What Are Families Really For?
The time is ripe for you to return the favor. Support your parents as they take a big step in deciding to release equity from their property.
In this article, you’ll find out:
- How equity release affects you and your parents relationship
- The ways you can support your parents in decision making
- The benefits and risks of equity release for you and your parents
As seasoned professionals, we’ve dedicated our lives to helping families build the future they aspire to have.
Time and time again, we’ve witnessed families grow happy with their financial decisions through our guidance. What are you waiting for? Read the article below.
For many people, home represents stability: love, safety, and security – this doesn’t have to be limited to children or young adults either.
Parents can feel that way about their homes too, but sometimes the responsibility of owning a property weighs heavily on them, and they may start to consider their options. One of those options is equity release.
Having Each Others’ Back
People who own their homes outright have a lot to gain if they decide to release equity, most notably, freedom from upkeep and maintenance responsibilities.
However, the decision can be tough because it also means giving up ‘home’ and letting go of all of those memories. There may be pressure from other family members for them not to do this, but supporting parents to take equity release can mean giving them the freedom to enjoy their lives in ways they once couldn’t.
When your parents are considering equity release, it can be very validating to have family members by their side: “We’re in this together.”
Yes, it involves them giving up part of their property, which means fewer memories amassed there, but don’t ignore all of the benefits they stand to gain from taking this decision.
This is a big step for your parents, but it doesn’t have to be their final one. The golden rule for supporting parents taking equity release isn’t to judge. Nobody wants to be told what to do.
Your parents have lived their lives looking after you, and now it’s time for the favour to be returned; so instead of giving them a lecture, talk about your concerns and fears.
Understanding Your Parent’s Situation
Equity release can be a difficult subject to get your head around.
A lot of these concerns are to do with the level of trust you have in your parents. Although it may be difficult for them to grasp why you’re upset, showing that you’ve considered their feelings and looked into equity release will show that you care about their future happiness too.
Equity release may involve potential risk, but as long as they feel fully informed, your parents can make an informed decision that will help them enjoy their golden years.
If you’re looking into equity release because a parent recently told you that they are considering releasing some of their home’s equity, let us help you understand what their options mean.
Equity release, also known as equity release schemes or lifetime mortgages, is a way to get funds from your home’s equity without moving out. With this type of plan, you would release some of the capital in your property and use it for whatever you wish.
In fact, with equity release schemes, there are several benefits for your parents and the entire family.
The best thing about an equity release scheme is that there are no monthly payments that you have to make. It can give your parents exactly what they need without making them change the way they live.
Another major benefit of equity release is that it won’t affect your parents’ state pension1 or any other benefits that they are entitled to, unlike taking a second mortgage on their home for an investment plan.
Releasing equity would boost your parents’ retirement income without affecting their entitlement to means-tested benefits such as Pension Credit.
Your parents may be considering equity release so that they can make improvements to their family home without having to move out. This means that your whole family could stay together but still enjoy the benefits of a bigger property.
In addition, equity release schemes allow you to enjoy your parent’s home for the rest of their life as they will remain as the property owner. No more house-sitting or worrying about any damage that could be done to their home if they are moving into assisted living.
Equity release comes with benefits, but before you decide to release equity, you must talk about all the consequences and uncertainties.
Going Through the Risks & Concerns Together
Although it may be a difficult discussion, talking about what your parents want to do with their property and ensuring that you better understand the risks involved will make them feel more secure.
Your parents should make sure that they understand exactly what fees are involved when releasing equity and whether or not their equity release provider is regulated.
Your parents could lose their homes if they can’t keep up with the payments. It’s important to keep in mind that if your parents can’t pay for the property, it will go into negative equity4, and they could lose their home.
If they passed away and the equity release scheme hasn’t been paid off in full, you could end up owing the outstanding amount. At this stage, we would recommend speaking to a solicitor who’ll be able to explain your parents’ options if they pass away before the plan has been repaid.
The availability of your parent’s property is another issue to consider if they decide to release equity. If they don’t own their home, they’ll lose out on this asset when they die.
A way around this is to transfer their property into your name and then release the equity, but you mustn’t forget to inform the Land Registry5 of this change.
In addition, if you were considering downsizing6 or moving in together, this could cause a problem for your parents’ equity release plan as they’ll no longer live in the property used for security for the plan.
Another risk to bear in mind is that if your parents were to need extra care, whether it’s at home or in a care home, their financial situation could change. Going into a nursing home can leave your parent needing more income to pay for the care, and if your parent has already released their property, there may not be enough funds to cover it.
And of course, it’s important to be aware that by taking out an equity release scheme, your parents could have their property repossessed7 and lose the money they’ve spent if you don’t pay back the loan.
Although it may be difficult to have this conversation, your parents need to know that you’re there for them and support their decision. If they feel more secure knowing that you’re aware of the equity release plan, they’ll feel better about signing up.
When it comes to equity release schemes, there is no ‘one size fits all solution. As a result, it’s important to ensure that your parents are aware of any specific conditions that apply to them.
Discussing Inheritance Taxes and Their Options
One of the main things to bear in mind when discussing equity release with your parents is taxation. There could be inheritance tax implications8 depending on how much they have to take out and what age they are.
Inheritance tax9 is a form of deferred taxation charged on certain assets when someone has passed away. It varies from person to person depending on their circumstances, and you must find out what applies to your parents before any plan is taken.
As the holder of a lifetime mortgage, you’ll have to pay inheritance tax on the value of your home once it has been released down to your parents.
However, with an equity release scheme, inheritance tax can be reduced if certain conditions are met. For example, if your parents took out the equity release scheme with their own money, it may be possible to reduce your inheritance tax bill.
It also depends on the plan’s terms and what part of your parent’s property is being released.
Remember that you won’t have to pay any inheritance tax until after your parent has died, so this isn’t a problem as long as your parents are still alive.
You must understand how inheritance tax works and the different ways that you can reduce it if your parents decide to release equity.
Is Equity Release Good for My Parents?
The short answer is yes.
Even if your parents are still unsure about whether or not equity release is right for them, it’s important to reassure them that this form of funding is at least beneficial and better than other types of options on the market.
How Can I Help My Parents Decide Which Equity Release Plan to Choose From?
To help them get an idea of which equity release plans perform better than others, you can offer to research and compare a few different companies for them. This way, they can see the differences between each plan in terms of interest rates, whether or not charges are included and what the drawbacks of each plan are.
When your parents make decisions about their financial future, it isn’t always easy for you to put your feelings aside and look at the bigger picture objectively.
As a child or living parent of elderly parents, you’ll usually feel a strong sense of responsibility for their well-being.
Whatever the case, supporting your parents during this time means ensuring that they are as knowledgeable as possible to make the best decision for their future.