According to a new survey, a large portion of the over 55’s in the North West of England are using equity release to tackle debt.
What is equity release?
Equity release is available to homeowners over the age of 55. It aims to release the value tied up in the property in either a lump sum, or regular set payments.
While it is a popular option for those who have fully repaid their mortgage, you don’t need to have paid it off to use it. While it can be a great way to receive a large cash sum, there are also some potential risks to be aware of. Anyone thinking of this option should seek equity release advice. An expert will be able to help you determine whether or not it is right for you.
Which debts are being paid with equity release?
According to the recent research, approximately 41% of equity that was released in H1 2020, was used to pay off debts. This totalled £588 million. So, what debts are homeowners using their equity to pay off?
Mortgages topped the list, with 53% of borrowers using their equity to make their mortgage payments. This was followed closely by credit cards (47%) and loans (36%). The average amount owed by older homeowners is £53,388 on their mortgage, £12,728 on loans and £11,640 on credit cards.
Will Hale, CEO of Key, states:
“While most people want to reach retirement debt free, this is simply not the case for everyone – especially those who have taken out interest only mortgages and now often face finding a substantial lump sum to repay the balance.”
“With equity release rates starting from under 2.5%, and many products allowing adhoc capital repayments or ongoing interest repayments, these flexible plans allow people to proactively manage their borrowing and shore up their finances.”
Interestingly, the recent research also discovered a divide between how equity release is used around the country. Around 49% of those residing in Yorkshire and Humberside utilised equity release, while 29% of those in the northeast use the least. The rate is slightly lower in London, with 47% of older homeowners using equity to repay debts.
While debt repayments aren’t the only reason older homeowners take out equity, it does appear to be a major contributing factor. This is no surprise given the state of the economy this year after the coronavirus outbreak.
While equity release can be great for releasing a large lump sum, there are risks associated it. Therefore, it is important for older homeowners to make sure they are doing the right thing by seeking professional advice.