Homeowners in the United Kingdom over the age of 55 released 3 billion pounds in equity from their homes in 2017, setting a record, according to findings from retirement advice company Key Retirement and reported in the Daily Mail.
As with reverse mortgages, equity release borrowers do not need to make monthly repayments and the interest is rolled up over time. The debt is paid upon the death of the borrower or the borrower going into a care home; the arrangement means the debt typically doubles every 12 years, the article said.
The amount that older U.K. adults borrowed against their properties in 2017 rose by 40%, or more than 8 million pounds of equity per day last year, the numbers indicate. Of the 38,995 homeowners who took out a so-called equity release loan in 2017, almost two-thirds used at least a portion of the funds to pay for home improvements.
The loans are becoming more popular with people grappling with debt, with Key Retirement’s research showing homeowners who used equity release in 2017 to clear their mortgages had an average of 84,000 pounds of debt outstanding.
Almost a third of homeowners who took out equity release used at least part of the money to pay off credit cards and other loans, while more than one-fifth were retirees having difficulty in paying off interest-only mortgages. In addition, 1.9 million homeowners face eviction in the next 15 years unless they can retire such mortgages, the Daily Mail noted.
“Typically, we’re finding that people don’t tend to enter retirement with large amounts of debt, but that it racks up once they finish working,” Dean Mirfin of Key Retirement told the publication. “That’s because many people still live the lifestyles they did when they were working even though they have less cash coming in.”
As in the United States, some experts are skeptical of the loans, with a financial advisor telling the Daily Mail that the products should be “seen as a last resort.”
“It’s exceptionally worrying that so many people are having to resort to these loans because they are struggling with debts,” advisor Justin Modray told the paper. “It shows that as a nation, we are obviously bad at managing our finances.”
Written by Maggie Flynn