Two-year fixed-rate mortgages are currently rising above 6% and are expected to continue even further. This has made mortgage payments unaffordable for many homeowners, especially for first-time buyers. In a lot of cases, this has put increasing demand on parents and grandparents to support their children and family, providing the financial support they need to avoid falling into further debt, or at risk of potentially losing their homes.
This has made equity release a popular option for gifting, as homeowners over 55 use the value of their properties to provide the aid that their loved ones need in a mortgage rate crisis.
Our clients over 55 wished to help their only son reduce his mortgage debt, so he could afford the monthly payments. Due to the recent interest rate increases, his mortgage had risen steeply, causing him anxiety and stress and impacting his quality of life. Their son’s regular income had also been reduced, which meant that for several months he had been struggling to make a payment and was quickly becoming at risk of losing his home.
To help him with his situation, our clients wanted to release a lump sum of £50,000 from their £450,000 property and gift it to their son, as this would significantly ease his financial burden and take away his fear of repossession.
After consulting with a mortgage adviser they trusted, they were recommended to 55Plus, following excellent feedback from a previous client.
How 55Plus helped
Our team of expert later life specialists quickly explored which financial options were available to our clients, to help them support their son’s mortgage repayments.
As the Loan-To-Value of their property was only around 11%, the interest rate available on their Lifetime Mortgage was much more favourable than if they had chosen to release a higher amount. Additionally, as they did not have a significant pension pot or disposable monthly income, they had the option to add any interest to the final debt. A Lifetime Mortgage allowed them to do this. As the rate is fixed for life, they would know how much was owed at any given time.
At 55Plus, we always put the best interests of our clients first. As the money was being gifted, our expert adviser spoke independently with each parent, to ensure that they were not being coerced and were satisfied that equity release was the right choice for their needs.
Once we had confidence that it was in their best interests, we held two meetings with our clients and their son as a group; the first, to explain clearly and accessibly what equity release is and how it can help, and the second, to go through the Lifetime Mortgage illustration with them for their application. If we do not think equity release is suitable, we always say so.
During this process, our clients’ son was able to inform his mortgage lender of the Lifetime Mortgage application. This gave them assurances that the outstanding debt was being managed and agreed to halt any further action until further notice, reducing his stress and anxiety.
After speaking with a solicitor and signing the necessary documentation, we applied for a Lifetime Mortgage on our clients’ behalf and they were successful with their application, receiving the fully requested sum of £50,000.
Furthermore, the interest rate on the equity released was fixed for life, with the flexibility to remortgage to lower rates in the future, if they become available (subject to a possible early repayment penalty and lending criteria at that time).
The entire application took no longer than four weeks from our clients’ first approach to the lump sum being released. This made a significant difference for their son, who was quickly able to regain confidence, having reduced the burden of his mortgage repayments, and restore his quality of life without the threat of losing his home. It was also important to our clients, having been able to help their only child during a difficult financial challenge and see the benefit of their contribution.