Paying back unsecured debt was among the third biggest reason for retirees to use lifetime mortgage in 2014, according to an analysis by equity release specialist Stonehaven.
The top reason for 55+ homeowners to choose this type of mortgage was to clear an existing one, Alice Watson, marketing manager of Stonehaven, said the analysis of the company’s customer needs revealed.
“Many in this generation are facing a double financial whammy of declining incomes due to low interest rates and smaller pension savings with large mortgage debts at retirement,” Watson said, commenting on the latest Pensioner Debt Index of the Equity Release Council, published today.
“With the average retiree sitting on housing equity of around £200,000, using a lifetime mortgage to clear debts can be both a comforting and practical long-term solution. Over recent years, products have become more flexible, allowing borrowers to service the debt at the same time as benefiting from the loan. As we look towards the more flexible pension’s environment being introduced in April, it’s ever more vital for older homeowners to consider their property within the overall retirement planning mix,” Watson added.
Nigel Waterson, chairman of the ERC, has also emphasized on the benefits some equity release plans could offer retired homeowners.
“Long term house price growth has left many older homeowners sitting on a personal property fund that can transform their financial outlook in later life. Equity release should be considered across the board as one of a variety of options on the table, so people make the right decisions and use all their available assets to secure the most comfortable retirement possible,” Waterson commented.
Financial woes in 2014 have left homeowners aged 65+ with 16 per cent more unsecured debt than a year ago.
“The cold hard fact of making ends meet for the new generation of retirees is that many need to supplement their income by leaning on additional sources of finance, such as credit cards, personal loans and overdrafts,” Watson said.
The ERC data shows that retires would mostly prefer to use their savings to fill in the gaps in their finances, however, 9 per cent have no savings, 17 per cent have less than £5,000 set aside and 22 per cent have less than £10,000 in their savings pots.
