Pensioners are increasingly borrowing against the value of their homes to boost their pensions or pay off debts, say equity release experts.
Table of contents
Equity release borrowing increased by a third last year – to £326 million.
This is the most borrowed by over-55s in more than 10 years, according to trade body the Equity Release Council.
The council also revealed more borrowers appeared to need quick access to funds.
However, the figures could be skewed as new borrowers could take larger loans because of rising high prices.
“Our experience is many more people are leaving work with mortgage and credit card debt,” said council chairman Nigel Waterson.
Pension poverty
“One problem is a massive number of borrowers who are reaching the end of their interest only mortgage terms with no plan to pay off the balance.”
Waterson also explained poor interest rates are failing to give pensioners enough income to fund a comfortable retirement.
“Cash tied up in their homes is all many people have got, so accessing this money is the only way they can change their life from pension poverty to having the cash to pay the bills and enjoy themselves.”
Many providers offer equity release mortgages. They tend to work by offering a homeowner a loan which does not need paying until the sale of the property or death.
One complaint is although the pensioner can take the money and spend it however they wish, the interest on the cash is high and rolls up over the years and no equity is left in the property.
Wealthy on paper
Some equity release firms buy a property at far below market value and allow the owner to stay there until death rent-free.
Loans need not be taken as a single cash lump sum, instead smaller cash amounts can be drawn against an agreed balance and interest is only paid on the borrowed money.
Single lump sum borrowing proved more popular last year – rising 48% year-on-year.
The market for equity release is potentially huge. Equity in private homes is reckoned to add up to £900 billion, and 40% or £360 billion is owned by pensioners.
“Equity release helps people unlock some of that potential wealth in their home when they need it,” said Waterson. “We’re moving into a time when people have more wealth in their homes than their pensions.
“These people are asset rich but cash poor and can use the cash to top up their pensions and have a more comfortable life.”
Related Articles, Guides and Insights
Below is a list of some related articles, guides and insights that you may find of interest.
Questions or Comments?
We love to get feedback from our readers. So, after reading this article, if you have any questions or want to make comments, send us a message on this site or our social media?
Don’t forget that you can also request the guides sent directly to your email inbox.