Equity release to help child with house deposit

[BuffaloCauliflower]

Hi all,

I’m actually the ‘child’ here, but my DM has mooted looking into equity release on her home to help DH and I buy. As much as I’d be very grateful for the help (we have a good income but are struggling to get a big enough deposit as we’re in a very expensive part of the country and want to stay) but I wouldn’t want her to be disadvantaged in any way by this. My DM is also a bit finance phobic and I already have to advise quite a lot on money matters, so I’d like to get a better understanding for myself as well if she’s going to look into this.

I wondered if anyone had done this for their child and had any advice? Or is just generally clued up on this.

Some potentially relevant info

• DM is 60, widowed and still works. Likely to continue until 67. Full time but low paid, will only get state pension and small workplace pension started when the requirement for those came in.

• We are very close and I have always known DH and I are likely to need to help DM with bills and things as she ages. We have a close extended family network close by should she need more hands on care as she gets older as well, though do need to consider the residential care may of course be necessary at some point - this would be a last resort though. Living with us would also be an option but not one she’d like!

• I am not the only child. Sibling 1 has already bought with help from their partners family, sibling 2 not in a position to buy even with help, and unlikely to be any time soon. DM is main carer for one of sibling 2s children, and second carer for sibling 2s other child.

• House was bought for £64,000 and now worth about £350,000, but a remortgage did happen at some point maybe 20 years ago? Not sure how much that was, handled by DDad who is passed.

Thanks in advance to anyone able to advise

speak to a financial advisor who specialises in this thing, it can work, it can be very risky

I think at 60, it sounds like a bad plan. She could have 20+ years ahead of her, and equity release is notorious for racking up interest. Plus, you have siblings to consider.

Unless your DM wants to downsize and offer all her DC a gift of money from the sale, I think you're getting into tricky territory all round.

Would downsizing be an option? That way she would still own a property but could also 'advance' some money to all her DC...

Agree avoid sorry. At only 60 taking something like £50k in equity release could mean when she dies the entire value of the house is owed to the company.

Not got any real advice but my Aunt did this and when the property was sold we found that a £20,000 release was £98,000 over 20 years.

I am nearly 60 and was advised by a financial advisor not to do it.

Fil did this to help BIL. He died 3 weeks later so the equity release people were laughing all the way to the bank.

I agree the PP that her downsizing would be a better option. It would make her living costs more affordable when she retires too.

Avoid. Downsize only sensible option. Or stay in her house and don't help you to buy.

It doesn't sound like a good idea to me, OP - she's increasing her debt and is quite young for equity release IMO, which would leave a much smaller portion of the house to be shared out at a later stage between you and your siblings (should your mother choose to do that in her will).

Even downsizing would have pitfalls if she distributed the money, as it may be considered deprivation of assets. I would take some professional advice on this.

Not a good idea at her age. Remember she'll effectively be taking on a long term, interest-only mortgage at a relatively high rate of interest. She could ultimately lose the house.

Factors against:

They are an expensive way of borrowing money.

You will inherit less on her death.

She would need to equalise with your siblings.

If she won't get a great pension she may need recourse to the value of the property to meet her own needs.

My parents have just done this with NatIonwide Not equity release though! Defo don't recommend those! they have just remortgaged & interest is fixed & low for 5 years then can renegotiate. They are nearly 70 with an good nhs pension. It's a special type of mortgage that nationwide do exactly for what your looking for.

VERY bad idea.

The only "safe" way to release equity in a house is to sell it and buy a smaller one.

"Equity Release" is just a fancy name for a secured loan that will gather a massive amount of compound interest.

Your mum would be giving up her house security with no hope of ever being released from the ever-growing debt.

Equity release is not the scam it once was. I recently helped a relative and they took it in effect what is a long term mortgage. As interest rates are low, the rolling up of interest is pretty low really. There are also provisions to get out of it, such as if you have to move into a care home.

I sat in with a relative during the meeting with the rep. They are heavily regulated now but one I wasn't impressed with as all he wanted to do was focussing one trying to cross sell a funeral plan. I had to give him hard word as they didn't need it

But in essence they have a lump sum to spend which is a small proportion of their house value and it has been good for them

Would your siblings accept receiving (potentially significantly) less when she dies because she took out the equity release to help you? I've seen these sorts of things cause real resentment down the line. I think it should be a last resort TBH given her age.

"Retirement interest only" the mortgage my parents have just done it's by nationwide & better than equity release as we looked at those extensively.

Financial adviser here. Alarm bells ring for me at your DM being only 60, and you expecting to have to help her out with bills after she's retired. Selling up and buying a cheaper property makes much more sense for freeing up equity. She could use some of the surplus to boost her pension savings or make other provision to supplement her income in retirement.

It's lovely of her to want to help you out OP but she mustn't jeopardise her own potentially vulnerable position.

Can you pay the yearly interest charges , instead of letting it accumulate?

If she is still working she could remortgage rather than equity release. She could get a small short duration mortgage to free up some money to help out.

Equity Release is very costly, if remaining mortgage balance is nil or very low and she is happy to downsize there is potential to get 100k+ out of the house and get a smaller but ample house for your mother and any childcare she supports. If she wants to treat siblings fairly she could give you an equal chunk each and spend some on herself.

Thanks all - as I suspected it doesn’t sound like a good idea. I was effectively clueless, and sense she’s seen this pop up but doesn’t quite know what it entails, from your replies I think that is the case.

To answer some questions

• No, downsizing is not an option. As stated in my OP she cares for my siblings children, who are primary age, and live with her full time. It’s already the smallest house you could get round here for the size needed.

• on my siblings - we’ve never been a ‘all have to get the same’ family, we’ve been given different resources at different times as needed. But it is a consideration. Sibling who’s children live with DM I’m hoping DM will write a will where any proportion intended for that sibling go direct to their children instead.

• there is currently zero mortgage on the house, which is a security for my mum I obviously don’t want to jeopardise in any way.

Thanks all, I’ll tell her it doesn’t sound like a very sensible option.

Have you looked into shared ownership or help to buy Op?

They get criticised but they are better than equity release and it would be you taking the plunge not your Dm.

Please don't do have your Mum do this. She has many factors against her financial security already. There's no harm in it taking you another 3/5 years + to get a mortgage whereas her income earning years are very very almost over.

Get a second job if you need to, your dh too, but please don't take money from a widow who by all accounts may not have enough for her retirement.