One in three homeowners taking a lifetime mortgage in retirement uses the money to pay off their mortgage or consolidate their debts.
Exclusive figures from equity release lender One Family reveal one in five lifetime mortgage borrowers needs the money to clear their mortgage. A further 14 per cent pay off credit cards, loans and other forms of debt.
It comes as figures from the Equity Release Council revealed the number of retirees aged 75 to 84 taking out equity release loans shot up 48 per cent in the past year, with 3,400 homeowners releasing cash from their homes in the first six months of the year, up from 2,300 last year.
Some 69 per cent of those over 75 show characteristics of being financially vulnerable
Earlier this month the City watchdog warned that half of all UK adults were at risk financially while 15 million working-age adults were failing to save into a pension.
Among the worst hit, according to the Financial Conduct Authority’s study of 13,000 UK adults, are those over the age of 75 with 69 per cent showing characteristics of being financially vulnerable, rising to 77 per cent of those over age 85.
The new equity release figures suggest rising numbers of retirees are opting to spend the wealth accumulated in their homes.
While inflation at close to 3 per cent is driving up the cost of living and annuity incomes remain squeezed by rock bottom interest rates, house prices continued to rise in August, adding more than £1,000 in just a month.
The price of the average UK home rose by 0.5 per cent, or £1,180, between July and August to £225,956, slowing down slightly from July’s 0.7 per cent growth, according to the Office for National Statistics.
On an annual basis, price growth accelerated to 5 per cent, with the average property becoming £11,000 more expensive than in August last year.
| Reason for taking a lifetime mortgage | Percentage |
|---|---|
| Buy a new property | 3% |
| Clear existing mortgage | 20% |
| Consolidate debts | 14% |
| Gift to family | 10% |
| Help with day to day living | 9% |
| Holidays / travel | 5% |
| Home / Garden Improvements | 17% |
| Other | 21% |
| Tax planning | 1% |
| Source: One Family |
Georgina Smith, from OneFamily, said: ‘Wealthier homeowners are increasingly using lifetime mortgages as they see the advantage of using their property to fund their retirement.’
While incomes might be strained with many of these borrowers relying on expensive credit to live when salaries stop, Smith argues that the borrowers she sees have significant wealth tied up in their homes.
‘The properties we are lending on are generally significantly above the average cost of property both nationally and regionally,’ she said.
‘We are also seeing increasingly diverse reasons for people to access this capital, and many more accessing it to fund what could be seen as relative luxury activities such as travel, buying second properties, and helping younger family members get onto the property ladder.’
The third quarter of 2017 saw a £2billion increase in the potential amount of wealth available to over-55s in the UK through equity release, according to Retirement Advantage research.
The increase to £375billion represents a 2.7 per cent increase year-on-year, driven by strong house price growth over the past year in the East Midlands (5.1 per cent), South West (4.8 per cent) and the West Midlands (4.6 per cent).
London house prices however fell for the first time in nearly a decade, by 0.6 per cent.
Alice Watson, from Retirement Advantage Equity Release, said: ‘While the slight decline in London house prices may raise some anxieties around the stability of the housing market, particularly at a time of uncertainty around Brexit negotiations, it is crucial to remember that it comes after a long period of significant growth in house prices.
‘As a result, there is substantial wealth available in equity that will likely remain robust, even if prices start to dip or we see a rise in interest rates in the coming months. These figures show that there is still strong growth in house prices in most regions across the country, not just the South East.’
She added: ‘Many are in a position where their pensions don’t provide enough for a comfortable retirement. Equity release can provide them with the opportunity to use the wealth built up in their property to make home improvements, go on holiday or clear existing debts, while still being able to protect a proportion of the value of their home as inheritance.’
>> 10 steps to consider before equity release: Could releasing money from your home help your retirement?