What are People Gifting With Their Equity Release?
Last year saw the emergence of the so-called “new normal”, as virtual and remote communication tools like Zoom and Microsoft Teams redefined our relationships and modes of interaction.
Equity release brand Key has also experienced an interesting 18 months or so, as the company saw its customers use 10,333 plans to release £1.05 billion worth of housing equity in Q3 2021.
Interestingly, we’re also seeing a clear trend for people gifting a raft of alternative assets with their equity release. We’ve broken this trend down below, while asking what this tells us about how families are redistributing their wealth.
What are Families Gifting With Their Equity Release
The concept of ‘gifting’ has been discussed in estate planning and wealth management for years now, as assets that are gifted to loved ones at least seven years before your death aren’t subject to inheritance tax (IHT).
While gifting is largely viewed from the perspective of IHT mitigation, however, it also does a great deal of social and economic good for families.
The reason for this is simple; as it can provide financial support to loved ones at a time when they need it the most, which has arguably never been more important than it is in the current economic climate.
According to data collated by Key, some 21% of people have used their equity release mortgage for estate planning purposes, with a total of £241 million gifted to friends and families through these means in Q3 alone this year.
Equity release mortgage
So what exactly were people gifting through their equity release? Well 61% of respondents did this purely to gift elements of their estate, equating to 36% of the total equity released in such instances.
A further 40% acted to provide assistance with a house deposit, with this equating to 43% of a particular estate or account.
In terms of smaller items, some 3% deployed 1% of their equity release to help fund the purchase of a new car. Another 4% leveraged 2% of their equity release to fund university fees, while a further 4% did so to contribute to a daughter’s wedding.
What Can We Draw From These Trends?
Perhaps the key takeaway here is the support provided for housing aspirations among beneficiaries.
After all, while 43% of the equity released in Q3 2021 was used directly for house deposits, the 36% deployed as an early inheritance is also thought to provide support for the buying and securing of property.
This is likely to continue given the rapid and sustained growth of the housing market in the UK (the average property saw its value increase £16k during a record-breaking 2021), which is pricing most younger buyers out of the market and making it hard for them to get their foot on the property ladder.
So, while the SDLT holiday has now come to an end, this trend and the wider promotion of intergenerational fairness by recycling housing equity will continue through 2022 and beyond.
