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Fear people are ‘ripping equity’ out of homes to cover monthly bills

Paloma Kubiak
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Paloma Kubiak

Lifetime mortgage sales are soaring but there are concerns that homeowners are ripping equity from their property just to cover their monthly bills amid the cost-of-living crisis.

The number of lifetime mortgages sold in March 2022 totalled 5,052, a 29% increase on the same month last year when the figure stood at 3,930 across all loan to value (LTV) bands.

A lifetime mortgage is a type of equity release for homeowners aged 55 or over. It is a loan secured against your home that allows you to release tax-free cash without needing to move out. Typically, interest accumulates over time and is repayable when you die, or move into long-term care and sell your home. See YourMoney.com’s Lifetime mortgage guide for more information.

According to figures from the Financial Conduct Authority (FCA) obtained by wealth manager Quilter, based on the first three months of this year, the average number of lifetime mortgages sold is already 31% up on 2020. And it is 21% higher than 2021. 

The most popular LTV band is 10- to 20% with an average of 988 mortgages sold at this tier each month since 2020. 

By comparison, just 53 lifetime mortgages have been sold on average at the 50- to 60% LTV tier over the same period. 

Karen Noye, mortgage specialist at Quilter, said: “These figures show that equity release is soaring in popularity. While there is a place in the market for these types of products it is essential that people use them for the right reasons. The cost-of-living crisis is biting, and it is worrying to think that people are ripping equity out of their homes just to pay their monthly bills. 

“One of the benefits of equity release is that if you don’t want to leave your home then this product can allow you to release capital but still live in your property. However, lifetime mortgages do carry a significant risk that you may end up owing far more than you borrowed when the home comes to being sold.” 

She added: “Therefore, you should be cautious when working out whether this product is right and make sure you seek professional advice to decide if it’s the right choice.” 

The figures come after the regulator, the FCA last month warned that the rising cost of living may place older borrowers more at risk of buying unsuitable equity release or lifetime mortgage products.

Further, average lifetime mortgage interest rates have breached 5% for the first time since 2019, putting equity release pricing at its highest for six years.