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Analysis: What are the reasons behind gifting through equity release?

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Analysis: What are the reasons behind gifting through equity release?

Gifting through property wealth has become an incredibly important way for the Bank of Mum and Dad, or indeed, the Bank of Gran and Grandad, to support their family when they need it most. The latest data from Key’s Market Monitor showed that 1 in 5 equity release consumers used at least some of their funds to provide a financial gift to their loved ones from July through September 2022. So as the cost-of-living crisis tightens its grip on finances, what were the main motivators behind homeowners using their property wealth to support their families? And how do we expect that to change heading into what’s expected to be a very difficult financial winter?

Helping with a house deposit

Almost half of equity release gifters released cash to help a loved one with a house deposit in Q3. On average, a single first-time buyer now needs a deposit amount of almost £75,000 to afford their first home.1 So it may come as little surprise to see the average amount gifted through equity release to help with a house deposit was significant – more than £61,000 – with single male applicants providing the largest amount of financial support for their loved ones (£78,890 on average). 

And although some commentators predict house prices may fall by at least 10 per cent in 2023 and into 2024, higher interest rates will ensure affordability remains a challenge for some. It’s therefore likely we’ll continue to see parents and grandparents capitalising on their property wealth through equity release to help their loved ones take their first step onto the housing ladder.

Early inheritance

Passing on an early inheritance is why most people choose to gift through equity release, with more than 6 out of 10 homeowners citing it as a motivator. There are many reasons why parents or grandparents may want to gift early. It could be to help boost their loved one’s finances to support with everyday bills, to provide funds for a holiday or a series of breaks for some much-needed respite, or provide the funds needed for a first car. During Q3, single females gifted the largest early inheritance on average – over £33,500 – while the average couple gifted more than £10,000 less (£23,304).

One reason which may explain why single females gifted through property wealth more than any other demographic in July through September is the gender pension gap. On average, men have 37 per cent higher income than women in retirement.2 That means single women, who typically have a lower overall household income, may have to rely on alternative methods to gift an early inheritance rather than their pension or savings.  

Repaying debts

Just over 1 in 10 equity release gifters used their money to help loved ones repay debt in Q3 2022. That includes both secured and unsecured debt. According to recent government research, the average non-mortgage debt owed per household, when the head of the household is aged 18-34, is £10,400 – the highest of any age group. 3 That figure is heavily influenced by both personal loans and student debt, with 71 per cent of those aged 25-34 holding some kind of consumer credit.3

The average amount unlocked through equity release to help loved ones service debts was more than £26,000 from July through September. And given the recent increase in credit card and mortgage rates – where the average two-year fixed rate mortgage was £532 more expensive in September than it was 24 months ago on a £250,000, 25-year agreement4&5 – it’s likely we’ll see an increase in the number of people capitalising on their property wealth to help their loved ones manage debt during the final quarter of this year as costs continue to rise. 

Other motivators

Money to help buy a new car (5 per cent) and topping up a loved one’s wedding fund (6 per cent) were two of the other motivators behind equity release gifting between July and September this year. Compared to this time last year, amid the fallout of the Covid-19 pandemic, Q3 2022 saw an increase in the share of people using equity release to help fund these more aspirational purchases. 

However, as the full force of the cost-of-living crisis now hits the UK; with inflation at its highest levels for 40 years and soaring everyday costs as a result, it’s unlikely we’ll see a continuation of this trend during the back end of this year and into 2023. Instead, it’s fairly safe to predict that the focus on gifting will be more needs-based, such as helping to make mortgage repayments more manageable, reducing debt and trying to overcome high house prices for first-time buyers. 

Is equity release right for your client? 

While many have seen their disposable income shrink over recent weeks, those who are younger with lower-paying jobs are particularly feeling the pinch. However, property wealth could provide a solution. 

House prices are at their highest level in history. According to the ONS, house prices were up 13.6 per cent year-on-year in August. That means it’s likely the Bank of Mum and Dad, or the Bank of Gran and Grandad, will have never had as much dormant equity built up in their home’s value as they do right now. But the rate at which property values are growing is slowing. And next year, it’s likely we’ll see a correction in house prices – with some commentators expecting them to fall by at least 10 per cent in 2023.6 That means right now could be the perfect time for your clients to use their property wealth to support loved ones when they need it most. 

The importance of expert advice

Given the unpredictability of the UK’s financial markets in recent times, and an increase in financial vulnerability, receiving the right advice is paramount for your client.

Air is the next generation, industry-leading later life lending platform which lives and breathes your growth as an adviser. Enabled by technology, knowledge and people, we offer financial professionals, from advisers to lenders, best-in-class digital sourcing tools, personal development services and incentives; all designed to support and reward your business growth, especially through this challenging time.

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For more information, call our expert adviser support team who are on hand help you with your later life lending questions. Get in touch today on: 0800 294 5097

1 The Metro

2 more2life: Borrowing in later life report

3 House of Commons: Cited

4 MoneyFacts

5 Bankrate

6 The Guardian


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