A new study has revealed a hike in the number of people over the age of 55 who need to withdraw money from their property to make ends meet. In the second half of 2015, older homeowners released £898 million in equity - the largest of any six month period on record. This takes the total released since 1991 to £17 billion.
The figures. from eMoov, reveal a massive shortfall in retirement incomes. The company blames this on a number of things. First, people are retiring with a number of debts, including a chunk of their mortgage. They may use their tax-free lump sum from their pension in order to pay this off, but it means they have raided their pension pot, and have to live on a lower monthly income as a result.
There's also the tremendous cost of care, which very few people feel able to plan for. When faced with enormous bills and very few assets, later in retirement, their property is the one thing that people can use in order to pay care bills. For those who are not ready to sell up or move out, equity release becomes a serious consideration.
Equity release normally works as a lifetime mortgage, where you borrow sums against the value of your property. This differs from a normal mortgage, because instead of having to repay every month, the interest rolls up and has to be repaid when you sell up or die.
Founder and CEO of eMoov.co.uk, Russell Quirk, commented: "There has been a dramatic increase in the number of over 55s, particularly those 85 and above, having to draw equity from their property in order to survive due to the ever inflating cost of living in the UK."
"Although record low-interest rates are good news for those struggling to get on one end of the ladder, it's not the case for those at the other end who have seen the interest accrued on their life savings dwindle with the cut in rates."
"With savings rates ever lower, it's evident that income from pensioner's savings is under pressure and therefore necessitating that 'grey' equity within such housing is being increasingly turned to in order to make ends meet."
Anyone considering equity release needs to appreciate that it's not without cost. The interest on your loan will roll up during your lifetime, and in many cases you will end up repaying a far higher sum than you borrowed. Most policies nowadays are capped, so you cannot end up owing more than your property is worth, but in effect you could end up borrowing a chunk of the value in your home and having to repay a sum equivalent to the entire value.
This may suit you, but you need to make the situation clear to friends and family members, who may be expecting to inherit. The fact that you are still living in your home may lull them into a false sense of security that you must still have significant equity to leave them in your will.
It's not the only option either. While some people have very good reasons for not wanting to leave their family home, others cannot wait to downsize to something smaller, cheaper, and far easier to manage and maintain. For them downsizing may free up the sum of cash they need - and reduce their monthly outgoings enough - to help them make ends meet.