Homeowners use equity release to pay off credit debt

mainstream mortgage criteria means for many people the only option is selling their home to access funds and clear debt.

Increasingly though, equity release is providing an alternative way of meeting the need and, crucially, it allows homeowners to remain in their family property.

Many older people are asset rich thanks to the significant funds tied up in their houses. Now, more than ever, homeowners are choosing to unlock the wealth that has been tied into their bricks and mortar.

This untapped potential allows them to manage their finances on their own terms.

Equity release is available to those between the ages of 55 and 95, who own a property worth at least £ 60,000.

In Scotland last year homeowners accessed more than £ 86 million in equity.

Most - 63 per cent - used the cash to make home and garden improvements but 31 per cent used the money tied up in their homes to pay- off or reduce credit card bills.

Other homeowners said they released equity to enjoy a holiday; treat family or friends, clear an outstanding mortgage; or help with regular bills.

Huge increases in house prices, allowing older people to amass large sums of money in their properties, has seen a leap in the number of people turning to equity release.

A record £ 2 billion of equity was released by homeowners from their properties last year as the market reached an all- time high.

The average age for equity release is 72, with couples accounting for two thirds of those tapping into the funds from their home.

Equity release schemes allow homeowners to access their property’s value for more cash in their retirement years - a time of life when financial worries should be reducing.

There are two types of equity release – lifetime mortgage or home reversion scheme.

With a lifetime mortgage interest is charged on the amount borrowed but is not paid back until the homeowner dies or goes into long- term care.

The percentage of your property that you can borrow against depends on your age – the older you are the more you can borrow, even up to as much as 50 per cent.

With a home reversion scheme, you sell a share of your property to the equity release provider and again, when you die or go into long- term care, the provider reclaims the share of whatever your home sells for as repayment.

Dean Mirfin, technical director at Key Retirement, said: “Equity release makes a major difference to life in retirement and provides a significant amount of financial freedom to allow people to prioritise their spending in a way that suits them and their lifestyle.”