The Equity Release Council is rubbing its hands with glee this morning. Its latest figures reveal £393.9 million was lent over the first three months of the year, making it the best first quarter on record. But it seems to me that this is no cause for celebration.
Equity release – or a lifetime mortgage – is somewhat of an extreme form of secured borrowing. It enables over-55s to borrow money against equity they have in their home and the cash can be used for any purpose the borrower likes, such as home improvements, holidays, new cars or helping their family.
Typically there’s no interest to pay upfront but instead it racks up at a fixed rate, agreed upon when the loan is taken out. The average rate is somewhere between six and seven per cent.
The loan lasts for the rest of the borrower’s life and the interest ramps up so quickly that usually the only way for it to be repaid is for the borrower’s beneficiaries to sell the property.
Ideally the borrower enjoys the rest of their days, happy and healthy and having put the money to good use.
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