If you had the opportunity to release tax free funds from your home, what would you spend them on? Perhaps a once in a lifetime trip around the world? Or maybe on those home improvements you’ve been meaning to get started for months. Thanks to the current climate, it seems that those who are exploring equity release, aren’t spending their money in a way you’d think.
What is equity release?
Simply put, equity release is a way for homeowners over the age of 55 to release tax free money from their home. This cash is tied up in their property and can be released in the form of a lifetime mortgage or a drawdown lifetime mortgage. There are a number of benefits to equity release, and often people who are either in retirement or are approaching, explore it as a way to become more financial “well off”.
Although many use the money for expensive holidays, a new kitchen or an extension, or even to help family members out with deposits for houses or towards university fees, it seems that many are now looking towards equity release as a way to pay off their existing debts instead.
How much of our equity release are we spending on debt?
According to research by equity release advice service specialists, Key Advice, two-fifths of all equity released in the first half of 2020 was used to pay off debts. They found that older homeowners are using their property wealth to retirement-proof their finances.
Around £588 million was used to clear borrowing, with mortgages (53%) followed by credit cards (47%) and loans (36%) being the most common repayments made.
Will Hale, CEO at Key said “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. In H1, over £500 million 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 adhoc 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.”
But, out of all these homeowners who are paying off their debts with equity release, does where they live mean they’re likely to clear these debts more or less?
Yorkshire and The Humber
From the study, it seems as though those in Yorkshire and Humberside are spending the largest proportion of their equity to repay debt. Around 49% of 55s in this region are using their tax free cash to pay off their mortgage (67%), credit card (13%) and any outstanding loans they have (9%).
The North West
The North West was equally among one of the higher regions, with 40% of over 55s repaying their debt with equity release. 59% of this money went towards paying off mortgages, 19% on credit card debt and 10% on loans.
The North East
The next northern location is in fact the lowest region. Only 29% of over 55s are spending a percentage of their equity release proceeds on debt. With 41% being spent to clear mortgages, 19% on credit cards and 19% on loans, are those in the North East more likely to spend their equity release on home improvements or holidays instead?
