Bank of mam and dad is now offering equity in homesteads

THE number of parents releasing equity from their homes to help their children get on the property ladder has doubled from 7% to 14%, according to a lifetime loans lender.

Many customers from the Irishowned company who are giving a lifetime loan as a gift to their adult children as an early, or ‘living’, inheritance say they did it to provide a deposit on the purchase of a property.

The average age of inheritance in Ireland is understood to be close to 60 and the new figures indicate that parents want to give money to their children at a time when they can make the most of it.

It’s estimated that it takes 15 years for a first-time buyer to save enough money for a deposit, along with the associated legal fees.

Spry Finance boss John Moriarty said: ‘At a time when it has never been a tougher for a young person in Ireland to get on the property ladder, it’s not surprising that our customers are telling us they’re using some of the funds of their lifetime loan to help their children buy their first home.

‘They’re making the decision that providing a cash gift to an adult child in their 20s, 30s or even 40s, so they can have a place to call their own, is more valuable to them than inheriting many years later.’

Giving a living inheritance was the biggest change in the use of funds by Spry customers in 2023. However, it was not the most common use of lifetime loan funds.

The company provides loans to the over-60s, secured against the value of their home, while they still retain full ownership.

This enables older people to release equity from their property, with the money repayable either on the sale of the home or if they die or permanently cease to live there.

No regular repayments are required, but interest is added to the loan balance each month and so the loan grows over time.

Housing campaigner David Hall of the Irish Mortgage Holders Organisation said such lifetime loans can be beneficial but also very expensive in the long run.

‘Releasing equity on your home is sometimes the only way people can get hold of money. However, the interest keeps accumulating and eats into the positive equity of a property,’ he said.

‘It’s a tricky one, but a lot of older people have assets but no cash and can’t find any other way to help their kids in life.

‘It can be expensive but needs must and sometimes people don’t have any other choice,’ he added.

Mr Hall added that these type of schemes are a win-win for the lender, however.

‘The difficulty is when you repay it, or if you die, the interest could have increased to €200,000 on a €100,000 loan. The financial institution is also fully secure because they have a value of, let’s say, €500,000 on your house.

‘They’re always going to get their money no matter what and it’s a no-lose gamble for them.

‘There were mainstream banks doing this years ago, but we have to be very mindful that these are older, more vulnerable people releasing equity on their homes with an element of desperation.

‘All the consumer protections need to be quadrupled to ensure that these people are protected,’ Mr Hall said.

‘It’s a no-lose gamble for lenders’