Debt Burden Of The Elderly

The Equity Release Council (“ERC”), the body set up to safeguard the interests of consumers entering into equity release plans, has cautioned that the increasing cost of living is putting a severe strain on the finances of the elderly, and in too many cases causes them to take on unsecured debts.

Nigel Waterson, the Chairman of the ERC, stated that “it is a real concern that ever more over 50s are turning to solutions that result in persistent debt.” The cost of unsecured borrowing can be exorbitant as illustrated by recent media reports on Pay Day loans, and overdrafts and credit cards.

There is little, if any, evidence that restrictions on the availability of credit following the credit crunch have reduced the level of debt shouldered by those aged over 55. Indeed, nearly one third of equity release consumers make use of Lifetime Mortgage and Home Reversion Plans to bolster their incomes by repaying debts, many of which will have been taken out to fund day to day living expenditures.

With the protections offered by the Equity Release Council Code of Conduct, an Equity Release Plan can offer hard pressed elderly consumers a positive way forward because the interest rate will be fixed for life (currently approximately 6-7% per annum). Moreover, no capital repayments will normally be required for life, and unaffordable interest or rent payments need not be made.

In the current tough financial climate for those at or in retirement, it is not surprising that the Equity Release market grew strongly last year. There is an extensive choice of Equity Release Plans in 2014 offering security, flexibility and value.

Some of the options that modern Lifetime Mortgage and Home Reversion Plans provide include:

  • Enhanced loan to values for many health and lifestyle conditions
  • Cash reserve facilities
  • Fixed interest rates for life
  • Interest Only payment alternatives
  • Free valuation and cash back options
  • No early redemption charges on partial repayments
  • No affordability checks
  • Full ERC/SHIP safeguards

With so much choice available, it is normally beneficial to have a home visit from a specialist equity release adviser who can explain the specific features of each Equity Release Plan.

Some equity release advisers only offer Plans from a restricted panel of providers or indeed in some cases, only their own plan. This restriction does not apply if consumers make use of a firm like Bower who offer independent specialist financial advice.