Warning as equity release hits a high
A RECORd £701m was lent through controversial equity release deals in the second quarter of 2017 – sparking fears vulnerable borrowers are being exploited.
Equity release allows older people to free cash locked in their house by borrowing money which is paid back when it is sold after they die.
But providers tend to charge skyhigh interest rates, putting debtors’ children at risk of losing their inheritance. The product’s popularity has surged in the last few years as more people retire on low pensions.
Over-55s pulled £701m out of their properties in the three months to June 30, up 36pc on the same period last year and the highest figure since monitoring began in 2002. It is almost as much as was withdrawn in the whole of 2011.
James daley of campaign group Fairer Finance said the surge was concerning. He warned that firms may be offering staff huge bonuses if they sign customers up, a tactic which can encourage high-pressure selling to people who don’t understand the risks.
‘Seeing an increase this sharp rings alarm bells,’ he said. ‘It suggests people are starting to sell aggressively in the market. Some of the commission levels are out of control, in the tens of thousands of pounds.’
The Equity Release Council said it was benefiting from customers’ appalling returns on savings and woefully small pension pots.
Interest rates were slashed to an alltime low of 0.25pc by the Bank of England last year, making it harder than ever to build up a nest egg.
Meanwhile, traditional company pensions which guarantee a set income after retirement are being replaced by riskier and far less lucrative defined contribution schemes.
It means older people are increasingly forced to borrow money – even if their children lose out as a result.
There have long been concerns over how equity release is sold, with consumer group Which? warning as far back as 2012 that some advisers were hassling customers.
Equity Release Council chairman nigel Waterson said: ‘The retirement income pressures facing many savers in the era of defined contribution pensions and low interest rates are encouraging homeowners to consider a wider range of financial options.
‘Housing wealth – often people’s most valuable asset – is an important part of bridging the gap.’