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Pensioners forced into equity release

More and more pensioners in the UK are forced to take out an equity release on their home, the Consumer Credit Counselling Service (CCCS) have reported. The numbers are indeed worrying: Over the course of 2010, home owners from the age of 55 onward released an average of £29,983 of capital from their homes, while those turning towards debt management agencies in search of advice owed £29,772 on average on credit cards, personal loans and other unsecured debts. The rise in equity release figures are an indication of the increasing difficulties many elderly are experiencing in terms of dealing with their financial problems without taking on new debt – if you thought pensioners were free from worry, you’ll need to think again.

The question of how to correctly interpret these developments is nonetheless anything but straight-forward. The CCCS’s Tom Moloney, for one, saw as many dangers as opportunities: Many clients are rightly cautious when considering equity release“, the release manager at CCCS said, “but with the right advice and guidance this is an attractive solution for some.” Undeniably, there are several advantages to equity release. And yet, as the Debt Advisory Line’s Craig Gedey pointed out, it also represented a tool to be wielded carefully: “Do we think that equity release is a viable option and a possible means of creating relief for the elderly in this country? Certainly. But we also believe that before actually going down that road and significantly reducing the value of your home and what you’ll be able to inherit to your loved ones, you should investigate all alternative options first.“

The numbers provided by the CCCS do, in any case indicate that equity release, which used to be considered a rather unconventional step, has today become widely accepted. To many elderly in particular, the advantages of the measure are clear, since it allows them to keep living in their home and can also be used to create an additional stream of revenue. At the same time, equity release can create the dangerous illusion of not being in debt at all, which can turn into an issue when the borrower doesn’t arrive at a healthy long-term balance between his or her expenses and income.

Which is why, according to experts, a first step should always consist in searching for ways of reducing one’s debt through incisive measures, slashing fixed costs and working towards sustainable spending patterns. Gedey: “Equity release is a complex and intricate matter, which requires careful deliberation and advice. Consulting a debt management company on this is highly advisable. “