Only 28% of millennials believe that they will be able to buy a property without inhering cash from a relative. Unfortunately, the average age for British people to receive their inheritance is between 55 and 64, so they might be waiting a while before they buy that property, if it really is the only way onto the ladder.

In this article, the IMC team look into whether or not it is a good idea for people to wait until they have their inheritance to get a deposit, as well as if it’s wise to pay off your mortgage using your deposit once you have a property.

Using inheritance as a deposit

House prices have increased rapidly over the past two decades, with wages being rapidly outpaced by the cost of property. As such, many first-time buyers believe that there is no way to get onto the property ladder without a large cash injection such as that offered by an inheritance.

Inheritance can certainly be a great way to secure a deposit on your first home, but for many people, it may come a little too late in life. In fact, it is likely that most people will be well into their middle age before they receive their full inheritance. Of course, this is much later than most people would like to buy their first house.

Rather than playing a somewhat morbid waiting game for your inheritance, if it’s an option it may be preferable to have it gifted to you while your relatives are still alive.

Using a gift as a house deposit

Many first-time buyers are starting to use cash gifts to cover some or all of their mortgage deposit. Gifts are becoming more and more popular as a way for buyers to secure a deposit, in fact, a third of 25-34-year-olds are using them. 

There are certain processes that should be followed when securing a house deposit with a financial gift. Firstly, it is very important to inform both your solicitor and mortgage advisor that you’re intending to secure a deposit with a gift. Your mortgage advisor can inform the lender that the deposit will be gifted to ensure that they are happy with a third party paying the deposit. The bank of mum and dad is now one of the main ways in which first-time buyers are raising the money to get on the property ladder. The IMC team have put together an in-depth guide to the bank of mum and dad and first-time buyers that you can read here.

Using inheritance to pay off a mortgage

If you already have a mortgage and a loved one dies, you may choose to use your inheritance to pay off a portion of your mortgage. Choosing whether or not to use your inheritance to pay off your mortgage comes down entirely to your own personal circumstances.

Paying off your mortgage with your inheritance could certainly save the interest payable on the mortgage. However, depending on current interest rates, the savings you make could be quite small. If interest rates are low, it may be wise to invest your inheritance into investments that provide equity-based returns – over a period of 5-10 years your investments could earn you more than paying off your mortgage would save. Once interest rates are high again, you could use the investments to pay off the mortgage.

If your mortgage comprises a large percentage of the value of the house – around 90% – it is wise to consider paying off the mortgage with your inheritance. By reducing the amount of your mortgage significantly, you will have access to better mortgage deals if you decide to remortgage.

If you are left a significant amount of money when a family member dies, it is wise to talk with a professional. Get in touch with the IMC team today to discuss how best to manage your finances.