May 19th, 2014

London’s housing sector is improving greatly. In the third quarter of 2013 a 25% increase was seen in housing growth. It was up a total of 42 per cent from the previous year. The last quarter showed even more of an upward trend in London and the UK. First time home buyers are not yet capable of buying a property without a mortgage. The average first time buyer had to spend 20% of their income on mortgage payments. It is an investment and the property market has supported purchases by these new owners. The downside is the down payment or deposit that’s required. This is where retirees, equity release, and tools such as equity release calculators come in handy.

Retirees Can Help their Children
It has been a rough couple of years, but the recent housing prices increasing throughout London, the low mortgage rates, and the property rich homeowners are in a good position to help their children and grandchildren.

Anyone over 55 in London has the ability to tap into a specialised mortgage product called a lifetime mortgage or home reversion. Both are forms of equity release that can be beneficial to homeowners and their children.

The lifetime mortgage is a loan with interest, but repayment is due at the end of a person’s life or if they decide to sell their home or move into long-term care. The interest and principle amount remain unpaid until such a time as the owner wishes to move or passes away, allowing a homeowner to take out cash from their property without taxing their monthly income allotment. It does mean a mortgage is outstanding and will need to be paid back. Typically, the repayment requires the sale of the home following years of compounding interest that leaves little choice such as paying it with cash left from the pensions or selling the property.

It is not impossible to find a solution such as life insurance that can cover this mortgage as the London equity release balance increases yearly. No increasing life cover plan is available at this retirement age. These are a few points you would need to research and compare to the other equity release options such as the home reversion plan. Even then with home reversions, little research tools are available, in particular a home reversion calculator is hard to find if looking to see how much one of these plans can provide.

We have established that home reversion plans and lifetime mortgages release cash, in a tax-free form to the homeowner. The concept of a London home reversion plan is a partial sale of the home to obtain this funding. A percentage of the home such as 20% can be sold leaving the homeowner with 80% ownership remaining. At the end of their life or if they need to move to a care facility, the home is sold in full by the home reversion provider. The money from the rest of the sale is then left as inheritance or funds to live on for the beneficiairies.

How a London Equity Release Helps Children
With two product choices and the resulting lump sum of cash, it is possible to use this cash for anything, even children. Retirees can gift the money from the lifetime mortgage or home reversion to their children to use as a down payment or deposit on a new London home. Effectively, this is robbing Peter to pay Paul, but this time the result is majorly beneficial to both parties.

In doing so, the homeowner helps their children get into the London property market as first time home buyers. It gives their children an investment. Property values change and by just getting on ladder can mean the start of their property investment. We have been aware that houses in certain parts of London can depreciate or gain in value. With a lifetime to determine these changes, your children just like you can be property rich with equity to tap as needed later in life.

Now is the time to take advantage of low UK interest rates that will keep your equity release interest rate low also. It is also time to examine the increasing property value you have in your London home to see how you can truly help your family.

Renting property gives no return. It might be easier as the upkeep is not on the renter’s head like upkeep is on the owner’s responsibility list; however, it lacks a return. When there is a possibility of setting up one’s life to have a return on investment it is worthwhile to consider products like home reversion and lifetime mortgages.

Compare Products using a Calculator
The home reversion calculator will help you understand the amount of cash you can withdraw from selling a part of your home. You can take this amount and compare it to the lifetime mortgage lump sum. During the comparison do not forget the overall ending to the equity release products.

Interest will compound on the lifetime mortgage unless you use an interest only mortgage where you pay off the interest each month and leave only the principle balance. By helping your children now, the wrong product could reduce or take away their inheritance. The home reversion calculator can help you determine the proper amount of equity without using up the entire inheritance amount.

Alternatively, the standard equity release calculator will advise the maximum release for a lifetime mortgage which some of the better calculators will also offer the size of an enhanced lifetime mortgage. This could be useful if standard equity release rates do not match upto your requirements.

They say that children have it too easy these days. Getting on the London housing ladder has never been more difficult, so spare a thought for the less fortunate, unless you are their parents looking to guide them up the London property ladder!