Homeowners using equity release to pay off debts

Nearly half (49%) of equity release customers used money from their property to pay off their mortgage between July and September this year, research from Canada Life reveals.

According to the research, a further 23% used money gained through equity release to consolidate unsecured debt. While many used the money to manage their finances, a significant proportion used the wealth gained from their properties to improve their quality of life, with 41% using the money for home improvements to add extra value to their property or for enjoyment. In addition to this, 21% used the money for holidays and 13% to buy a new car. A small number, 12%, used equity release as a way of providing a gift to family.

Equity release is available to retirees and allows them to release money from their properties by taking a loan out using equity in their home. The loan does not need to be repaid during the borrower’s lifetime, unless they move into a permanent care home, and instead is paid back only when the property is sold. Before taking out an equity release loan, consumers are advised to speak to an independent financial advisor to ensure it is the right decision for their personal circumstances, as well as taking into account it will likely impact the inheritance they pass on.

Commenting on the research, Alice Watson, head of marketing and communications at Canada Life, said: “These figures show the continued appeal of lifetime mortgages to help with financial planning in retirement. We’ve seen the percentage of people using equity release to pay off an existing mortgage rise over the course of 2019 and with property values on the up, it’s a trend we expect to continue. But it’s not just for financial security. Many people are also using the products to fund home improvements and holidays and overall improve their lifestyles.”

She added: “With rising house prices and costs of living, it’s no surprise that some homeowners are wanting to share some of the wealth in their property with family members. Using equity release allows people to gift to their family, while still living in their property. In addition, it is also a useful tool for improving the efficiency of estate planning.

“As people continue to look for ways to improve their retirement lifestyle, and support members of their family through intergenerational wealth transfers, it’s important that advisers are aware of the different motivations involved in people’s financial plans. Equity release products can offer flexibility and security, freeing up some of the cash in their property to give themselves, or others, a financial and lifestyle boost.”