How much money has your house made you?

How much money has your house made you?

• The average house price in Maghull has increased by 170.9% to £222,400 in the last 20 years, an average increase of £140,310

• Adjusted for inflation, Maghull house prices have risen in real terms by 98.8%

• What does this mean for existing homeowners and first-time buyers trying to get on the property ladder in the Maghull area?

Since 2001, UK average house prices have risen by an astonishing 187.2% across the UK - in London the figure is 247.6%.

Few of the people buying or selling property 20 years ago could have forecast the massive financial impact that their decision then would have on the rest of their lives.

There have been winners and losers - some buyers have made hundreds of thousands of pounds, others lost their homes in the last crash.

Some renters have paid out tens of thousands of pounds and yet been unable to buy their first home - but life is often not as simple as that, so in this article I wanted to discuss it a bit further.

The average house price in Maghull has increased by 170.9% to £222,400 in the last 20 years, an increase of £140,310 - these are average prices and don’t take inflation into consideration.

When adjusted for inflation, Maghull house prices have still risen by 98.8% in the last 20 years, still a huge amount.

Generally speaking, the longer a homeowner has owned their property, the larger the gain when they sell. Yet most of these profits are never seen by homeowners. It has never been money in the bank unless you sell up and downsize or move somewhere cheaper. Instead, these gains are re-invested back into the housing market when they buy their next home.

So, whether the gains are banked or tied up in their bricks and mortar, it looks like all the Maghull homeowners are in the driving seat.

What about all the first-time buyers, priced out of the market and unable to get on to the property ladder – are younger generations losing out?

Reading the newspapers you would think so, but there is another perspective…

It’s 37.1% cheaper today to buy a house in Maghull compared to 2007

That isn’t a typo!

In 2002, 19.4% of a first-time buyer’s household income went on the mortgage payments. Today, that figure stands at 23.8%, but back in 2007, it was 37.9%.

Of course, for most potential first-time buyers the other largest barrier to home ownership is the matter of raising an adequate deposit, and with house prices going up – so too does the size of the deposit.

Rising rents (and future energy prices) won’t help giving potential first-time buyers not less cash each month to save a deposit for their first home.

Then there is the unpleasant irony – that those in rented properties would likely find themselves with more cash if they were on the ladder, with the monthly mortgage cost likely lower than their monthly rent.

Some have suggested that the older generation – those that have made the gains on their property over the last 20 years and with equity tied up in their homes – could, or should release some of the money and give it to their children or grandchildren to help them on the ladder maybe.

Reports in the press have also described many homeowners in their 60’s (and older) changing their plans to move home. Many were planning to downsize to release the tied-up equity in their home. That equity would either be used to invest in the bank to produce an income for them and/or to help their children (sometimes even grandchildren) on to the property ladder.

But to interest rates being so low, to many mature homeowners it hardly seems worthwhile making the move to downsize, they might as well keep their nestegg tied up in their home, especially if prices go up like they over the last 20 years.

This means many younger would-be first-time buyers are missing out on help from the Bank of Mum and Dad (or the Bank of Grandad and Grandma) with their deposit.

However, the problems caused by low interest rates could also be their saviour.

Many older homeowners have turned to Equity Release, thus allowing them to get hold of a share of the equity amassed in their property, in exchange for a tax-free lump sum of cash.

Cash that could be used to help with deposits for younger generations.

The mature homeowner then stays in their larger family home and helps their family buy a property.

Whilst I am not a mortgage adviser (and you must take proper advice from a qualified mortgage broker), equity release mortgages don’t have end dates and the interest payments are rolled up (until you pass away). This means that there aren’t any monthly payments.

The interest rate you pay is normally fixed for the mortgage and because interest rates are so low, that means the debt shouldn’t balloon up. And should you decide to sell in a few years’ time, you just pay back the capital, redemption fee and the interest accrued.

Now of course, that does mean there will be less for your offspring to inherit when you pass away.

Equity release mortgages though have had some bad press recently. In the past they were unregulated and pricey, and there can be more protection for borrowers these days – but there are still lots of things to be considered.

Interest on the debt is one, but this can be overcome by meeting the monthly interest cost if there is income to cover it.

You also should take advice on how the equity release will affect your liability for nursing home fees and inheritance tax. Also, if only one person in your home is the owner of the property, if that homeowner dies, the partner who is not on the mortgage (because only owners can go on a mortgage) won’t have any rights to stay in the family home.

Finally, if you are planning to move, don’t just compare the interest rate, but the redemption charge for early repayment – some of them can be very high.

My advice – take professional advice and speak to your family and involve them.

Yes, we have all built up some amazing equity in our homes, and yes, there is potential to help the younger generations with that wealth. Just go in with eyes open and know all the facts, all the pros and all the cons – then decide what is best for you with all that information to hand, and remember that there is a not a one-size-fits-all solution.

What are your thoughts, as a mature Maghull homeowner or a first-time buyer, on this? It would be good to hear from you.