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Over 55s use equity release to pay off debt

Paloma Kubiak
Written By:
Paloma Kubiak

Half of equity release customers still owe money on their mortgages, and almost one in four use home equity to repay credit card debt, research reveals.

Key Retirement’s internal data for the nine months end September 2017 showed an increasing number of pensioners are using equity release to reorganise their finances and cut debt burdens.

According to the financial specialist, equity release is proving a popular strategy for over 55s to clear outstanding mortgages: 45% of equity release customers still owe an average balance of £85,119 on their mortgages.

However, pensioners also hold other forms of debt: 24% owed money on credit cards, while 23% owed money on personal loans – a phenomenon, Key Retirement said, that illustrates the reliance on borrowing to boost incomes in retirement.

As a result, monthly repayments are the source of a “major drain on retirement finances”.

Customers with mortgages are making average monthly repayments of £762, while credit card borrowers are paying £289 a month. An average of £310 a month was also paid to service other types of loans.

Dean Mirfin, group product officer at Key Retirement, said: “Debt repayments take a major bite out of monthly incomes with many pensioners having to set aside cash to fund debts which they can clear by taking equity release plans which do not require monthly repayments, with the loan repaid on death or a permanent move into care, when the property is sold.”

Debt levels on the rise

The research also showed an increase in average debt levels compared to the same period in 2016. According to Key Retirement’s data, the average mortgage balance has jumped up by £4,550, with servicing costs increasing by £369.

Meanwhile, the average credit card balance has risen by £93, but the amount paid monthly has actually fallen by £138.

“Pensioners are clearly struggling with debts and the continuing interest-only mortgage repayment issue is only adding to the pressure.

“The increase in monthly repayment levels for mortgage may be indicative of the fact that we see many with interest-only mortgages overpaying to repay capital or many borrowers being on lenders’ standard variable rates,” said Mirfin.

However, he noted: “The advantage that retired homeowners have is they’ve benefited from strong house price growth and have considerable wealth tied up in their homes which they can use to clear serviceable debts and to substantially improve their standard of living.”