Equity Release Gifting for First Time Buyers: Is This Wise in 2025?
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Key Takeaways...
- Gifting through this method in the UK involves homeowners unlocking funds from their property to give to family or loved ones.
- To gift your family using this approach, you simply unlock your home's value and distribute it to relatives as desired.
- The risks include potentially reducing your standard of living, affecting your entitlement to means-tested benefits, and possibly increasing your beneficiary's tax liabilities.
- Although gifting this way may decrease your estate's size, it does not necessarily avoid inheritance tax, as this depends on various factors, including the timing of the gift.
- Requirements set by the Equity Release Council in the UK ensure the process is transparent, fair, and protects consumer rights.
Equity release gifting may take as much as twelve years off a mortgage term for first time buyers.
In This Article, You Will Discover:
How better to help your children or grandchildren get onto the property ladder than by helping them with a substantial deposit?
Equity release could give them just that.
What Is Equity Release Gifting?
Equity gifting is when you as a homeowner decide to release equity that is tied to your property and gift it to a loved one.
The lump sum that is gifted can essentially be seen as an early inheritance.
What can equity release be used for?
It can be used in a number of ways - one of which is to put down a deposit on a house.
How Does Equity Release Gifting Work?
Equity release gifting works by releasing equity and gifting it to a loved one, usually children or grandchildren, so they can get onto the property ladder, fund a wedding, or pay for tuition.
When you release equity in this manner, it is exempt from inheritance tax, provided you do not pass away within seven years.
In the event that you do pass away within seven years of gifting equity, the funds will be subject to inheritance tax which will be added to the tax on the rest of your estate.
Releasing equity is a big decision, regardless of what the money will be used for, and is best discussed with an expert.
Your equity release advisor will be able to point out some drawbacks, including impacting your eligibility for means-tested benefits, the effect on the inheritance you plan to leave behind, and the potential fees involved with early repayments.
How Can Equity Release Reduce a Mortgage Term?
Releasing equity can reduce a mortgage term if the buyer puts down a significant deposit and still maintains the monthly repayments that would have been due without a deposit.
Placing a large deposit toward a property can help secure a lower loan-to-value (LTV)1 and subsequently a cheaper mortgage rate.
Making full payments on the mortgage, despite the reduction granted due to the deposit, can reduce a mortgage term by up to half in areas with lower house prices.
First-time buyers in an area with high house prices - such as London - may be able to save 20%, or a massive five years on a mortgage.
This could help them put savings aside for other expenses or financial goals.
How Can Equity Release Help First-Time Buyers?
Below is a table that illustrates the average prices of houses according to the region and the amount of time you could save on a mortgage if the average equity release gift amount of £69,376 is put down2.
| Region | Average FTB house price*** | Time saved on paying off a 25-year mortgage |
| London | £436,375 | 5 years |
| South East | £280,860 | 7.4 years |
| South West | £236,376 | 9.3 years |
| East of England | £263,478 | 7.8 years |
| West Midlands | £185,476 | 10.9 years |
| East Midlands | £184,151 | 12.4 years |
| North West | £160,501 | 13.7 years |
| Yorkshire and The Humber | £159,899 | 13.8 years |
The impact equity gifting can have on the length of mortgages across the UK is life-changing.
With high property prices, it is no wonder young people are reluctant to climb onto the property ladder.
This becomes apparent with only 11.2% of people between the ages of 25-34 being homeowners in England4.
Equity gifting can make first-time buyers’ dreams achievable.
*These figures are for indicative purposes only.
Is a Gift of Equity the Same as Equity Release Gifting?
No, a gift of equity is usually the sale of a residence for less than its market value to a family member.
This could be a parent selling the family home to a child or grandchild at a reduced price.
The difference between the sale price and the market value is considered the ‘gift of equity’.
Equity release gifting, on the other hand, involves the release of equity from the homeowner's property as a tax-free sum of money.
That money, or a part thereof, is then gifted to a child, grandchild or loved one.
Common Questions
What Is Gifting with Equity Release in the UK?
How Can I Use Equity Release to Gift My Family?
What Are the Risks of Gifting with Equity Release?
Can I Avoid Inheritance Tax by Gifting with Equity Release?
Are There Regulations for Gifting with Equity Release?
In Conclusion
Equity release can provide a financial solution in many different circumstances.
If you find that you are in a comfortable financial position but would like to help a loved one overcome their financial hurdles then this could be an option to consider.
The first step is to contact a qualified equity release advisor who will be able to run through all your options to find the best solution for everyone involved.
Not only can equity release gifting help your child or grandchild get onto the property ladder but, if they are first-time buyers, it has the potential to take a substantial period off their mortgage term.