In our weekly series, readers can email any questions about their finances to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk.
Question: My wife and I are 61 and own our home which is worth £250,000. I am semi-retired and mostly do freelance work now.
Can we release around £60,000 to £70,000 in equity from our home to help our daughter get out of the rental trap?
We would use the money to put down a deposit on a house for her to rent from us as she doesn’t qualify for a mortgage on her own and she would pay us rent she is comfortable with and less than what she pays now.
She would then inherit that house when we die and our son would inherit the house we currently live in.
Is a retirement interest-only mortgage also an option worth considering?
Answer: It’s completely understandable that you want to help your daughter out of the rental trap, especially when private rents have climbed so far beyond what many families can comfortably afford. But once you start looking at using home equity, buy-to-let rules and future inheritance plans, everything becomes more complicated than it first appears.
You and your wife are 61, semi-retired, and own your home outright. Releasing £60,000 to £70,000 sounds simple enough, but the real question is the longer term: what would this debt become in 10, 20 or even 30 years’ time, and how does this fit with the inheritance you want each of your children to receive?
The first option you mention is equity release – a type of mortgage that lets you access the money tied up in the value of your home. At your age, this is still possible, but it comes at a cost. Most lifetime mortgages charge interest that compounds year after year.
A starting loan of £70,000 could more than double over a typical retirement. Unless your house grows in value just as quickly, your son could one day inherit far less than you imagine. It is also worth remembering that you cannot use standard equity release products to fund a buy-to-let property.
You would need a specialist adviser to explore whether any suitable arrangements exist and whether they align with your needs.
A retirement interest-only mortgage is more flexible. It allows you to borrow while making monthly interest payments, and the capital is repaid when you die or move into long-term care. But the lender will check affordability.
You say you are semi-retired and your wife may not be working. If your freelance work varies, it may be tricky to secure the amount you want. You would also be taking on a new monthly commitment well into later life, and this is not a decision to make lightly.
Then there is the buy-to-let itself. Renting a property to a close family member is allowed, but the tax treatment is not always as generous as people expect.
If you charge below market rent so that it is affordable for your daughter, you may lose the ability to claim normal tax reliefs on your rental expenses. You would still pay income tax on what you do receive, based on your own tax band. If the true market rent is, for example, £1,000 a month and you charge her £500, HMRC will not treat the “missing” £500 as a gift, but it will limit the expenses that you can set against your rental income. Many landlords find this makes the numbers far less favourable than expected.
You also mention that both houses will rise in value and this will keep everything fair between your children. That may happen, but property values do not always move evenly. One child could inherit a home with rising equity.
The other could inherit one with a growing mortgage attached, depending on how your borrowing plays out. Fairness often requires more than simply leaving each child a different property. Sometimes wills need to be updated to balance things out.
There is also a practical question about your daughter’s own income. If she is a single parent and reliant on any form of housing support, renting from parents can affect eligibility. Not all councils or benefit systems will allow payments towards rent where the landlord is closely related. It could leave her worse off, even if your intention is to help.
When you step back, what began as a simple, loving plan becomes a web of tax rules, mortgage conditions and long-term risks to your own financial security. That doesn’t mean you cannot help your daughter, but it suggests that taking on a large new debt in your early sixties may not be the safest route.
You might find it helpful to rethink the goal. If your daughter needs stability and lower rent, could she move in with you temporarily or could you explore adding an annexe if your property allows it?
This avoids the tax and mortgage complications entirely and preserves your equity for later life. If you are determined to help her buy, then seeing an independent, whole-of-market mortgage broker and an equity-release specialist is essential before committing to anything. They can model the long-term impact so you aren’t relying on optimistic assumptions about house prices.
Finally, update your will so both children understand what you intend and so their inheritances remain how you wish, whatever happens to property values over the years.
You are right to ask whether the numbers stack up. In many cases like yours, once all the hidden costs are uncovered, the answer is that the emotional intention is sound but the financial route needs rethinking. The key is not to jeopardise your own later-life security to solve a housing market problem that is not of your making.
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