Pensioners releasing equity – to pay debts

More than a third of pensioners who have unlocked equity from their home have used the money to pay off debt.

Around 35 per cent of retired people who have taken out an equity release scheme said they had used the funds to clear other borrowings, while nearly half put the money towards essential repairs and 36 per cent used it for a holiday, according to Age UK.

The research, carried out for the charity by the University of Birmingham, found that people releasing equity could be divided into three distinct groups.

Hide Ad
Hide Ad

It said the first group were typically better off and tended to use the money they released to make early bequests or fund large one-off purchases.

The second group, who had lower levels of savings and pensions income than the first group, used the money to boost their financial security and enable them to have a better standard of living during retirement.

The final group used equity release as a last resort to get themselves out of financial difficulties. People in this group were much more likely to be in debt than those in the other groups.

The report found that while two thirds of people aged over 65 were homeowners who did not have a mortgage, many were living on low to modest incomes and struggling to maintain their property.

Hide Ad
Hide Ad

Some people who had taken out an equity release scheme said they felt that they had no option but to unlock the money to pay for repairs so that they could continue living in their home.

The charity expressed concern that many older people were finding it harder to maintain a decent standard of living from their pension, adding that the average age at which people unlocked equity from their home had fallen from 74 to 72.

It said the problem had been exacerbated by the economic situation, with inflation leading to a rise in people's living costs, at a time when income from savings had fallen.

The situation is being made worse by the fact that around one in four people who are approaching the state pension age still have outstanding debts.

Hide Ad
Hide Ad

Michelle Mitchell, Age UK's charity director, said: "Equity release is clearly a useful tool to ease financial pressures in later life but anyone considering it as an option should first seek good-quality information and advice."

Author of the report Louise Overton, of the University of Birmingham, said: "The research shows people take out equity release for a variety of reasons with increasing numbers using it to clear problem debt.

"But it does not play much of a role in lifting pensioners out of poverty. This suggests a need for more consideration of how those with very low incomes and limited housing assets might benefit from equity release."