Older homeowners turning to property wealth to tackle debts

Forty-one per cent of all equity released in the first half of 2020 was used to pay off debts, according to new analysis from Key.

The equity release adviser suggested that older homeowners used their property wealth in H1 2020 to “retirement-proof” their finances.

Research showed that over 40% of the entire amount of new equity released, worth a total £588m, was used to clear some form of borrowing – with mortgages (53%) followed by credit cards (47%) and loans (36%) being the most common repayments made.

Key also found that borrowers owed £53,388 on their mortgages, £11,640 on credit cards and £12,728 on loans. Average monthly repayments on mortgages for customers aged 55 and over are around £139, while credit card customers are repaying £292 a month, and customers with loans £266 a month.

With 56% of equity release plans allowing ad hoc capital repayments and 38% facilitating regular payments to service interest and therefore avoid costly roll-up, Key suggested that customers can find they are able to better manage their borrowing through appropriate use of these flexible product features.

“While most people want to reach retirement debt free, this is simply not the case for everyone – especially those who have taken out interest-only mortgages and now often face finding a substantial lump sum to repay the balance,” said Key CEO, Will Hale.

“In H1, over £500m worth of borrowing was repaid using housing equity – allowing people to retire with confidence, without the burden of needing to make regular monthly payments or facing the prospect of having to sell their home
“With equity release rates starting from under 2.5% and many products allowing ad hoc capital repayments or ongoing interest repayments, these flexible plans allow people to proactively manage their borrowing and shore up their finances. Something that is arguably more important than ever given the current economic uncertainty.”

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