Almost half, 48 per cent, of final salary pension holders have voiced their interest in releasing equity in their home to boost their retirement savings, while 27 per cent of personal pension savers would do the same, Hoxton Capital Management has found.

The financial advice firm noted that with the average individual’s total pension pot at around £210,000 and the actual amount needed to maintain their way of life in retirement at around £360,000 for UK residents and £480,000 for UK citizens living overseas, many are looking to equity release.

The Equity Release Council noted that over £3bn worth of equity was released by older home owners last year, while over 37,000 new customers signed up and over 55s withdrew almost £8m a day from their homes.

Hoxton Capital Management managing partner Chris Ball observed: “We have estimated the average UK pension pot to be around £210,0000 even though it needs to be closer to £300,000 to provide individuals with a viable annual sum for retirement. People are now increasingly using equity release as a way of bridging that gap.”

Ball added that while an estimated £1.7trn is tied up in equity in the homes of UK citizens over 65, there are a number of disadvantages to equity release that could leave pensioners worse off. He explained that taking a £50,000 sum from their property could cost the retiree as much as £133,000. While interest rates currently stand at 5.18 per cent, rises over the coming years could cause equity release to rise up to 7 per cent per annum. Therefore, £50,000 of borrowing could cost the retiree £166,000, up £33,000 from the present rate.

Ball highlighted: “If interest charges build and you live for a long time after taking out a lifetime mortgage, total debt could also eventually exceed the value of your home. That’s why it is also advisable to look for no negative-equity guarantees, so that family will not have to repay more than the property is worth when the scheme ends.”

Considering why equity release has undergone increased demand, contributing factors include: final salary pensions no longer being as prevalent so more people will not have a guaranteed income for life, as well as the fact that the baby boomer generation has committed less of its savings to pensions. This is heightened by the cost of living increases that have outstripped wage increases.

Although the considerable increase in UK house prices over the past 20 years has led to real estate being the biggest asset for many – where they can draw the greatest funds from, not enough people are aware of the costs associated with equity release, Ball warned.

“People don’t seem to realise that their house will need to be given a valuation by a qualified chartered surveyor and they will also need to pay for professional advice when applying for an equity release scheme.”

Ball added: “The higher your income, the less benefits you will be entitled to receive so where you many gain on the one hand, you will lose on the other. Most people who use an equity release scheme lose their benefits, which can put them at a real disadvantage.”

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