Rise in use of equity release

Figures from Stonehaven, the specialist equity release provider, show that almost 41.9% of its customers in Scotland are using equity release as a method of paying off secured mortgage debt, including solving interest-only mortgage shortfalls.

Increasing numbers of homeowners are choosing to unlock the value in their homes as a way to tackle debt, including interest only mortgages, before their loans reach maturity and they face debt shortfalls.

The City Regulator the Financial Conduct Authority (FCA) published figures earlier this month that showed 1.3 million families face losing their homes after taking out interest-only loans in the 1980s with no strategy in place to pay the money back.

The FCA figures also revealed that many of those with interest-only mortgages face an average shortfall of £72,000, while 260,000 homeowners owe nearly double this amount.

For older homeowners with substantial equity in their property but no other repayment vehicle, equity release can be a viable remedy to the interest only problem. Cash can be unlocked from equity in the property to pay off the mortgage and also allow the homeowner to retain ownership of the property.

Commenting on the figures, Georgina Smith, managing director of Stonehaven, said: “Many people are sitting on a interest-only mortgage timebomb, which will ultimately result in them losing their home. For those people who do not want to downsize to a smaller property, there is a simple solution which can prevent them from needlessly losing their home: equity release.

“Our figures demonstrate that increasingly older customers, who are excluded from traditional mortgage lending, are turning to equity release as a suitable option to solve their problems, particularly at a time when interest-only mortgages bought in the 1980s ‘boom years’ are starting to reach maturity.”