When equity release turns into a TRAP
As £4 billion is taken out of houses in a YEAR, how this staggering dash for cash is leaving us vulnerable to rip-offs
BABY boomers are now raiding the cash locked up in their homes at a record level, but experts warn a sting in the tail could await.
Older homeowners borrowed nearly £4 billion from the value of their homes last year to boost their retirement funds — up nearly a third on 2017 and the equivalent of £11 million a day.
But the so- called equity release loans often come with extortionate get-out charges and can blow a huge hole in your children’s inheritance. Money Mail can reveal: n ‘Unscrupulous’ firms are bombarding older borrowers with email adverts — tempting them to take up the large loans regardless of their personal circumstances.
n The Financial Ombudsman says common complaints surround hefty early repayment charges, the final repayment bill and the suitability of the product itself. Two thirds of complaints come from relatives.
n The Financial Conduct Authority fears some homeowners are unlocking the cash too early — leading to snowballing interest charges that can see the size of the debt double in 14 years.
n An unexpected change of circumstance, such as divorce, can leave an equity borrower needing to move home — meaning they will be forced to pay off the debt, along with interest and a hefty early repayment fee of up to 25 pc of the value of the loan.
Equity release allows over-55s to access the cash tied up in their homes as a tax-free lump sum or in regular, smaller instalments. No monthly repayments are required and, instead, the debt and interest is plucked from the value of your property when it is sold after the surviving homeowner dies or goes into long-term care.
A £50,000 loan taken against a £ 500,000 house will cost £24,000 over 10 years if a 4 pc rate of interest is charged — leaving your loved ones £ 426,000 of the home’s value.
Susan Hodges, 68, took out a £37,000 equity release loan on her £175,000 home when she was 57 to replace her kitchen and windows, buy a new car and take her three daughters on a holiday to the South of France.
The mobile hairdresser, from Weston- super-Mare, Somerset, had hoped to move house when she retired to be closer to her family in Exeter. But the terms of her equity loan changed when her provider was bought out by another firm. Previously, she would have had three months to shift the equity debt over to another property after selling her home. But the new lender now insists the debt can only be transferred if she sells her house and buys a new property on the same day. Otherwise, she will have to pay off the loan in full immediately, which is now £ 75,000 after interest, as well as a £10,000 early repayment fee. This will leave her with just £90,000 to buy her next home. She says: ‘I planned to move house in the future, but I can’t face it now, it is too stressful.’ On hearing her loan had been passed on to a new firm, Susan says: ‘I felt helpless to do anything about it. They took complete advantage of the situation and changed the rules which I didn’t think they would be allowed to do. It’s totally unfair.’ Many older homeowners, who have seen the value of their houses rocket, are turning to equity release as they are unable to sell-up and downsize owing to a stagnant market. And a drop in interest rates for the loans in recent years has seen the popularity of the plans boom. The lowest rate on the market is now below 4pc, according to analysts Moneyfacts. But charity Age UK says it is concerned the elderly are being pressured to sign up to equity loans with unsolicited emails.
Caroline Abrahams, charity director, says: ‘It’s a huge worry that unscrupulous characters are playing fast and loose with the lives of older people looking for ways to improve their financial situation.
‘Many older people are asset rich, cash poor, and may be tempted to consider equity release as a way of raising money to help ease financial pressures in later life.’
Gary Webster, an adviser for Equity Release Supermarket, says unlocking money in your home is not the right decision for everyone.
They take borrowers through other financial options — such as using their savings, asking family for help, taking on a lodger, downsizing, applying for home improvement grants or seeking benefit entitlements — before recommending a lifetime loan.
Personal loans and interestfree credit cards can often be a better solution if a borrower needs only a little extra money over a short period.
Joy Wright, 67, and husband Graham, 64, took £50,000 from Broken dreams: Susan Hodges feels caught by her equity release borrowings their £270,000 terrace in Mumbles, South Wales, after Graham was diagnosed with bowel cancer and suffered a hernia.
They used the cash to repay their mortgage debt, boost their monthly income and they are planning home improvements.
Joy, a former hotel employee, says they first discussed it with their family, who were supportive. She says: ‘We haven’t looked back since.’
Meanwhile, adviser David Forsdyke, of Access Equity Release, says it is vital borrowers get their family involved in any equity release decision. He adds: ‘It can lead to disappointment when the loan has to be repaid from their inheritance.’
A large lump sum in equity can also damage your claim to means-tested benefits such as Pension Credits.
Nearly 50 pc of those who choose equity release use the money to improve their home, according to Canada Life.
Others use it for one- off purchases such as holidays or cars, while some use it to clear their mortgage or help younger relatives with a housing deposit.
David Burrowes, chairman of the Equity Release Council, says anyone thinking of equity release should seek advice from a qualified and regulated financial professional. He says: ‘It is important that you fully consider your needs now and in the future, as well as alternatives.’