Money
Retirement
Equity released to ease financial pressure
Homeowners releasing equity in their property are doing so earlier in life, and using the cash lump sum to clear debts, says a new study
The average age of people signing up to equity release plans, which allow you to take a cash out of your home but keep the right to live in it rent-free until you die, has fallen for the second year in a row - from 69 to 68 years.
The report says a massive 40 per cent of people use the money to pay bills, debts or outstanding mortgage repayments.
"The second fall in the average age of an equity release consumer confirms our prediction last year that, as an increasing number of retirees do not have sufficient funds to live comfortably in retirement; more and more are turning to the assets tied up in their homes to supplement their income," said retirement expert Dean Mirfin.
During 2007 the total amount of equity released rose by a quarter to just under £1.4 billion in 2007, compared to just over £1.1 billion in 2006.
One in three use their equity to go on holiday and five per cent use the money to fund their care needs or pay for medical care.
The appeal of the drawdown option - whereby a consumer 'draws down' the cash in stages - remained high in 2007 with the number of plans doubling compared with the previous year, accounting for over half of all plans compared to just a quarter in 2006.
Despite the global credit crunch with mortgage companies less eager to lend to risky borrowers, and speculation that the UK housing market is slowing down, Mirfin expects equity release to remain strong.
Mirfin said: "If in 2008 we do enter a period of zero growth in property prices, or even a downfall for some, then home reversion plans will become more appealing, and we can expect to see a rise in take up as consumer confidence grows."
Home reversion schemes involve selling part of a property - usually at less than its market value - at a fixed price to a company in return for cash and the right to remain resident until death.
The other kind of equity release is a standard lifetime mortgage, where a lump sum is paid, based on the value of the property. The interest then rolls up and is repaid, with the capital sum borrowed, when the homeowner moves out or dies.
Drawdown is available on either schemes in many cases.
* Written by Holly Thomas. Holly is Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
