wise to take a wait-and-see approach while interest rates are higher than they have been. Alternative borrowing solutions may be more suitable at the moment for some clients, as they may be more cost-effective to re-broke at a later date, if and when rates decrease.

Unfortunately we simply cannot predict what is going to happen with interest rates and for some people who need to make a financial move now, whether that be moving home, repaying an existing mortgage, gifting to family members for house deposits, or simply making use of released money to supplement their income, taking an Equity Release plan could be the best solution.

You can learn more about Later Life Lending, or contact me directly through the Contact Us page

Mortgage Advice for People Over the Age of 55 in the UK

At Optimus Mortgages, I regularly help homeowners across the UK mortgage market understand their options later in life.

Whether you are looking to remortgage, release capital, or move home, many lenders now offer flexible products designed for borrowers aged over 55.

You can also explore Remortgages, or First-Time Buyer Mortgages if your circumstances involve additional lending considerations.

Mortgage Advice from Optimus Mortgages

At Optimus Mortgages, I help clients aged 18 to 118 across the UK navigate complex mortgage situations, including later life lending, remortgages, and specialist lending.

As an experienced mortgage adviser, I regularly work with clients who believe their age will prevent them from obtaining a mortgage. In reality, the UK later life lending market has expanded significantly in recent years. Every lender has different criteria, which is why tailored mortgage advice can make such a significant difference

If you know someone aged over 55 who is unsure about their mortgage options later in life, please feel free to recommend Optimus Mortgages. A short conversation can often provide clarity and open doors that initially appeared closed.

Frequently Asked Questions

What mortgage options exist for people over 55?

Borrowers aged over 55 may have access to several options in the UK later life lending market, including standard residential mortgages with extended terms, retirement interest-only mortgages, and equity release products. The most suitable option depends on income, property value, and long-term financial goals.

Can you get a mortgage after age 60 in the UK?

Yes. Many UK lenders now offer mortgages to borrowers aged 60 or older, particularly when there is sufficient retirement income. Some lenders also offer mortgage terms extending into the borrower’s 70s or even 80s.

What is a retirement interest-only mortgage?

A retirement interest-only (RIO) mortgage allows borrowers to pay only the interest each month, with the loan repaid when the property is sold, usually after the homeowner moves into long-term care or passes away.

Can older borrowers remortgage their home?

Yes. Many homeowners aged over 55 successfully remortgage their property to secure a better rate, release equity, or adjust their mortgage term.

Should older borrowers speak to a mortgage adviser?

Yes. A broker offering whole of market mortgage advice can compare lenders across the UK later life lending market and identify lenders comfortable with lending to borrowers in later life.

Author: Tim Spencer Cert PFS, Certs CII (MP & ER) Managing Director – Optimus Mortgages

Tim Spencer is Managing Director of Optimus Mortgages and holds CII qualifications in Mortgage Advice and Equity Release. He specialises in later life lending and provides whole-of-market mortgage advice to clients aged 18 to 118 across the UK.

Optimus Mortgages Ltd is authorised and regulated by the Financial Conduct Authority. Our firm’s registered number is 945578.