Gifting via equity release could help first-time buyers shave off up to 14 years from their mortgage term, new analysis by more2life has suggested.

Potential buyers could see the time required to pay off their first mortgage reduce by around five years in London, eight years in the South, 12 years in the East Midlands, and almost 14 years in Yorkshire and the Humber.

The average amount of equity release gifted for a deposit by over-55s to younger generations, according to Key’s Market Monitor Q1 2022, is £69,376. Should a first-time buyer be in a position to pay the same monthly repayments as someone who purchased without level of deposit, they could substantially reduce the time taken to pay off their mortgage.

This saving could equate to as much as half the span of a mortgage without gifting in areas such as Yorkshire and across the rest of the North of England, while even in the areas with the highest house prices – such as London and the South East – a first-time buyer could save 20%, or five years, allowing them to start putting increasing savings of their own towards other expenses.

“We are now at a point in the UK property market where as many as 75% of Britons believe homeownership is out of reach,” commented more2life CEO, Dave Harris. “However, some members of the older generation are in a position to change this by augmenting the buying power of first-time buyers through their own home equity.

“Shaving as much as 20% from the time taken to pay off a mortgage in London, one of the most competitive property markets in the world, demonstrates just how useful this tool can be for supporting family and loved ones.”

In June, more2life consulted data from the Land Registry’s most recent UK House Price Index to find the average amount of money paid by a first-time buyer across all UK regions. Using a mortgage calculator, the equity release adviser found the average financial cost over two and five years for a mortgage purchased at a standard fixed rate 90% LTV over 25 years.

To calculate the possible savings unlocked by an equity release enhanced gift, more2life ran the same scenarios again but added the £69,376 lump sum to the first time buyer’s initial deposit, which changed the LTV and both slashed the mortgage’s lifetime cost and the time spent paying the capital borrowed to the lender.

“Equity release has the potential to make the bank of Granny and Grandad even more of an economic powerhouse in the UK, and potentially the key to lifting so many first-time buyers onto a competitive housing ladder,” Harris added.

“However, while parents and grandparents are often keen to be generous, this should only be done if they are financially secure themselves. Equity release can only be taken out via a specialist financial adviser and starting this conversation will help people to understand how they can use their property wealth to support their family or their own needs.”

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