OLDER HOMEOWNERS TACKLE DEBT THREAT WITH PROPERTY WEALTH
21 August 2020
Two-fifths (41%) of all equity released in H1 2020 was used to pay off debts as older homeowners used their property wealth to retirement-proof their finances, new analysis from Key, the UK’s leading equity release adviser, shows.
OVER HALF A MILLION POUNDS WORTH OF EQUITY USED TO REPAY DEBT:
Over 40% of the total amount of new equity released – or £588 million - was used to clear some form of borrowing with mortgages (53%) followed by credit cards (47%) and loans (36%) being the most common repayments made.
Typically borrowers owed £53,388 on their mortgages, £11,640 on credit cards and £12,728 on loans. Average monthly repayments on mortgages for customers aged 55+ are around £139 while credit card customers are repaying £292 a month and customers with loans £266 a month which can be a substantial amount for someone on a fixed income.
While using income to repay borrowing can be a better approach in certain circumstances, this is not always possible for some over-55s who find that they either need to repay a significant and unaffordable lump sum –in the case of an interest-only mortgage – or are unable to pay much more than the interest on other borrowing. With 56% of equity release plans allowing adhoc capital repayments and 38% facilitating regular payments to service interest and so avoid costly roll-up, customers can find that they are better able to manage their borrowing through appropriate use of these flexible product features.
YORKSHIRE, LONDON AND WALES DEBT REPAYMENT HOT SPOTS:
Over-55s in Yorkshire and Humberside (49%), London (47%) and Wales (47%) use the largest proportion of the equity they have released to repay debt while those in the North East (29%) and Scotland (32%) use the least.
Londoners (76%) use more equity than any other region to repay mortgage borrowing – potentially due to the capitals high house prices – while those in Wales (24%) are most likely to repay credit card borrowing and those in the North East (19%) to clear loans.
Region |
% of ER Proceeds Spend on Debt | Mortgage | Credit Card | Loans | Overdrafts |
| South East | 41% | 69% | 9% | 11% | 1% |
| London | 47% | 76% | 11% | 6% | 0% |
| South West | 41% | 69% | 12% | 11% | 1% |
| North West | 40% | 59% | 19% | 10% | 1% |
| East Anglia | 39% | 66% | 15% | 15% | 0% |
| East Midlands | 33% | 71% | 14% | 13% | 1% |
| West Midlands | 39% | 63% | 18% | 14% | 1% |
| Yorks/Humbs | 49% | 67% | 13% | 9% | 1% |
| Wales | 47% | 58% | 24% | 14% | 1% |
| Scotland | 32% | 68% | 11% | 10% | 2% |
| North East | 29% | 41% | 19% | 19% | 9% |
| Great Britain | 41% | 68% | 13% | 11% | 1% |
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.”
Anyone looking to release equity from their home can get Key’s independent guide to equity release by calling 0800 531 6027 or visiting https://www.keyadvice.co.uk/equity-release/is-it-right-for-me