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

Struggling homeowners are warned by the advertising watchdog to be wary of “emotionally charged” ads tempting them to take money out of their properties.

Brokers have reported an increasing number of older borrowers looking to take out expensive equity repayment loans to cope with rising bills.

And there are fears that some financial firms are exploiting the cost of living crisis by promoting share releases as a way to ‘relieve the pressure’.

The Advertising Standards Agency (ASA) told Money Mail it had seen a spike in complaints, which it takes “very seriously.”

It says that while television commercials broadcast by lenders do not typically refer directly to the cost of living, members of the public have expressed concern that they are “emotionally charged and instill an element of fear” at a time when budgets are under pressure. be under pressure. Others have complained that ads are misleading.

In total, the regulator has received about 30 complaints so far this year, but he adds that the number has increased “recently”.

Equity Release allows homeowners 55 and older to withdraw tax-free money from their home’s value.

The loans only have to be repaid when the borrower dies or enters care. But if you don’t make monthly payments, the compound interest expense can quickly take away the value of your property.

There can also be hefty penalties if you want to pay off the debt early. And according to data analyst Moneyfacts, the average interest rate has risen from 4.28 percent to 6.02 percent in the past year.

Despite this, the loans have soared in popularity for those who are wealthy in real estate but poor in cash.

Homeowners withdrew a record £3.1bn worth of property in the first half of the year – a 36 percent increase compared to the same period in 2021 – trade organization the Equity Release Council has revealed.

With fixed-income retirees among those hardest hit by the rising cost of living, many more might be tempted to follow suit.

According to insurer Just Group, people over 55 have a combined wealth of £4.4 trillion.

Still, experts warn that releasing stocks should be a last resort and there are often other ways to increase your income.

Broker Age Partnership saw a 20 percent increase in share release inquiries from June to August compared to the same period last year, which it believes is due to the rising cost of living.

“People are panicking,” said Andrew Morris, senior equity release advisor at Age Partnership.

“But when we go through the borrower’s income and expenses, they often realize that by cutting back on luxury, they don’t have to release any money.”

Meanwhile, Warrington-based broker Mortgageable recorded a 162 percent increase in the number of people requesting a equity loan in August compared to the same month in 2021.

“Many of those homeowners seem quite hectic about moving forward with equity releases urgently,” says advisor Kev Tilley.

“An increasing number want equity released to meet the demand for regular bills, rather than the traditional reasons like giving a deposit to their children, which is extremely concerning.”

Investment advisors should first urge borrowers to consider whether using savings, investing or taking out a traditional mortgage is more appropriate for retirees.

Other alternatives include asking family for help, hiring boarders, downsizing and reviewing benefit rights.

If you have a low income and are eligible for the AOW, you can, for example, claim a pension discount.

Bespoke Wealth financial advisor Robert Leatherland recently visited a homeowner in his early 60s living alone in a mortgage-free bungalow worth around £500,000 near Portsmouth. She asked for the equity release because she feared her savings would soon run out.

Mr Leatherland found that she was now spending £400 more each month than she had set aside to live on and asked instead if she had considered cutting back to free up the extra money she needed.

She has since moved to a cheaper house and, after selling her bungalow, has £150,000 to live on.

‘The cost of living is on everyone’s mind,’ says Mr Leatherland. “But taking on long-term debt, like releasing stocks because you’re worried about a short-term issue like rising energy costs, isn’t a suitable solution.”

For homeowners who don’t want to downsize or worry about leaving an inheritance to 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 large lump sum, many now withdraw an initial amount and leave the rest of their money in a withdrawal account that does not accrue interest until they choose to access it.

And all the new plans allow borrowers to repay 10 percent of their debt each year without penalty if their financial situation were to improve in the future.

This means that a customer who borrows £80,000 at an average interest rate of 6.02 percent could theoretically settle their loan within 15 years.

Jim Boyd, chief executive at the Equity Release Council, said: “Equity release is advised, not sold. Any plan created should be based on a calm and detailed assessment of a customer’s long-term needs rather than an emotional response to short-term pressures.

moneymail@dailymail.co.uk