Home equity release comes under the microscope
As the UK recession continues to hit many areas of society, with pensioners particularly hard hit, a number of experts have highlighted problems in the home equity release market. This is the very useful service whereby homeowners are able to use equity in their properties to draw down money they may require in the short term, and payback as you would a normal mortgage. However, while the average amount borrowed against property has risen to some £48,000, there is some debate as to the best route available.
Interest on a typical £55,000 lump sum equity release loan at 6.5%, against a drawdown plan which would only release capital when required, could over a 15 year period cost homeowners an extra £15,000 in interest. When you consider the pensioners sector has for some time been the main "beneficiary" of this particular area of business this could leave many pensioners in serious financial trouble in years to come.
It would appear that many homeowners of retirement age are taking out significant lump sums against their property equity when maybe the whole amount is not required in the short term. By drawing down funding as and when required, this would reduce the interest charge and overall amount to be repaid. Over a 15 year period, as we have highlighted above, there are significant savings to be made with a drawdown plan against a lump sum extraction. As ever, financial advice should be sought before you sign up to any equity release plan.
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