Can equity release help me to manage my debt problems?

Statistics published by the Equity Release Council show a significant rise in the number of equity release transactions in Scotland in recent years. An increase of 62% between 2012/13 and 2017/18 could be due in part to the increased flexibility these products now offer, but does it also reflect a growing need to deal with serious debt?

Equity release is commonly used to clear debt and reduce financial pressure in retirement. It allows homeowners to release the value locked within what is likely to be their largest asset. So how does equity release work and could you use it to help with your debt problem?

Lifetime mortgage

Lifetime mortgages offer a cash lump sum, cash payments in instalments, or a combination of the two, and you remain the owner of your home. You can choose whether or not to pay interest on the mortgage, or allow it to accrue. If you’re the sole occupant and need to move into a care home at any point, the property is likely to be sold and the outstanding mortgage repaid from the proceeds. Similarly, the mortgage is repaid from your estate when you die.

Home reversion plan

Home reversion plans involve the sale of all or part of your property to a home reversion company. Again, you can receive a lump sum of cash or payments in instalments, and the firm receive their money back when the property is sold. You live in your home rent-free for life or until you move into full-time care, but lose sole ownership of the property. Equity release products regulated by the Equity Release Council operate on a no negative equity basis meaning that you, or your estate, will never be liable for more than the value of the property.

Are you eligible for equity release?

Eligibility criteria for equity release products vary between providers, but are typically:

• Minimum age for taking out a lifetime mortgage: 55
• Minimum age for home reversion: 65
• Typical minimum property value for equity release: £70,000

The amount of equity you can release depends on your age, but as you get older you’re usually able to borrow more.

Paying off debt using equity release

Equity release can help with your debt problems, and you can use it in relation to any form and amount of debt. If you’re on a low income or have retired you may be struggling to pay off debt, and it’s natural to feel worried about the future. So why choose equity release to pay your debts? Making only the minimum payment on credit cards keeps the problem at bay for a short time, but eventually your debt will grow to the point where it’s unmanageable. Also, if creditors take legal action for non-payment you may be at risk of bankruptcy. Equity release makes use of your property’s inherent value without you having to move, but you do need to seek independent legal and financial advice before proceeding. This allows you to find out about any other options, and understand the full implications.

What are the advantages of using equity release for debt?

• You can clear some or all of your debts
• You regain financial control without losing your right to live in your property
• You may be able to take out a lifetime mortgage that doesn’t require monthly repayments
• You can receive a tax-free cash lump sum

What are the potential disadvantages?

• You may pay more in total over the long-term
• Your eligibility for means-tested benefits may be affected
• The value of your estate on death is diminished
• The amount you receive from a home reversion plan will be less than the market value

For more detailed information about using equity release to pay off debt, call one of our experts at Scotland Debt Solutions. We’ll assess all your options for paying down debt, and advise whether equity release is the best under your circumstances. A number of debt relief schemes also operate in Scotland, and it may be possible to repay in another way. Scotland Debt Solutions are debt specialists and will provide the reliable independent advice you need when considering equity release. We offer free initial consultations, and operate from a network of offices around Scotland.