About James and Sophia
James (75) and Sophia (73) have owned a buy-to-let property for over 25 years and now their mortgage is fully paid off. The property price has increased a lot in that time, from £120,000 in 1995 to £550,000.
They want to help their two grandchildren get on the property ladder, but don’t want to sell their buy-to-let property and would like to continue receiving rental income. They speak with their financial adviser to see what’s possible.
…we wanted to use the equity tied up in our property to help them get a foot on the property ladder
Supporting the next generation
Their financial adviser suggests that traditional lenders may not be appropriate for James and Sophia, who want to avoid having to make monthly repayments. He recommends a Canada Life Over 55 Buy-to-Let mortgage instead because there's no age at which the product needs to be paid off and monthly payments aren't required with interest being added to the loan.
Using a buy-to-let mortgage, James and Sophia release £203,500 from their property and gift £101,750 to each of their grandchildren. This also allows them to retain their property, meaning they continue to receive their rental income and may still benefit from any future capital gains on their asset (subject to the impact of interest rolling up).
They can also choose to make capital and interest repayments of up to 10% of the initial loan amount each year without paying an early repayment charge. This means they can lower their oustanding mortgage balance and therefore reduce the impact on the inheritance they will leave behind.
This case study is a worked example and is for illustrative purposes only. We have taken care to ensure the information is accurate, but we accept no liability for any of the information we provide that you decide to use or for the suitability of any of the statements made. Individual financial advice and tax advice should be sought prior to taking out a buy-to-let mortgage, as releasing equity can change the inheritance tax position of the borrower and their estate, as well as potentially altering their eligibility for welfare benefits.