The coronavirus crisis of 2020 has caused many businesses and individuals to fall into debt. With little to no income coming in for months, many have been left to turn to borrowing to help them get by. One way that homeowners are paying off their mounting debts this year is through equity release.
Approximately 41% of equity released funds have been spent on debt in the South West during the first half of 2020. Here, we’ll look at the latest figures and reveal whether equity release is a good option to pay off your debts.
Understanding the latest figures
The latest figures revealed that more than 40% of the total equity released has been used to clear some type of borrowing. The research was carried out by top equity release advice service Key.
It showed that borrowers owed an average of £53,388 on their mortgage and around £12,728 on loans. There was a geographical divide identified in the study too. Londoners used more equity than anywhere else to pay off mortgages. Meanwhile, just 29% of those in the North East used equity to pay mortgage debts.
The main reason equity is being used to pay off mortgage debt, is due to interest only mortgage deals. Near the end of the mortgage, a large lump sum is required to be made. In this economy, not many people have such a large sum to offer.
What is equity release?
Equity release is typically aimed at homeowners aged 55 and over. It offers you the chance to unlock the value of the property, receiving a lump sum either immediately or over a period of time.
Things to consider
Like any form of finance, there are a few things to consider before taking out equity release. While it can certainly help those who are in financial difficulties, it isn’t always the best option. Remember, by taking out equity, you are basically losing the value you’ve built up over time, meaning you’ll get less if you sell. To ensure you’re making the best choice, it is worth using an equity release advice service.
CEO of Key, Will Hale, states: “While most people want to reach retirement debt free, this is simply not the case for everyone – especially those who have taken out interest-only mortgages and now often face finding a substantial lump sum to repay the balance.
"With equity release rates starting from 2.5% and many products allowing adhoc capital repayments or ongoing interest repayments, these flexible plans allow people to proactively manage their borrowing and shore up their finances.”
Overall, equity release can be an affordable way to pay off debts during uncertain times. However, it is important to consider the downsides as well as the benefits before you use it.