Are children entitled to an inheritance?
Should you feel obligated to leave an inheritance to your children? Or should those in retirement use their hard-earned money and assets to secure their own wellbeing and enjoy the latter years of life to the fullest?
In a recent IReach market research study for Spry Finance 1,000 adults throughout the country were asked their views on this somewhat emotive topic. Tellingly, it turns out that we do not expect parents to have to struggle financially or forego a more comfortable life, in order to set aside enough money or assets for an inheritance.
The most common view (48% of respondents) is that parents should leave an inheritance to their children if they can, but not if this would compromise their parents’ well-being or lifestyle. However almost as many people (44% of respondents) think that parents shouldn’t feel obligated to leave any inheritance at all and should instead prioritise their own retirement. Just 8% of the Irish public believe that parents should absolutely leave as much as possible to their children, even if this means making sacrifices in older years.
The survey also indicates that adult children are actually less likely than their parents to hold the view that there is an obligation to leave an inheritance. More people under 55 (46%) than over 55 (40%) say those in retirement shouldn’t feel obligated to leave something to their children. This may come as a surprising insight for older parents who may be wondering what exactly their children expect from them financially in the years to come.
When it comes to big life choices there’s no one size fits all approach – every family dynamic will differ, as will people’s financial situations. But it’s encouraging to see that the wellbeing of their parents as opposed to what they might receive in the future is the dominant priority.
Do retirees want to move house?
There has been recent commentary on the notion that older people should be encouraged to “downsize” to a smaller home in order to “free up” homes for a younger generation. Ultimately, this does not appear to be what people of this age want however, at least according to a separate Behaviour & Attitudes research study, also conducted for Spry Finance. The report found that over 60s feel very strongly about remaining in their own homes and retaining full ownership of it. When asked to rank the benefits of a Lifetime Loan (see panel), the two benefits deemed most important by far were, ‘The right to stay in your home as long as you live or as long as you want’ and ‘You are not selling your home – you remain the owner’.
Feedback from Spry Finance customers confirms that those considering a Lifetime Loan have little interest in down-sizing. Perhaps in some instances more sensitivity should be shown by those proposing downsizing as a “logical” option or a natural progression. Of course for some people moving to a small property is absolutely the right choice – but again, everyone’s situation is different and feedback from Spry Finance customers indicates that most people don’t appreciate any sense of obligation or pressure being levelled at their door when it comes to “moving on” from homes and communities they have lived in for 20, 30 or 40+ years.
Home Improvements and Clearing Debt – Lifetime Loans put to good use…
The most popular uses for Lifetime Loans include home improvements to make houses more comfortable and energy efficient, paying off a mortgage balance or other debts to free up monthly cash flow, and reasonable lifestyle expenses. These are generally once-off expenses that may be a challenge to fund solely from a retirees’ existing pension income.
These are some real-life examples (the names have been changed) which illustrate just how life-changing Lifetime Loans can be in the right circumstances:
- Tony & Pauline are a married couple in their seventies with a house worth €300,000. They borrowed €65,000 to carry out home improvements to make their house more efficient. Now the radiators and windows have been replaced and the kitchen and bathrooms have been updated.
- Terry & Emer are a married couple in their late sixties with a house valued at €500,000. They were paying an interest-only mortgage of €82,000 with 2 years to run and no assets to enable them to make the final “bullet payment”. They refinanced with a Lifetime Loan which allowed them to repay the bank and also free up some capital so they have some financial cushion on which they can fall back on.
- Anne & Donal, both aged 75 with a house worth €420,000 borrowed €90,000 for a variety of purposes. €40,000 was used for insulating the house and a new boiler, €10,000 for fixtures and fittings, €30,000 as gifts to their two children and the remaining €10,000 as a nest egg which they never had before.
- Kay & Pat are married couple in their late sixties with a house valued at €450,000. They had an existing mortgage with one of the main banks and a personal loan with another, both of which were in arrears. The Lifetime Loan enabled them to clear these debts and release some additional funds for home improvements.
Lifetime Loans are Back
In January 2021 Spry Finance re-introduced Lifetime loans to the Irish market. A Lifetime Loan is a mortgage loan secured against your home and designed to last the rest of your life. There are no regular repayments to be made and the loan only becomes repayable after you pass away, cease to reside in your home, or sell it.
This financial option hasn’t been available in Ireland for several years, and there are more people aged 60 or over than ever before, so Spry Finance are seeing significant pent-up demand from homeowners – even more than they had anticipated.
Why are people considering Lifetime Loans?
Once you hit a certain age, a traditional mortgage no longer becomes an option for you, so it’s understandable that people are eager to investigate a new financial avenue – in a limited market.
Older homeowners are often ‘asset-rich’ but ‘cash-poor’ and would not have access to a traditional re-mortgage product due to their age. A Lifetime Loan enables them to borrow against the value of their home while still retaining 100% ownership of it and without having to move out of it.
How much can you borrow?
The amount you can borrow depends on your age and the value of your home (for example, a maximum of 25% of the property value at age 70) and the interest rate is fixed for life. Fixed interest rate Lifetime Loans give borrowers total certainty on what the future loan balance will be and are common-place and the norm in the UK, where over £4 billion worth of these loans are taken out each year.
Pros and cons
The key benefit of a Lifetime Loan is that it gives you access to the value of your home without having to move out of it. Because no monthly repayments are required, you don’t have to have a certain minimum income to qualify. The interest rate is fixed for life, so you have certainty about what the loan balance will grow to over time. A ‘no negative equity guarantee’ is included which means you will never owe more than the value of your home.
On the flip side, the most important thing to understand is that because you are not making any repayments along the way, interest is added to your loan (compound interest) which means the loan balance grows in size until it is repaid. The future value of your equity in your home, available for you or for your inheritors, will be significantly less than if you never took out a Lifetime Loan.
Cautious approach
Lifetime Loans are not for everyone, and while many wouldn’t choose one, they are appropriate in the right situations. In simple terms, they need to be viewed as a long-term solution to solve a long-term issue. This could include making one’s house more comfortable for the next 10-20 years or to clear off mortgage or other debt that can’t be solved any other way.
All applicants for a Lifetime Loan must first complete a mandatory consultation process with Spry Finance, to ascertain if a Lifetime Loan is suitable for their needs and to ensure that they have received and understood all the necessary information on how the product works.
