Karen Noye, of financial adviser Quilter, said take up of equity release was ‘soaring’ but it was essential people used these products the right reasons.
The warning comes after a Freedom of Information request by Quilter revealed 29% more lifetime mortgages were sold in March than they were in the same month a year earlier.
In March 2022, 5,052 lifetime mortgages – which are a form of equity release – were sold compared to 3,930 in the same month in 2021, according to the Financial Conduct Authority (FCA).
Recent reports have suggested increasing numbers of equity release customers are using the product to help keep up with the rising cost of living.
A lifetime mortgage is a type of equity release, a loan secured against your home that allows you to release tax-free cash without needing to move out. Lifetime mortgages are available to homeowners aged 55 or over. You can take the money as a lump sum or as series of lump sums.
A lifetime mortgage is just one type of equity release. The other product, a home reversion plan, enables homeowners to raise money by selling all or part of their property while continuing to live in it until they die or move into permanent residential care.
Karen Noye, mortgage expert at Quilter: “These figures show that equity release is soaring in popularity. While there is a place in the market for these types of products its essential that people use them for the right reasons.
“The cost-of-living crisis is biting, and it is worrying to think that people are ripping equity out of their homes just to pay their monthly bills.
“One of the benefits of equity release is that if you don’t want to leave your home then this product can allow you to release capital but still live in your property.”
Choosing the right type of equity release plan
Karen explained there were some risks involved in taking out equity release and, as such, it was vital to get advice before proceeding.
“Lifetime mortgages do carry a significant risk that you may end up owing far more than you borrowed when the home comes to being sold,” she added.
“This is because this type of mortgage charges compound interest and if you don’t keep up with regular payments then the entire sum will compound.
“Therefore, you should be cautious when working out whether this product is right and make sure you seek professional advice to decide if it’s the right choice.”
It is a requirement that everyone considering equity release must get advice from a professional advisers before proceeding.
The Equity Release Council which regulates equity release providers, has a ‘no negative equity guarantee’ to which all its members must adhere. It means, your estate will never owe more than the property is worth when sold.
