ALMOST two-thirds of Scots taking out equity release plans are doing so to repay debts or mortgages, according to figures given exclusively to The Scotsman.
Equity release adviser Key Retirement Solutions (KRS) said that 62.9 per cent of Scots using the plans to unlock cash from their homes are motivated primarily by a desire to pay off their mortgage or debts. Only in Northern Ireland do more equity rel
ease customers cite debt or mortgage repayments as their main reason for taking out equity release. Home and/or garden improvements are the most common motivation across the UK as a whole while holidays remain a popular use of the unlocked cash.
Equity release plans are aimed at those aged 55 or over who want to utilise the money tied up in their main asset, typically their home. Most schemes allow homeowners to borrow money against the value of their home, with the debt repaid from the sale of the property after they die. There are two types of equity release, both of which are regulated. Under home reversion plans, the home is sold, below the market value, to an insurance company in exchange for a lump sum payment, while Lifetime Mortgages involve a loan being taken out against the home as either a lump sum, regular payments or a combination of the two. The plans have become more flexible in the last two years and more people, such as our case study, are now opting to draw down just a portion of the equity from their property.
Previously, equity release was typically used to finance holidays and home improvements, but the recession has sparked a rise in more urgent motives. In its report for 2008, KRS said a third of equity release plans sold in the UK were used to help family or friends, making it the fastest rising motivation. According to KRS group director Dean Mirfin, this is largely due to more people giving large chunks of the unlocked cash to their children. "Pensioners are obviously feeling the crunch but they are seeing the fact that their kids are feeling it even more. However, everything points to an increase in people using the money to repay their debts, particularly among the younger clients in their late fifties."
One reason for this, aside from the devastation wreaked on pension pots and household budgets by the economic crisis, is that more people are retiring before they have fully repaid their mortgage. Around 1.4 million homeowners over the age of 55 are paying off mortgages that have at least another ten years to run, according to research by mortgage website impartial.co.uk.
Kenny Findlay, mortgage director at Campbell Dallas Financial Services, said the company had seen an increase in enquiries about equity release as a way of easing the mortgage or debt problems. "People are using it to pay mortgage debts mostly but also other debts. However, it is poor financial planning to reach retirement age without having cleared the mortgage."
But Findlay stressed that equity release should be viewed as the last resort and not taken lightly. "If problems are looming, sit down as soon as possible to see what your options are," he advised. "Take into account family views, as others may suffer further down the line by not having an inheritance that they might have expected."
• Call 0800 531 6010 or visit www.keyrs.co.uk for a free KRS guide to equity release
Case Study: Family backed move to realise useable moneyLIKE many homeowners opting for equity release, Margaret Watson-Irvine had more than one reason for wanting to unlock the cash tied up in her main asset. And like a growing number of people, her decision to take the equity release route was partly driven by the burden of debt repayments.
"I wanted to revamp the kitchen but I also had a long-standing debt to pay off," said Margaret, 62. "By doing that I've been able to free up £150 a month that can amount to a decent nest egg if it is saved."
The equity release idea fermented after Margaret, of Stevenston in Ayrshire, read an advert about it. Her daughter then carried out some research on the internet and ordered an information pack from Key Retirement Solutions.
"I had two interviews with an adviser and talked through everything with him," said Margaret. "I also had the house surveyed and checked the insurance but it was all relatively easy."
She also consulted her son and daughter before going ahead, aware that it would affect their inheritance. "But my daughter has her own house and said there was no reason why she would need the money from mine."
Margaret took £20,000 of equity out of the property late last year, nearly a fifth of its current value. "I wouldn't have liked to take more than that and I don't think I will go down that route again in the future. The jobs I wanted done are done and if I ever decided to sell, the improvements will increase the value of the house."
The full article contains 859 words and appears in The Scotsman newspaper.
