First-time buyers can reduce mortgage term by 14 years via equity release gifting

Equity relese lending could help first-time buyers reduce their mortgage term by up to 14 years, according to new research from more2life.

Related topics:  Later Life,  Mortgages
Rozi Jones
28th July 2022
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"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"

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 12.5 years – half the length of an average first mortgage – in the East Midlands.

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.

With an average house price of £159,899 in Yorkshire & the Humber, the time saved on paying off a 25-year mortgage could be as much as 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 two and five 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, CEO 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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