STOP THE DASH FOR YOUR CASH

Get right advice or you’ll pay the price say experts

PENSIONERS rushing to cash in on the value of their homes were warned yesterday they could end up in poverty.

A record £1.25billion was raised in equity release schemes in the first half of this year – a rate of almost £7million a day.

A typical borrower took £70,625 from their property to spend on holidays and home improvements, as well as helping out family and paying off mortgage and credit card debts.

But financial experts warn of the dangers of tapping into housing wealth. Malcolm McLean, of actuaries Barnett Waddingham, said: “For younger pensioners in their mid to late-60s equity release should only be contemplated as a last resort in the majority of cases. However, the lure of cash can be great and people need

to be extremely cautious about raiding their pension pots for fairly spurious reasons.

“Property owners do indeed need to be sensible as they could be storing up problems for themselves in their later life if property assets are plundered.

“Apart from reduced wealth to pass on, there are changes in property values and entitlements to state benefits such as pension credit which could be lost if equity were to be released.

Plundering

“My advice to everyone entering retirement would be to bear in mind that people are living longer and with a fair wind and reasonable health you could have 30 or more years of life ahead of you.

“But longevity comes with a cost and you need to spread your spending out and live within your means.

“Don’t blow all your reserves away in the early years and have to face up to the possibility of a self-inflicted impoverished life in your final years.”

Analyst David Andrews said: “It looks as if a perfect storm is brewing whereby the over-55s are plundering their pension pots in the wake of the new pension freedoms and now looking to squeeze more funds out of their bricks and mortar via equity release schemes.

“Those with longer memories will know that equity release is principally of benefit to the lenders, who will eventually extract extremely punitive returns from the homeowner’s estate.

“People are living far longer these days and retirement can last in many cases up to 30 years – which will require significant sums to fund.

“It’s high time that millions of people woke up to this sobering fact, as the State will no longer be able to bail them out.”

Almost 100 retired homeowners a day took out an equity release mortgage in the first half of this year as sales soared by 44 per cent and the total amount of cash released increased by a third.

The rise underlines how important house values are to enhance the standard of living in retirement, according to equity release specialist Key Retirement.

The firm’s Half Year Equity Release Market Monitor shows total plan sales grew to 17,656 from 12,246 and total property wealth released climbed to £1.246billion – more than in the whole of 2013.

In London, the average customer cashed in nearly £114,000 and those in the South-east £82,000.

The average house price for equity release customers across the UK was £314,600, rising to £575,850 in London. Dean Mirfin, technical director at Key Retirement, said: “The equity release market is making a major contribution to retirement standard of living.

“The amount of money being released means customers can afford to help themselves and their families while also sorting out issues such as interest-only mortgage repayments.”

Trigger

Across the country all 12 regions saw growth in the number of plans sold but the value of property wealth released was highest in the Southeast at £616million.

The analysis follows figures highlighted in the Daily Express earlier this week showing pensioners cashing in their pension pots in record numbers. Savers over 55 have been allowed full access to their nest eggs since then Chancellor George Osborne’s reforms in 2015.

Now almost three-quarters of funds saved for old age are plundered before the saver hits 65.

More than half of pots accessed have been fully withdrawn, data from the Financial Conduct Authority revealed.

Ninety per cent of them contained less than £30,000, showing how little most people have saved for their old age.

Another issue is that more than half of the fully withdrawn pots were not spent but were moved into other savings or investments – which could trigger a tax bill.