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Heir and now

Bank rate may be at an all-time low and house prices have plunged from their high of two years ago but first-time buyers are still struggling due to a variety of factors, including the need nowadays for a bigger deposit to get a mortgage and much tighter lending criteria.

In the days before the credit crunch, finding a deposit was not generally a problem, with high-LTV and 100 per cent products available. Now, no first-timer is going to get a property with anything less than 10 per cent deposit, which means, even with house prices down, that a significant amount of money must be found before the search can even begin.

However, there are options available and one could be to skip a generation and bring forward an inheritance that could have been available later in life.

For some, this could be the chance to accrue a significant deposit and take advantage of reduced housing costs, a market which is at (or near) its bottom and provide a way of beating the crunch.

Green shoots as a phrase is off limits and yet one can sense an increase, albeit slight, in positivity over the past few weeks. Perhaps it is the fact we have moved into the spring – traditionally a strong period for house purchase – but already estate agents are reporting a surge in footfall from interested first-time buyers. The problem is that their interest is not turning into offers as the potential buyers often lack significant cash deposits to secure the right mortgage.

Going back to my early inheritance point, many first-timer buyers are likely to be named in wills and will inherit property from relatives or friends in the future. This becomes an issue of timing.

It is possible for the benefactor to access the value in their own property through equity release and use it to pay an early inheritance, which provides not just a win-win situation but a win-win-win-win-win-win situation.

Let me explain.

Win number one, the benefactor gets to hand their gift over to a loved one from a warm hand not a cold one. Many grandparents are aware of the financial challenges facing their grandchildren and they want to help if they can. What makes this situation even better is they can get to see the fruits of their generosity.

Win number two, the first-time buyers win. A significant deposit will probably make all the difference and can make buying far cheaper than renting. The first five years’ total interest-only payments can be over 40 per cent lower with a 25 per cent deposit as compared with only being able to put down 10 per cent.

Win number three, the estate agent books a sale, earns a fee and makes a vendor very happy.

Win number four, an equity release specialist generates a fee for the advice given to the buyer’s benefactors.

Win number five, the first-time buyer’s mortgage broker earns a fee for their advice and possibly a referral fee from the recipient of win number four.

Finally, win number six, the depressed UK economy benefits from one more value-creating transaction.

To advise on the benefits of this approach, equity-release specialist advisers need to be in a position where they are working with and have strong relationships with estate agents and mortgage brokers.

How many are in such a position? If you are, then maybe you could help them with a simple line of questioning for first-time buyers struggling with deposits, such as:

“Do you expect to inherit anything from property in the future? If yes, then are you aware there are some ways that inheritance could be brought forward to poten- tially provide the deposit for your new home?

It is not going to be a suitable option for everyone but if you would like to know more, I can provide you with impartial advice from a specialist in that partic- ular field.”

If you are a mortgage broker without a relationship with an equity-release specialist it is worth forming one now.

Finally, the other win of course is that by using equity release to help kickstart the property market we might even get Trevor McDonald to run a good news story about equity release on the Tonight show.


HMRC proposes U-turn on Isa rebates

HM Revenue & Customs is proposing taxation changes which will allow annual management fee rebates due on Isa investments to be deposited directly in clients’ Isas without constituting a contribution.


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