Equity Loans Reduce By 41 Per Cent
Over the course of the past few years, it has become increasingly difficult for those people approaching retirement to be able to make ends meet financially.
There are several reasons for this trend. Firstly many individuals have been turning away from investing in pension plans due to bad press in the past, secondly those who have invested have, in many cases suffered poor investment returns, leaving them with less than they expected and finally, with the average level of personal debt increasing generally across the board, a growing number of individuals are approaching retirement with outstanding balances on personal loans, credit cards and mortgages.
To compensate for this shortfall, many people have opted to take out an equity release loan on their home to help fund their retirement. This allows a homeowner to take a loan based on the available equity in their home, without having to make any monthly loan repayments. Instead, the interest is rolled up and added to the loan balance and repaid in full on the death of the borrower, or when they eventually sell the house.
Over the past few years, equity loans have been growing in popularity, but due to the credit crunch and fall in the average price of a property, there has been a significant drop in the number of loans being taken out.
According to the latest figures from Key Retirement Solutions, there has been a drop of 41 per cent in the number of new loans over the course of the last twelve months, to the end of the second quarter of this year. Although the total number of loans has dropped, the main reason for the reduction in lending is due to borrowers taking much smaller loans than they have done previously, due to the lower value of their homes currently.
Although this may seem like a huge problem for those pensioners relying on the value of their home to help fund their retirement, over the long term property prices will increase once more and borrowers will be able to take additional loans, due to increased age and prices in the future.
