Struggling homeowners are being warned by the advertising watchdog to be wary of ‘emotionally charged’ adverts that tempt them into unlocking cash from their properties.
Brokers have reported a rising number of older borrowers seeking to take out costly equity release loans to cope with spiralling bills.
And there are fears some financial firms are exploiting the cost of living crisis by promoting equity release as a way to ‘ease the pressure’.
Desperate: Brokers have reported a rising number of older borrowers seeking to take out costly equity release loans to cope with spiralling bills
The Advertising Standards Agency (ASA) told Money Mail it had seen a spike in complaints, which it is taking ‘very seriously’.
It says while television adverts aired by lenders do not typically allude to the cost of living directly, members of the public have raised concerns that they are ‘emotionally charged and contain an element 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 so far this year, but it adds that numbers have increased ‘as of late’.
Equity release allows homeowners aged 55 and over to take tax-free cash out of the value of their homes.
The loans do not have to be repaid until the borrower dies or goes into care. But if you do not make monthly repayments, compound interest charges can quickly eat away at the value of your property.
There can also be sizeable penalties if you want to repay the debt early. And the average interest rate charged has jumped from 4.28 per cent to 6.02 per cent in the past year, according to data analysts Moneyfacts.
Despite this, the loans have soared in popularity for those who are property rich but cash poor.
Homeowners withdrew a record £3.1 billion of property wealth in the first half of the year — a 36 per cent increase compared to the same period in 2021 — trade body the Equity Release Council has revealed.
With pensioners on fixed incomes among those hit hardest by rising living costs, many more could be tempted to follow suit.
Over-55s are sitting on combined property wealth of £4.4 trillion, according to insurer Just Group.
Yet experts warn equity release should be a last resort and that there are often other ways you 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
Broker Age Partnership saw a 20 per cent rise in enquiries about equity release from June to August compared to the same period last year, which it believes is down to the soaring cost of living.
‘People are panicked,’ says Andrew Morris, senior equity release adviser at Age Partnership.
‘But when we chat through the borrower’s income and expenditure, often they realise that by cutting back on luxuries they don’t need to release money.’
Meanwhile, Warrington-based broker Mortgageable recorded a 162 per cent rise in the number of people asking for an equity release loan in August compared to the same month in 2021.
‘Many of those homeowners seem quite frantic to push on with equity release urgently,’ says adviser Kev Tilley.
‘An increasing number want equity release to meet the demand of regular bills, rather than the traditional reasons such as gifting a deposit to their children, which is extremely concerning.’
Equity release advisers should first prompt borrowers to consider whether using savings, investments or taking out a traditional mortgage designed for retirees is more suitable.
Other alternatives include asking family for help, taking in lodgers, downsizing and reviewing benefit entitlements.
If you are on a low income and eligible for the state pension, you may be able to claim pension credit, for example.
Financial adviser Robert Leatherland, of Bespoke Wealth, recently visited a homeowner in her early 60s who lived alone in a mortgage-free bungalow worth 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 amount she had set aside to live on and asked instead if she had considered downsizing to free up the extra money she needed.
Penalties: If you do not make monthly repayments, compound interest charges can quickly eat away at the value of your home
She has since moved to a cheaper home and, after selling her bungalow, has £150,000 to live on.
‘The cost of living is on everyone’s minds,’ says Mr Leatherland. ‘But taking out a long-term debt such as equity release because you’re worried about a short-term issue like rising energy costs, is not a suitable solution.’
For homeowners who do not want to downsize or are unconcerned about leaving an inheritance for family members, equity release may be the right solution.
There are also ways you can reduce interest charges over the life of the loan. Instead of taking one big lump sum, many now withdraw an initial amount and leave the rest of their money in a drawdown account that does not accrue interest until they choose to access it.
And all new plans allow borrowers to repay 10 per cent of their debt each year penalty-free should their financial circumstances improve in the future.
Doing this means a customer borrowing £80,000 at the average rate of 6.02 per cent could in theory clear their loan within 15 years.
Jim Boyd, chief executive at the Equity Release Council, says: ‘Equity release is advised, not sold. Any plan taken out should be based on a calm and detailed appraisal of a customer’s long-term needs rather than an emotional response to short-term pressure.