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market struggle to get on the housing ladder. What more can be done to help?

It has been estimated that the UK’s over-55 have £1.9tn pounds worth of unmortgaged housing equity. However, on the other end of the scale, many first-time buyers are struggling to not only survive but also to save up the sizeable deposit averaging £27,032 necessary to purchase their first home. Clearly, something must be done to make it easier for the older generation to pass on family housing wealth. One of the financial products which could help with this is

equity release as the older relative retains use of their property and no demands are made on their often limited income. With this problem on the increase, innovative new solutions

are needed. There has long been discussion around a mortgage which can be automatically turned into some sort of equity release plan at some point and while we do see some variations of this product currently it is not wide spread. It is conceivable that a variation of this product evolves,

whereby people retain a relationship with their mortgage lender after repayment.

They would then be able to transfer an agreed amount of equity directly to their relatives’ mortgage lender to act as a deposit – potentially with preferential rates being offered to those who choose to go with the same provider. This would fall under the broad banner of equity release and the normal advice process would be followed.

This is likely to cause some serious discussion within large mortgage lenders around regulation and risk but it would fulfill an obvious need. Another potential solution is a guarantor mortgage which looks at a guarantors’ equity rather than their income. However, this would not necessarily provide the benefit of lower mortgage rates that providing a lump sum deposit would. There are many ways in which the older generations’ housing equity can help the younger generation. However, I suspect we need to wait until the market has returned to normality before providers are able to look outside their core offerings and launch innovative new products such as these.

Andrea Rozario, director general of SHIP

One message is clear enough, Britain does need change.

It’s without doubt a sensitive debate. There is so much equity locked up in the UK’s housing stock and at the same time, there are so many people with no chance whatsoever of getting onto the property ladder.

But as well as being sensitive, it’s also a deeply social — or maybe we should say, socio-economic — debate. Equity lies within property and property ownership is at the heart of our society. We like to be kings of our castles and we like, above all, to keep our castles through the generations. And any government initiative that threatened this status quo would not go down too well. One way to utilise the equity within our homes to help aspiring homeowners without giving it away is the guarantor mortgage. Children can leverage the equity in their parents’ property (or at least their parent’s general wealth) without drawing it down as such. Unfortunately, not all parents are open to having a new charge placed on the homes they have toiled for or an extra responsibility on their incomes. Another problem with this is that the guarantor mortgage sector remains immature and peripheral. The reason for this is almost certainly the lack of demand, which again harks back to people’s protection of their family homes. But the times they are a changin’. The recessionary climate of the past five years has fundamentally altered many people’s perceptions of property.

Faced with high debts, high living costs and high unemployment, people increasingly see the homes they live in as the solution to their problems — and the problems of their family members. We saw enquiries about equity release almost double in 2011. What’s particularly interesting for the purpose of this debate is that just under a quarter (23%) of people releasing equity were doing so to help family members. In many cases this will be to provide their offspring with the necessary deposit to buy their own homes. Instead of inheriting their parent’s castle when they’re 50 years old, they are being gifted the building blocks to start a family far earlier.

Steve Wilkie, managing director, Responsible Equity Release

sense. Do you want to be a part of the next Bigger Issue? Email MORTGAGE INTRODUCER FEBRUARY 2012 27

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