Pensioners are treating their homes like cash points by withdrawing more than £4 million a day from equity release companies.
Almost 5,500 pensioners took £385 million in equity release loans borrowed against the value of their homes between April and June.
This was 18% up on the first three months of the year and an increase of 11% on the same period last year, according to trade body the Equity Release Council.
Equity release is a specialist lending scheme for the elderly that allows them to convert some of the cash locked up in the value of their homes into cash.
The loan is not repaid until the pensioner leaves the home – either when they die or if they move into long term care. Then, any loan repayments and interest are repaid in full out of the value of their estate.
Lifetime mortgages
Most pensioners opt for a lifetime mortgage, which is a loan that allows cash to be drawn against the value of the home as a single lump sum or regular payments as and when the homeowner needs the money.
Many claim equity release is too expensive, as interest rates are much higher than mortgages for homebuyers below retirement age.
Some lenders charge rates of up to 7%.
Equity release is seen as an option by many asset rich/cash poor retirees who have little or no pension, suffering low returns on investments and savings or are trying to make ends meet on a low annuity payment.
The council reckons around 10,000 elderly homeowners have taken out equity release loans so far this year.
Reluctant to lend
Nigel Waterson, who heads the Equity Release Council, said: “With pensioners getting by on an average pension pot of around £25,000, they are clearly having a hard time financially.
“Although the government is encouraging retirement saving now, it won’t help them. However, many retirees have valuable homes and they can draw money against the value and enjoy the income without having to worry about repaying the money until they move on.
“It makes sense to use available assets to make life easier if you need the money and can afford the repayment at the end of the loan.”
Equity release borrowers take an average £68,500 in loans from their properties.
Banks and building societies are reluctant to lend to pensioners because of their low and uncertain incomes, said Waterson, so often they are left with no option other than equity release if they need to raise money to improve their lives.
