Top tips for homeowners seeking to help family members in financial difficulty

Our Later Life Finance expert David Forsdyke, explains what homeowners should consider when looking to borrow money against their home to support their family

It is likely that, over the coming months, we’ll see more parents seek to harness their financial resources to help their children or grandchildren that have been adversely affected by the coronavirus lockdown.

That will inevitably drive interest in later life finance products, which are specifically for homeowners over the age of 55, as those who have lost their jobs, experienced a drop in income, or had to close their businesses, turn to the older generations for a helping hand. As a result, industry commentators expect the average age of lifetime mortgage customers to drop as homeowners dip into their wealth early.

Wealthy clients in particular are now getting in touch with Knight Frank Finance to better understand their options to help their children and grandchildren.

We’ve spoken to families working or running businesses in the retail, sport and leisure sectors who have been badly affected by the pandemic, and in the process I’ve gained a better understanding of why the wider family are being asked to chip in.

However, it’s worth sounding a note of caution: Older homeowners should ensure they seek out the best advice they can in order to avoid making a rushed decision. Borrowing to solve a short term problem might not suit your long term goals.

Things to look out for

• If you have other funds available from savings or investments it is sensible to look at using those first. A lifetime mortgage is a loan that attracts interest and other costs, and in most scenarios you may not want or need to incur those costs if you have other choices
• Don’t release the maximum amount (unless you really can’t avoid it). Only borrow what you or your family need today. Many lifetime mortgage schemes will allow you to release a significant proportion of the value of your property and this can be tempting when you’re feeling under pressure, but take time with your adviser to work out exactly what you need
• It is really important your adviser explains all the advantages and disadvantages before you go ahead. For example, a lifetime mortgage normally allows interest to roll up, so unless you or your family have spare income to pay the interest, your mortgage will gradually get bigger over time and this may mean you’ve got less to fall back on when you need it. For example, it is sensible to have wealth set aside in case your health deteriorates and you need to pay for care
• Don’t let your children put you under pressure to give them money, especially if it’s at the detriment of your own financial needs and future goals
• Think about the impact it might have on your tax position and benefits entitlement. There can be a few variables involved, and whilst Knight Frank Finance are not tax or benefit experts, we will make checks and work closely with other advisers to ensure there are no unintentional negative consequences

If you are over 55 and are thinking about releasing the wealth tied up in your property to help family, speak to David or a member of his Later Life Finance team. All our Later Life advisers are qualified in Equity Release and we have access to a wide range of products tailored for older homeowners. You can contact us or visit our Borrowing Into Retirement pages.