Pensioners turning to equity release in record numbers to deal with cost of living crisis

IF you are a homeowner over the age of 55, then equity release could be an attractive option. It is a way of using the value of a house to gain a lump sum.

And it is certainly growing in popularity. Figures released this week by the Equity Release Council show that over 12,000 plans have been agreed between April and June this year – a 26 per cent increase on the same period last year.

This is hardly surprising, given the ever-growing pressure on household budgets.

Adverts for equity release schemes certainly make it sound like a no-brainer, emphasising the chance to generate tax-free cash, whether that is for a new kitchen or extension, or simply to cope with rising costs.

These release schemes have also been aided by an increase in house prices.

The average amount withdrawn stands at £125,000, up from just over £105,000 in 2020. But beware: if house prices fall or stagnate (and there have been tentative signs of this recently), you may find that your debt grows at a faster rate than the value of your property, which reduces your overall equity.

So, if you are looking at equity release schemes, there are three fundamental questions you should be asking yourself.

First – will you have enough income to live on in retirement? Second – is downsizing a viable option? And third – is passing a large inheritance on to your family important to you?

If the answer to any of those three questions is “yes”, then equity release is unlikely to be your best option. Borrowing via equity release is not cheap and if you do not have enough income to cover your costs in later life, then you may run into financial difficulties.

Personal loans or an interest-free credit card are likely to be cheaper options overall if you want to fund bigger purchases.

For those on lower incomes who are borrowing for home improvements or conversions to deal with disabilities, you may be able to access a local authority grant.

It is worth looking at the Government’s website to see if you are eligible.