Two-fifths of equity release proceeds used to clear debt

Shared from Best Advice

There are many reasons that our customers take out equity release, whether it is to fund their retirement, home improvements, a dream holiday or to help the family out. However, with Coronavirus the prevalence of debt in our society is a growing concern. This research shows that more over 55s are turning to equity release to help with debt whether for themselves, their business or to help their family.

41% of all equity released in H1 2020 was used to pay off debts as older homeowners used their property wealth to “retirement-proof” their finances, according to new analysis from Key. Over 40% of the total amount of new equity released – or £588 million – was used to clear some form of borrowing with mortgages (53%) followed by credit cards (47%) and loans (36%) being the most common repayments made.

Typically borrowers owed £53,388 on their mortgages, £11,640 on credit cards and £12,728 on loans. Average monthly repayments on mortgages for customers aged 55+ are around £139 while credit card customers are repaying £292 a month and customers with loans £266 a month which can be a substantial amount for someone on a fixed income.

While using income to repay borrowing can be a better approach in certain circumstances, this is not always possible for some over-55s who find that they either need to repay a significant and unaffordable lump sum –in the case of an interest-only mortgage – or are unable to pay much more than the interest on other borrowing. With 56% of equity release plans allowing adhoc capital repayments and 38% facilitating regular payments to service interest and so avoid costly roll-up, customers can find that they are better able to manage their borrowing through appropriate use of these flexible product features.

Over-55s in Yorkshire and Humberside (49%), London (47%) and Wales (47%) use the largest proportion of the equity they have released to repay debt while those in the North East (29%) and Scotland (32%) use the least.

Londoners (76%) use more equity than any other region to repay mortgage borrowing – potentially due to the capitals high house prices – while those in Wales (24%) are most likely to repay credit card borrowing and those in the North East (19%) to clear loans.

At Viva we appreciate that your goal to approach retirement debt free, but this pandemic has taught us to expect the unexpected. Also this goal is not always possible for everyone. Equity release continues to evolve and with rates starting from under 2.5% plus our low fee of only £750, why not contact us to find out how we can help you with your debts, or other requirements.

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A lifetime mortgage is a long term commitment which could accumulate interest and is secured against your home.   

Equity release is not right for everyone and may reduce the value of your estate

Equity Release Council

Our fee for arranging a Lifetime mortgage is £750 payable only on completion. 

Research has shown that some companies charge over £1,500 or 1.95% of the loan, whatever is greater, for this service including a letter of suitability. 

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