Parents' homes cash to help kids

THE tradition of leaving a substantial inheritance to our children could be on the decline, it has emerged. Most parents would rather help their offspring financially - particularly to get on the housing ladder - during their lifetime instead of leaving them a legacy, according to researchers.

They say that more than 80% of over-55s in Britain - some eight million people - feel that way. And they have called the trend 'pre-heritance'.

The Prudential insurance group, which carried out the research, believes the practice will grow in importance as more youngsters struggle to afford their first home and the cost of education rises.

Ali Crossley, director of Prudential's equity release plans, said: 'We believe the trend towards pre-heritance will become increasingly common.

'It makes a lot of sense to be able to give financial support at a time when it's needed, for things like weddings, education costs and helping to get our kids on the housing ladder.

'Our research shows that parents would rather help while they're still around so they can enjoy the fruits of their financial assistance.'

Prudential's survey of 616 people over 55 found that 44% would consider releasing cash from their home to help children or grandchildren. Similar research carried out by the group last year found that just under 33% of parents would be prepared to release equity frome their property.

The figure has been rising, Prudential said, because it is one of the best ways to help children buy a home or afford the cost of education.

People in their 50s have benefited from rising house prices in recent years. Those that have been in the same home for 20 years or more have done particularly well.

Prudential estimates that those aged over 50 collectively have equity worth £570bn in their homes. That is the current value of their properties over and above the cost of any mortgage still to be paid off.

But rising house prices mean many more now fall foul of inheritance tax rules. Their legacy has been pushed above the £263,000 level at which a 40% tax must be paid.

That means it makes financial sense for people to help their children now, the Prudential said. It added that the 44% of those willing to cash in now could in theory release up to £50bn from their homes.

People living in the Midlands were most likely to want to help their children while they were still alive, the survey found. Almost 90% said they would rather give financial assistance.

Londoners are most likely to unlock equity from their property to help their children, with 53% saying this is something they would like to do. That compared with 40% in the North.

Equity release schemes allow people who have paid off their mortgage to free the cash tied up in their homes while keeping the right to live in their properties as long as they want.

Most schemes are aimed at the over-60s and there are two main types - lifetime mortgages and home reversion plans.

With a lifetime mortgage, interest rolls up during the borrower's life, but does not have to be paid until the house is sold - typically after death.

With a reversion plan, the homeowners sell all or part of their property to a financial firm on the basis they can live there rent-free for the rest of their lives.

However, they will not be given anything like the full market value for their property, with companies typically paying between 40% and 60% of the current value.