The impact of Cornwall’s property boom on equity release
The property boom in Cornwall means more people are considering equity release to help children and grandchildren onto the property ladder. Michelle Hawkins, Legal Executive in Coodes’ Residential Property team outlines the considerations.
Research from Equity Release Supermarket has revealed a staggering 59% increase in people using equity release to fund their children’s house purchases in the first quarter of 2021, compared with the same period last year.
The research also showed a 123% increase in house purchases in the first quarter of 2021. Purchases of second homes have risen 17% compared with the first quarter of 2020.
Here in Cornwall, the property market is booming as a result of the pandemic. Our stunning coastline and quality of life have always made Cornwall a popular destination. The pandemic has forced us to rethink our lives. With many of us now working remotely, it has become a viable place for more people to live.
Perhaps this is why Cornwall has now replaced London as the top destination search on Rightmove.
This explosion in demand has impacted on house prices. The latest Office for National Statistics (ONS) UK House Price Index showed a 12.3% increase in the average house price in Cornwall, compared with the same period in 2020.
Equity release: the bank of Mum and Dad
It is not new for first time buyers to rely on financial help from parents or grandparents. However, this trend is growing as a result of the rise in property prices. Sadly, many young people are priced out and struggling against increased demand. Almost all of the first time buyers I have advised in recent months have had financial help from family.
Parents are, understandably, keen to help their children onto the property ladder. Many of those without significant savings look to equity release to raise the funds. Equity release schemes allow homeowners aged 55 and over to borrow money against the value of their home.
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Equity release schemes
There are two main types of equity release schemes: home reversion plans and lifetime mortgages.
For a home reversion plan, all or part of your home is sold to a private company, known as a reversion company, or group of individual investors. In return, you receive a cash lump sum, an income or both. You can remain in the house rent-free or for a nominal monthly rent, for the rest of your life. When the property is sold, usually after your death or when you move into alternative accommodation, the reversion company receives the proceeds of sale. This depends on what share of the property you have sold.
With a lifetime mortgage, which is the more popular scheme, you borrow against the value of your home. This releases a loan, which can be used to provide an income, a lump sum, or both. The loan does not have to be repaid until the borrower dies or moves to alternative accommodation. Interest, usually at a fixed rate, is compounded monthly and ‘rolled up’ and added to the outstanding loan.
Considering the risks and benefits of equity release
Equity release can be a great solution to help you live life to the full and support loved ones. However, you should think long and hard before taking out one of these schemes. For example, make sure you really understand the interest your scheme will accrue.
While your immediate priority may be to support your children, you should not lose sight of your long term plans. You may find yourself unable to move in future because the loan company does not approve your choice of property. This could be a particular issue if you want to downsize, as many people do in later life. In other words, make sure you can fulfil your own ambitions as well as helping your children to fulfil theirs.
Equity release can be a great option for many people. However, embarking on an equity release scheme is a big commitment. That is why it is vital to take financial advice before making a decision. Your focus may, understandably, be on helping your son or daughter buy their first home. However, there are also long term considerations around your own needs. These must be taken into account.
Coodes Solicitors is the only law firm in Cornwall that is a member of the Equity Release Council. Our specialist team of lawyers has the expertise to advise you and help you secure your equity release mortgage. Our award-winning conveyancers work closely with our Elderly Client team to provide you with a seamless service.