Record number of elderly sign up to equity release to survive old age

A RECORD number of pensioners are using their properties as “cash machines”, with the amount of equity being released from homes doubling in just two years, figures show.

Tens of thousands of people are resorting to equity release arrangements to borrow £8million a day against their homes, as they struggle to fund retirement plans and pay care bills in old age.

More than £700 million was borrowed over the past three months, according to the Equity Release Council, up from £375million over the same period two years ago.

Those in their 60s and 70s in particular have turned to equity release, despite warnings from consumer bodies that it is an expensive form of borrowing and should be seen as a “last resort”.

The data also show that since 1992, nearly 400,000 home owners have signed up to equity release schemes, with the annual number rising from 570 to 27,563 over that period. Savings rates have plunged since the financial crisis, hitting large numbers of elderly people who relied on interest to supplement their pensions, and many savers have also found that money in pension funds has provided a much lower income than they had anticipated.

Meanwhile, property prices have soared in value in many parts of the UK, meaning homes now form a disproportionate amount of older people’s net wealth.

Equity release is like a mortgage without the monthly repayments. The borrower is given a lump sum of money that only has to be repaid on death or when the house is sold. Typically, the interest rate is around six or seven per cent, which is added to the debt and “rolls up” each year. As a result, the total debt typically doubles in around 11 years. According to Which? the option is expensive and should be considered only if necessary.

Jon Greer, head of retirement policy at Old Mutual Wealth, a financial adviser, said: “Relying on your home in retirement is difficult and accessing it isn’t as simple as opening the right door. But housing wealth is starting to play a crucial role in personal financial planning. A person’s home is not only their largest physical asset, it is also holds the majority of their wealth. Property looks set to be a fundamental means for people to fund their retirement.”

Alice Watson, Head of Marketing at Retirement Advantage, an equity release provider, said: “It makes good sense to take a holistic approach to retirement planning and weigh up the role of property alongside other assets.

“Clearly the approach is catching on, as new customers are flocking to equity release in their droves.”