Debt is a hot topic. Scarcely a day passes without at least one major UK news provider writing about rising debt levels and how the British public is now more reliant on credit than ever before. Many of these articles make the point that credit, and its associated debt, is a precarious ship in which to sail. As long as interest rates remain low and prices stable, many people have little to be concerned about, since their debt is manageable and they do not fear falling behind with repayments.
However, if interest rates rise or, as now, price rises start to outstrip wage and pension growth, concerns mount. How to clear debt looms ever larger in the minds of both consumers and government. We are starting to hear of debt levels nearing levels of the pre-economic crisis & we all know what happened then. But with the cost of living outstripping wage increases, what are we to expect? The only real saving grace is for homeowners who are still seeing property values hold up, if not increase in large parts of the UK.
The most straightforward-sounding way for anyone to pay off debt is simply to stop spending on anything other than life's essentials. However, for some, that is impossible as their essential outgoings already exceed their expenditure. For others, it is undesirable - being frugal and self-sacrifice quickly start to lose their lustre when it becomes apparent that eating out, new clothes, holidays and other extravagances must all go in order to clear debt. The mantra of ‘ society is a ‘want everything now’ approach is also partly to blame. Both debt and many goods & services are just too easy to come by in today’s society.
One alternative solution is rapidly assuming prominence for those in such a situation and who are over the age of 55. Equity release is proving particularly popular with older people who have paid off, or need to repay their mortgages. These homeowners may have no wish to downsize from their current property, but who do not have sufficient spare income to enjoy their retirement to the full. Others, approaching pensionable age, are using equity release to pay off debt, including any outstanding mortgage, loans or credit cards. By achieving this so they can begin their retirement debt-free, but also more importantly for some will help increase their disposable income by reducing outgoings.
Used judiciously, equity release allows a property owner to release some of the capital value of their property whilst still continuing to live there. Although the money advanced accrues interest, that interest is not repayable until the property owner either dies or moves out, usually to specialist residential care. But if that is of concern to you, there are now equity release plans where interest can be serviced.
So, should there be a concern over how much inheritance is left at the end of the day, then either interest-only equity release, or voluntary repayment plans can be recommended. Afterall, if debt is being repaid using equity release, this frees up additional income which would otherwise have been used to pay the loan, could now be redirected and utilised to service the equity release interest charged.
Before paying off any debt using equity release, as advisers we would always explore other avenues of repayment first to see if any cheaper solutions exist. For instance, are there any means tested benefits available such as pension credit or council tax benefit? These both could help increase income if available and thereby reduce the amount or even necessity for equity release.
As evidenced above, prior to taking any release of equity from your property, what would seem a straightforward decision, can in fact turn out to prove more complicated. However, with the guidance of an experience, qualified and independent equity release adviser, you can be safe in the knowledge that best advice is being given & therefore alleviating your financial plight in retirement.