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Don’t fall for equity release adverts that prey in your cost of living fears

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Struggling homeowners are being warned by the promoting watchdog to be wary of ‘emotionally charged’ adverts that tempt them into unlocking money from their properties.

Brokers have reported a rising variety of older borrowers looking for to take out costly equity release loans to deal with spiralling bills.

And there are fears some financial firms are exploiting the associated fee of living crisis by promoting equity release as a technique to ‘ease the pressure’.

Desperate: Brokers have reported a rising variety of older borrowers looking for to take out costly equity release loans to deal with spiralling bills

The Promoting Standards Agency (ASA) told Money Mail it had seen a spike in complaints, which it’s taking ‘very seriously’.

It says while television adverts aired by lenders don’t typically allude to the associated fee of living directly, members of the general public have raised concerns that they’re ‘emotionally charged and contain a component of appealing to fear’ at a time when budgets are squeezed. Others have complained ads are misleading.

In total, the regulator has received around 30 complaints to date this 12 months, however it adds that numbers have increased ‘as of late’.

Equity release allows homeowners aged 55 and over to take tax-free money out of the worth of their homes.

The loans wouldn’t have to be repaid until the borrower dies or goes into care. But in the event you don’t make monthly repayments, compound interest charges can quickly eat away at the worth of your property.

There will also be sizeable penalties if you would like to repay the debt early. And the typical rate of interest charged has jumped from 4.28 per cent to six.02 per cent up to now 12 months, in response to data analysts Moneyfacts.

Despite this, the loans have soared in popularity for individuals who are property wealthy but money poor.

Homeowners withdrew a record £3.1 billion of property wealth in the primary half of the 12 months — a 36 per cent increase in comparison with the identical period in 2021 — trade body the Equity Release Council has revealed. 

With pensioners on fixed incomes amongst those hit hardest by rising living costs, many more may very well be tempted to follow suit.

Over-55s are sitting on combined property wealth of £4.4 trillion, in response to insurer Just Group.

Yet experts warn equity release ought to be a final resort and that there are sometimes other ways you possibly can boost your income.

Accessible cash: Equity release allows homeowners aged 55 and over to take tax-free cash out of the value of their homes

Accessible money: Equity release allows homeowners aged 55 and over to take tax-free money out of the worth of their homes

Broker Age Partnership saw a 20 per cent rise in enquiries about equity release from June to August in comparison with the identical period last 12 months, which it believes is all the way down to the soaring cost of living.

‘Persons are panicked,’ says Andrew Morris, senior equity release adviser at Age Partnership.

‘But once we chat through the borrower’s income and expenditure, often they realise that by cutting back on luxuries they don’t must release money.’

Meanwhile, Warrington-based broker Mortgageable recorded a 162 per cent rise within the number of individuals asking for an equity release loan in August in comparison with the identical month in 2021. 

‘Lots of those homeowners seem quite frantic to push on with equity release urgently,’ says adviser Kev Tilley. 

‘An increasing number want equity release to satisfy the demand of normal bills, moderately than the normal reasons resembling gifting a deposit to their children, which is incredibly concerning.’

Equity release advisers should first prompt borrowers to think about whether using savings, investments or taking out a standard mortgage designed for retirees is more suitable. 

Other alternatives include asking family for help, taking in lodgers, downsizing and reviewing profit entitlements.

When you are on a low income and eligible for the state pension, it’s possible you’ll give you the chance to say pension credit, for instance.

Financial adviser Robert Leatherland, of Bespoke Wealth, recently visited a house owner in her early 60s who lived alone in a mortgage-free bungalow price around £500,000 near Portsmouth. She asked for equity release because she feared her savings would soon run out.

Mr Leatherland found she was now spending £400 more every month than the quantity she had put aside to continue to exist and asked as an alternative if she had considered downsizing to liberate the more money she needed.

Penalties: If you do not make monthly repayments, compound interest charges can quickly eat away at the value of your home

Penalties: When you don’t make monthly repayments, compound interest charges can quickly eat away at the worth of your property

She has since moved to a less expensive home and, after selling her bungalow, has £150,000 to continue to exist.

‘The price of living is on everyone’s minds,’ says Mr Leatherland. ‘But taking out a long-term debt resembling equity release since you’re nervous a few short-term issue like rising energy costs, isn’t an appropriate solution.’

For homeowners who are not looking for to downsize or are unconcerned about leaving an inheritance for relations, equity release could also be the precise solution.

There are also ways you possibly can reduce interest charges over the lifetime of the loan. As an alternative of taking one big lump sum, many now withdraw an initial amount and leave the remaining of their money in a drawdown account that doesn’t accrue interest until they decide to access it.

And all recent plans allow borrowers to repay 10 per cent of their debt every year penalty-free should their financial circumstances improve in the longer term.

Doing this implies a customer borrowing £80,000 at the typical rate of 6.02 per cent could in theory clear their loan inside 15 years.

Jim Boyd, chief executive on the Equity Release Council, says: ‘Equity release is suggested, not sold. Any plan taken out ought to be based on a peaceful and detailed appraisal of a customer’s long-term needs moderately than an emotional response to short-term pressure.

moneymail@dailymail.co.uk

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