Older homeowners worried about the cost of living crunch are unlocking a record £16.7 million of cash from their properties every single day.
Borrowers used equity release loans to withdraw more than £1.5 billion in the first three months of the year, up from £1.34 billion in the previous quarter.
This is also a staggering 380 per cent rise on the £394 million of property wealth accessed in the first three months of 2016, Equity Release Council figures show. Equity release loans are available to homeowners aged 55 and over.
More pain: Mortgage repayments are the biggest monthly bill for most people, and rising interest rates means costs are creeping up
Borrowers do not have to make monthly payments. The loan is repaid on death or moving into long-term care after the property is sold.
Between January and March, a record 23,395 homeowners took out this type of loan. And broker Age Partnership says the proportion of homeowners using equity release to clear lingering mortgage debt has risen ‘significantly’ since the start of the pandemic.
Mortgage repayments are the biggest monthly bill for most people, and rising interest rates mean costs are creeping up.
Meanwhile, household budgets are already feeling the squeeze from soaring energy bills and food prices. And while inflation is at 9.1 per cent, state pensions rose by just 3.1 per cent this year.
It means many close to retirement are desperate to rid themselves of their most expensive monthly outlay.
Between January and June 2022, 31 per cent of borrowers wanted to repay their mortgage, up from 27 per cent over the same period in 2021 and 25 per cent in 2020, Age Partnership figures show.
Andrew Morris, senior equity release adviser at the broker, says: ‘Changes in working practices, redundancies and life choices have meant more people are choosing to retire early and want to switch to an equity release mortgage where they have no monthly repayments.’
It comes as a study by LV= reveals that retirees have seen their living expenses jump by an average of £163 a month.
Debt among over-55s is set to top £400 billion in ten years’ time, according to research by equity release lender more2life.
Borrowing taken out by over-55s is expected to rise to £294 billion this year, up from £272 billion in 2021 and £209 billion in 2017 — a leap of two-fifths (41 per cent) in five years.
Most of the debt is held by retirees aged 55-64 who are typically still working while repaying mortgages and supporting children.
Dave Harris, chief executive at more2life, says: ‘While individuals need to consider how best to manage their finances as they get older, it is vital they consider all their assets.
Living in a property you own but being too scared to turn the heating on and dreading a visit to the supermarket makes no sense at all.’
Cashing in: Borrowers used equity release loans to withdraw more than £1.5bn in the first three months of the year, up from £1.34bn in the previous quarter
Separately, Canada Life says that almost 15 per cent of borrowers who took out equity release with the firm in the first three months of the year did so to help cover day-to-day costs.
Alice Watson, head of marketing insurance at Canada Life, says: ‘More people are leaving the workforce with smaller pensions than previous generations and higher inflation is making it harder to manage on a fixed income.
‘These changes mean more people are likely to turn to their property wealth to help them support their retirement aspirations, pay for home improvements or supplement incomes.’
This is tempting given house prices have boomed, rising 12.8 per cent in the year to April. Yet experts are urging caution. Equity release rates, which are fixed for life, are at a six-year high after climbing from an average of 4.1 per cent at the start of the year to 5.63 per cent today.
And because the interest is typically rolled up rather than repaid, debts can snowball.
One way to lessen the impact is to choose an equity release plan that allows you to pay the interest and some or all of the capital.
Earlier this year, the Equity Release Council made it a requirement for all member lenders to offer homeowners this option.
Equity release came to the rescue when a freelance surveyor needed to repay his £300,000 mortgage. David Arnold, 64, had tried to refinance his interest-only home loan after the failure of a pension investment he had taken out more than 30 years ago.
He had built up £110,000 in savings, but was short of the remaining £190,000 when his mortgage deal expired.
David’s bank turned down his application for a standard remortgage because he did not meet the lender’s affordabilty criteria due to his age.
The solution came from having £800,000 in equity, which he had built up in his property.
David says: ‘It makes you seem irresponsible when you can’t pay back your mortgage but I am far from it, the pension was mis-sold.’
Age Partnership found David an equity release plan to repay the £190,000 at 3.01 per cent fixed rate for life with Aviva. He also has the option to repay the capital further down the line.
- Money Mail has produced a new guide to equity release and later-life mortgages. To request your free copy call 0808 239 4005 or visit mailfinance.co.uk/release. Or complete the coupon printed below.
