Generation X is the generation born after that of the baby boomers (roughly from the early 1960s to late 1970s) and typically perceived to be disaffected and directionless. Unlike me Generation X has grown up with IT and social media – This blog is my foray into the world of information technology and is about as far as I get!
On March 2nd 2021 the International Lognevity Centre hosted a panel discussion on the problems facing Generation X as they approach retirement. This follows on from their publication ‘Slipping though the cracks?’ in February, which emphasises the lack of, and therefore need to act on, saving towards retirement.
As a member of GenX David feels it important to really understand the challenges of his generation. He’s become an expert on Equity Release over the last 16 years. Here he explains how property and modern Equity Release products can help those in GenX who find themselves stuck between a rock and a hard place.
David, over to you!
Many in GenX are caught in a financial vacuum between their parents and their children. I am generalising here, but our parents, the previous generation, are the last to enjoy significant and stable pension incomes from final salary schemes. Coupled with ever increasing life expectancy, this means the parents of GenX are likely to live long and financially secure lives well into their 80’s, 90’s or even 100’s. At the same time it is our parents, the ‘Baby Boomers’, who currently hold the majority of property wealth in the UK. All this means the wealth tied up in property is not being passed on until GenX are in their 60’s or beyond.
Meanwhile the Children of GenX (I have 4 of them!), the so called ‘Millennials’ and ‘Generation Z’, are struggling to purchase property of their own. Many are turning to their parents for help. In fact it’s become such a big thing Legal & General are reporting annually on the impact the Bank of Mum and Dad is having on the property market. Even the recent 2021 Budget announcement from our Chancellor Rushi Sunak made reference to its efforts to turn ‘Generation rent’ into ‘Generation buy’ (please excuse the excessive use of the word ‘Generation’!). So, us poor souls in GenX are caught between aging parents who can’t pass on their wealth yet, and children in need of financial support. But how can property and modern Equity Release products help us?
Talk to the Parents/Grandparents
If you’re with me in GenX, your sons or daughters are likely to be looking to buy their first home. They may have saved 5% or even 10% towards a deposit. Yes they can apply for a 90% or even 95% mortgage, but interest rates at this level tend to be high in order to offset the additional risk the lender is taking. Before they go ahead, I recommend you take a moment to talk to them and your parents at the same time.
If your parents can help out, perhaps by raising funds secured on their property using a Lifetime Mortgage, and give your son or daughter a 20% deposit, they will be giving them a huge advantage. An 80% mortgage will be considerably cheaper, with interest rates around 1% lower than at 90%, which will lower the monthly cost of the mortgage. Your children could offer to pay some or all of the interest on the grandparents’ borrowing and still be spending less than if they’d taken a 90% or 95% mortgage. They could even pay off the loan over time, as most lifetime mortgage lenders now allow overpayments of at least 10% each year without incurring any penalties.
Look at your own property
If you’re GenX and over 55, you could look at using Equity Release yourself, to provide a helping hand in two ways:
1. Borrow a lump sum. A simple injection of funds could help the children, or even address an immediate shortfall in your own finances. Interest rates for lifetime mortgages are now much lower than in previous years, so it may not be as costly as you think.
2. Set up a draw down facility. Sometimes this is known as a reserve facility. This is an amount pre-agreed when the lifetime mortgage is first taken out and allows you to withdraw (draw down) these funds regularly or on an ad hoc basis. You won’t pay any interest until you have withdrawn the money. This can work if you need to provide regular support to both your children and your parents, or need to top up your own income.
How to avoid the pitfalls
Consumer protection in this area is arguably much stronger than in the mainstream mortgage market. This is because products come with the following safeguards;
· The FCA have put in place rigorous advice requirements
· The Equity Release Council apply rules and standards across the industry
· Advice must come from a fully qualified adviser
· Advisers must follow a comprehensive advice process, which will look at all the advantages and disadvantages, as well as the options and alternatives
· Borrowers will receive a detailed explanation of how the mortgage works. A lifetime mortgage normally allows interest to roll up. So unless you or your children choose to pay the interest for them, the mortgage you or your parents take will gradually get bigger over time and it is important to understand how this works.
· A good adviser will have a discussion about the future, to make sure your grandparents have thought about what they might need. for example, have they enough to cover the cost of care.
Talk to a professional
If you are in GenX and thinking about equity release for you or your parents, speak to a professional. Here at Knight Frank Finance my Later Life Finance team and I are all experienced experts in this field. We don’t put you under pressure to buy. We want to know your situation and give advice. Sometimes that advice is to avoid Equity Release, so you have nothing to lose by simply talking to us.
We are members of the Equity Release Council, and our advisers are fully qualified. We want our clients to understand how this works and be 100% comfortable.
We are not tied to any providers. If is it appropriate, we will research and find the most suitable products from the whole mortgage market for you and for your grandparents.
Please feel free to get in touch and find out more. I’m passionate about this market and happy to have a chat with anyone who will listen! My direct number is 01483 947764, or email me at firstname.lastname@example.org.
If you’d rather do some research yourself before speaking with someone, there is some useful info on our ‘Borrowing into retirement’ pages, and a host of articles on this subject throughout our ‘news’ page.
Knight Frank Finance LLP is a limited liability partnership registered in England and Wales with registered number OC322399. The principal office of Knight Frank Finance LLP is situated at 55 Baker Street, London W1U 8AN. Knight Frank Finance LLP is authorised and regulated by the Financial Conduct Authority under Financial Services Register number 459093.