Equity release schemes more widely available

Many older people with little savings, adequate pension provision or ready cash turn to equity release schemes, using the money tied up in their homes to fund their retirement. However, lenders in this area are actually loosening their lending criteria, while everyone else is tightening theirs in the wake of the global credit crunch.

Companies in the equity release sector are lowering the minimum age limit that people can apply, from 60 to 55 and at the same time increasing maximum loan to values making many hundreds of thousands of homeowners newly eligible for the loans. But, with the reduction of the minimum age comes a warning from expert analysts in the sector. They are concerned that while releasing equity earlier in life might solve short term problems for borrowers who need income, the amount of interest paid on the loan will be significantly greater if take out at a younger age.

Comparison figures from Moneyfacts suggest that someone releasing a modest sum of £50k equity at age 55 will see that debt grow to £241,000 by the time they are 80. That represents a sum almost five times higher than the amount originally borrowed; certainly an expensive method of borrowing!

By dropping the minimum age at which people can apply, lenders are now including the majority of the ‘baby boom’ generation within their target market. A significant element of that age group have the majority of their wealth tied up in their homes, following decades of rising house prices and they may well be tempted by equity release schemes.

However, many experts have raised an eyebrow or two that in times of such restrictive lending, and with the first signs of property prices falling, providers of equity release schemes should ease their lending criteria. It could be seen that lowering the minimum age is designed to draw people into the scheme that may not be treated favourably by other mainstream lenders, under current restrictive trading conditions. Perhaps those between 55 and 60 with a less than perfect credit record, but who are overwhelmed by debt and desperate for funds to act as a debt consolidation loan, would be tempted by such a scheme. If so, they should be fully aware of the true cost of this product and would be advised to make sure they have considered all other options first. It might appear to offer an immediate solution to their financial woes, but it could turn out to be the most expensive loan the applicant has ever taken out.

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