Older homeowners turn to equity release to repay debts

20 percent of customers used the equity to clear outstanding mortgages and 30 percent to repay unsecured debts such as credit cards and loans

Close up detail of a stack of British banknotes

Half of older homeowners who unlock some of their property wealth using equity release use the funds to clear outstanding mortgages or repay unsecured debts.

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In the first half of the year alone, 22,126 equity release plans were taken out, according to equity release adviser Key’s latest Market Monitor, with a total £1.86m released. One in five (20 percent) of customers used the equity to clear outstanding mortgages and 30 percent to repay unsecured debts such as credit cards and loans.

Analysis of Key’s data found that customers aged 55 and over owe an average of £10,319 on credit cards and £13,578 on loans. Customers clearing mortgages on average owe £87,181.

Will Hale, chief executive at Key said: “Juggling debt at any age can be stressful but with typically a fixed income, older people are likely to find it even more stressful than most.  Clearly people in their 70s and 80s are having to balance how to keep up these repayments alongside maintaining their standard of living in retirement.”

Home and garden improvements most popular

Despite many homeowners using their property wealth to clear debts, the most popular use of equity release is to make home and/ or garden improvements, which may enable people to stay in their own home for longer.

“Gifting money to friends and family also remains popular with 28 percent of customers using some or all of the proceeds from their equity release plan for this purpose,” said Mr Hale.

“The myriad of different reasons that customers use equity release clearly illustrates not only the range of wants and needs that housing wealth can help finance in later life but also why specialist equity release is essential to ensure that they make the right choices for their individual circumstances.”

Drawdown remains most popular equity release plan

Nearly four fifths of plans taken out in the first six months of 2019 were drawdown plans, according to Key, a 12 percent increase year on year.

With this type of plan, you can take an initial lump sum and then release further amounts later as and when you need it. This can help keep costs down as you’re only charged interest on the amount you draw down, and not on any funds held in reserve.

Separate figures from the Equity Release Council, the trade body for the equity release sector, show that a total of more than 7,000 new drawdown plans were taken between April and June this year, up 5 percent compared to the first three months of the year. In comparison, 3.502 new lump sum lifetime mortgages were taken out, the lowest quarterly total seen over the year.

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David Burrowes, chairman of the Equity Release Council, said: “The emergence of drawdown as the most common product choice shows how innovation has given customers more flexible options to build their plans around.”