According to new research conducted, up to half of older homeowners are now using equity release in some form in order to help make debt repayments.
The study shows that approximately 30% of people aged over 55 are releasing equity in their properties in order to help pay back unsecured debt such as credit cards and loans. Meanwhile, an additional 20% are using equity release to help them with mortgage repayments. Data from Equity Release Online shows that the remainder of households are using equity release for home improvements and gifting to other family members.
Is debt becoming a bigger issue?
The research carried out by the equity release advisor suggests that is the case for homeowners over the age of 55. The average person who falls into this category has approximately £10,319 credit debt, and approximately £13,578 of loan debt.
This constitutes a considerable amount of debt compared to the national average, which is approximately £11,830 of unsecured debt. In some cases, older homeowners may have more than double the average amount of debt, which may be one of the main reasons why they use equity release in order to release them from this burden.
What type of debt is the biggest problem?
According to the data, the biggest single debt for outstanding mortgages amongst those using equity release. The average owed for customers clearing home loans totaled to £87,181.
What’s more, the study also reveals that the debt accumulated also depends on the age group. For example, homeowners in their 60s tended to owe more on their credit cards than homeowners in their 70s, owing approximately £10,926 and £9,773 respectively.
The problem of carrying debt into retirement
Deciding to use equity release to help reduce debt makes sense, given the issues that can arise by being in debt once you have reached your retirement years, especially when it is most likely you are on a fixed income.
For example, the cost of having to make debt repayments in your later years can have a big impact on your potentially limited income. On average, customers over the age of 55 who were still paying off their credit cards have to pay approximately £300 each month. When it comes to unsecured loans, older homeowners have to pay around £282 and the amount to pay for mortgage repayments increases to around £586.
These figures show that these different types of debt can take out a huge portion of a pensioner’s income. This is especially the case for those who rely heavily on the UK state pension, which comes in at just £730 per month. Furthermore, these debt repayments are on top of having to meet other regular costs such as utilities, housing and other living expenses.
For any questions, visit the National Debtline for advice relating to equity release and debt.