Many pensioners and older homeowners are releasing equity from their homes to pay off unsecured debts.
The number of pensioners taking out equity release plans rose by 41 per cent in the last year, with the sum paid out reaching a total of ?3billion
According to retirement advice firm Key Retirement, 38,955 households were recorded as having taken out an equity release loan in 2017, with over 30 per cent using the funds to repay unsecured debt.
Chief product officer at Key Retirement, Dean Mirfin, said: ?Many of these homeowners will have retired with no debt at all. But then something goes wrong, like the boiler breaks down or the car needs work, and without a savings buffer they are forced to put it on a credit card.’
He continued: ‘Then this happens again, and again, and soon they are in a lot of debt. So actually it is often the older people we speak to who tend to have the highest credit card debt because they?ve had more time for it to accumulate.’
Equity release is becoming an increasingly popular method of supplementing income in retirement. It allows homeowners to borrow money from the value of their homes, which need only be paid when the property is sold when they pass away.
However, while many last year took out policies to boost their lifestyles, thousands did it just to get by, the new figures from Key Retirement?s Equity Release Market Monitor suggest.
Whilst home improvements is the most common reason for equity release cited by 64 per cent of people, followed by holidays at 33 per cent, the fact that clearing debts such as loans or credit cards follows close behind at 31 per cent has become a concern.
Treating or helping family or friends was cited by 24 per cent, whilst 22 per cent used the money to clear the outstanding mortgage and 12 per cent just for help to get by with regular bills and expenses.
An average of ?77,380 was taken in equity release in 2017, but the figure varied greatly by region. Londoners took the most cash from their homes at ?133,700 on average, compared with around ?49,000 in Scotland.
The most common age bracket to opt for equity release was 70-74, making up almost a third (32 per cent) of all applicants.