Scots lead the way as equity release figures rebound

Published on Friday 9 October 2009 19:40

MORE pensioners in Scotland are unlocking cash from their homes to pay down debts than elsewhere in the UK, research out next week will show.

The number of Scots using equity release plans to free up the capital tied up in their property rose in the three months to the end of September, according to a report out on Monday from adviser Key Retirement Solutions (KRS).

It recorded a 26 per cent increase in Scots using equity release plans, compared with the previous quarter, and a 43 per cent hike in the value of equity release.

The figures contrasted with the trend in most areas of the UK, according to KRS group director Dean Mirfin.

"The percentage increases in both the value of lending and number of plans are considerably higher in Scotland than the UK average," said Mirfin. "It reflects the fact that Scottish property values tend to be more stable than in the rest of the UK."

Equity release plans are aimed at those aged 55 or over who want to access the money tied up in their home. Most schemes allow homeowners to borrow money against the value of their home, with the debt repaid from the sale of the property after they die. There are two types of equity release, both of which are regulated. Under home reversion plans, the home is sold, below the market value, to an insurance company in exchange for a lump sum payment, while lifetime mortgages involve a loan being taken out against the home as either a lump sum, regular payments or a combination of the two.

Scots released an average of 32,610 from a typical property value of 174,659 in quarter three, according to KRS, which publishes its UK figures for the period on Monday.

The most significant shift in recent months has been a growth in borrowers using the funds to repay debts including mortgages and credit cards. "More people are focusing on clearing their debts as debt repayment makes up a bigger proportion of income for people in retirement," explained Mirfin. "The burden of debt is heavier for pensioners so when they get rid of it the impact is more noticeable and has a big affect on their standard of living."

Scott Pentleton, director of Alpha Wealth in Edinburgh, said the downturn had forced more elderly people to consider equity release.

"Interest on their savings is negligible with BOE base rate at 0.5 per cent, dividend income on many shares is suspended, equity values have collapsed and despite the recent market recovery many are still some way off their past highs," he noted.

And if property prices take time to recover, pensioners may opt to repay debts and enjoy their life now rather than struggle on, Pentleton added. "My experience, particularly in Edinburgh, is that there are many more enquiries regarding lifetime mortgages and that they are predominately enquiring about ways to supplement or replace lost income to ease financial pressures," he said.