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'My mother is losing our family home to equity release'

·3-min read
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Record high house prices have enticed older homeowners into using their property as a cash machine.

They are taking advantage of rocketing house prices to take record amounts out in equity release plans before the property market slides.

There are clear signs that the property market has peaked. House prices are expected to fall, with homes in the capital forecast to lose 10pc of their value in the next two years.

The more a house is worth, the more the owner can take out in equity release, which has encouraged over-60s to consider taking out the loans, according to Will Hale of Key Later Life Finance, a provider.

In total, 23,400 retirees cashed in £1.53bn from their homes in the first three months of the year, marking an all-time high, according to the Equity Release Council.

Rising rates

Equity release could also be about to get more expensive due to increases in the Bank Rate. Historically low interest rates on these plans are expected to jump higher in the coming months to match market rates.

Rates have dropped significantly over the last decade, with homeowners no longer paying interest in excess of 7pc. The average person locked in at 3.39pc on their loan during the second half of 2021, according to figures from the Equity Release Council.

However, they have started to climb again, creeping up 4.16pc in January, data from Moneyfacts, an analyst, showed.

A risky move

Equity release can be a much-needed lifeline for those who need a cash lump sum but it has long been controversial for being hugely costly in the long run.

Borrowers risk losing the entire value of their home to their lender because of the way interest is rolled over and added to the original debt. The loans are not repaid until the borrower dies or moves into long-term care.

Lesley Coombe, 61, from Nottinghamshire, said that equity release had been a terrible mistake for her mother who will soon owe the entire value of her home to the lender.

Ms Coombe said her 83-year-old mother took out £40,000 in 2006 to pay off her mortgage but that sky-high interest rates of 7pc had meant that the debt has since spiralled to £102,000.

“It seemed absolutely wonderful at the time but now she’s so upset that she no longer owns her home. It’s scandalous, she’s so worried about it. If we had known we would never have touched it,” she said.

The family home, worth an estimated £115,000, will be wholly owned by Prudential, the lender, when her mother dies. This means her three children will not get any of the value of the home.

“Mum keeps worrying that we won't get anything because it was meant to be our inheritance. It feels like she sold the home for just £40,000, she never got the full value.

“It’s the house she lived in for 50 years with her husband, the house where I grew up. We know everybody there and soon it will be owned by a company,” she said.

Prudential declined to comment.

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