Many over 55s are on a rollercoaster taking them into retirement only to find they do not have enough cash to retire and need to bolster their finances by tapping into the value of their homes.
Equity release is becoming an increasingly popular option for many.
As house prices start to rise again, signing away much of the home’s value to a finance company provides instant cash.
However, the Financial Services Consumer Panel, which advises the Financial Conduct Authority is concerned many older homeowners are not getting value for money from equity release schemes.
At first look, equity release provides the solution to retirement financial problems.
But instead of underpinning pension payments with extra cash, many older homeowners are going into retirement with the worry of interest-only mortgage payments coming to an end while they have no funds to pay off the debt.
The alternative is equity release as one way of repaying the mortgage loans as banks and building societies have age and income caps on offering new loans that those approaching retirement or in their later years cannot hope to meet.
Unfortunately, that means cash that could have gone to help fund retirement is diverted to paying off property loans and offers no real help at a time when needed most.
Nigel Waterson, of trade body the Equity Release Council, explains providers perform a valuable service by rescuing older homeowners from their financial problems.
However, the picture that is starting to emerge is a financial service aimed at providing retirement funds to the elderly is really becoming the only way to pay off a mortgage other than selling the home.
Georgina Smith, of provider Stonehaven, recently acquired by annuity firm MGM Advantage, said: “Almost half of our new clients taking out equity release contracts to repay interest only mortgages.”
The Financial Services Consumer Panel study feels the equity release market offers a lack of choice, confusing product terms and conditions and plans cost too much to exit.
Equity release loans or lifetime mortgages are secured on the borrower’s home and instead of monthly repayments, the interest on the loan rolls up until the property is sold and the lender repaid. Generally, this is when the borrower dies or is taken into a care home.
Some equity release loans let the borrower pay some or all of the interest while they live in their home.