Equity release schemes, or lifetime mortgages, enable the elderly to release equity from their homes to help fund their retirement. But Which? believes that these are high-risk products and the way some of them are advertised is irresponsible. For example, Norwich Union suggests its scheme could pay for a trip to New York or ‘something for the family’.
Which? has worked out that borrowing £80,000 through a typical lump sum roll-up equity release scheme on a £350,000 property could end up costing £256,570 after 20 years, or £343,350 after 25 years. And if somebody took out the minimum loan of £15,000 with Norwich Union, in ten years they would owe around £28,000.
Malcolm Coles, editor of Which?, says: “If you’re over 60 and worried your pension won’t be enough to live on, an equity release scheme might seem like a good idea. However, think long and hard before committing to one of these high-risk products.
“Lenders want to sell you a lifestyle dream, but the reality can be very different. These schemes could turn into a financial nightmare which can stay with you the rest of your life.”
