Rising cost of living sparks new surge in equity release

THE number of Scots using equity release plans to unlock money from their homes has jumped this year as worries over living costs continue to grow.

Scots over the age of 55 took almost 22 million out of their property in the first six months of the year, a 27 per cent increase on the same period in 2010, according to Key Retirement Solutions, an equity release adviser. There was also a 27 per cent jump to 589 in the number of new plans taken out in Scotland, the biggest increase in the UK.

Equity release plans are aimed at those aged 55 or over who want to unlock the cash tied up in their property. 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.

Around three-quarters of the plans taken out now are on a drawdown basis, where borrowers can take out as little at 10,000 from their property, with the option of pulling down more at a later stage.

The average equity release borrower in Scotland in the six months to the end of June was aged 68 and unlocked 37,297 from a home worth 167,429,

Scots taking out the plans in the six months to the end of June were far more likely than pensioners elsewhere in the UK to use equity release for help with regular day-to-day costs and unexpected expenses.

Almost six in ten equity release borrowers across the UK used the money primarily for home and garden improvements; in Scotland, that reason accounted for just one in four plans taken out.

Yet just 17 per cent of Scots taking out equity release in the first half of 2011 used it to repay debts, compared with a UK average of 31 per cent.

Dean Mirfin, group director at Key Retirement Solutions, said the evidence suggested that Scots are more inclined to use the money as part of their financial planning for the future, rather than for short-term spending such as holidays.

"Many may feel that, day to day, their retirement income can meet their needs, but require additional capital to meet the more costlier expenses which come along," he said.

He also argued that Scots have more confidence in property values than people in many areas of the UK, making them more likely to use equity release at a time when housing market activity is subdued.

Equity release borrowers across the UK unlocked 463m from their homes in the first half of 2011, leaving another 197m of equity still to be withdrawn.

The figures are published on the back of several recent reports underlining the financial difficulties facing many Scots in or nearing retirement as living costs rise. More than a third of over 55s north of the Border expect their standard of living to fall in the next three months, according to Aviva's Real Retirement report. It found that inflation is the biggest worry for eight in ten, while a quarter are increasingly anxious about their shrinking savings pots.

And Prudential research revealed that more than one in three Scots are finding it a greater struggle to get by financially in retirement than they had expected and are bridging the gap by taking on part-time work, downsizing their home or taking out equity release plans.