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As more and more people find themselves short of funds when they reach retirement age, either due to a lack of planning or poor fund performance on their investments, many look to alternative methods of providing themselves with an income in retirement.

One method which is growing in popularity, is that of equity release loans, or lifetime mortgages, which enable home owners to take a loan based on the value of their property, without regular loan repayments, which will be repaid either on death of the borrower or on the sale of the house.

One of the main drawbacks to this type of loan, is that the maximum loan to value is fairly restrictive, particularly for younger borrowers in their fifties and sixties, who are likely to have the loan for longer and therefore see the interest roll up on the loan for a longer period.

The insurance giant Aviva, has just announced that it is to increase the maximum loan to value on its equity release loan products for those borrowers with medical conditions or adverse health, thereby allowing them to take a larger lump sum of cash from their property.

The increased loan to value levels will be calculated on individual cases, based on the medical information provided by the borrower, through a health and lifestyle questionnaire.

Darren Dicks of Aviva said “Customers wanting to release equity from their homes who suffer from medical conditions or have lifestyle factors that affect their health will benefit greatly from this most recent development in Aviva’s equity release loan offering.”

“Following a successful trial, we’re now rolling enhanced loan to values out for all eligible lifetime mortgage customers. Equity release loans are becoming an increasingly useful option for people approaching retirement to consider and is a key element of the range of retirement solutions we offer.”

The past few years have been particularly difficult for first time buyers attempting to get onto the housing market and find a suitable and affordable home owner loan product which actually meets their needs and whilst the situation has improved in recent months, there are still many hurdles for potential new loan customers.

The latest figures from the Council of Mortgage Lenders (CML) have shown that the typical monthly cost of a first time buyer loan has dropped significantly in recent months, as banks and building societies lower the interest rates on their loan products for first time buyers.

Due to these new low loan rates, first time buyer home owner loans are now at their most affordable for around eight years, with the average loan using up just 12.3 per cent of the applicant’s regular income, the lowest level since January 2004.

However, although the typical monthly cost of loan repayments has fallen for first time buyers to such a low level, many are still struggling to be accepted for the loan they require to be able to buy their first home, due to tight underwriting criteria from lenders and high deposit requirements.

One of the biggest challenges for potential first time buyers is that of raising a sufficiently large deposit to meet maximum loan to value criteria. Although there are now some lenders who are offering loans of up to 90 per cent, underwriting is extremely strict on these products and interest rates tend to be significantly higher than lower loan to value products.

Paul Smee of the CML said “Despite the fall in lending in October, it is possible that we will see signs of increased activity by first time buyers in the early months of next year, as we approach the end of the government’s stamp duty concession at the end of March.”

The Bank of England confirmed yesterday (Thursday 8th December) that the base rate of interest for loans and savings would be kept on hold for another month at the historically low level of just 0.5 per cent.

The announcement was made following the regular monthly meeting of the Bank’s Monetary Policy Committee (MPC) and came as absolutely no surprise to financial experts and borrowers with home owner loans alike.

Earlier this month, the Bank announced that it expected the base rate for loans and savings to remain at its current low level for the foreseeable future, as the UK economy was in no position to support a rate rise at the moment and any such rise could have disastrous consequences for both the economy and consumers with variable rate home owner loans, many of whom are already struggling even with their current cheap loan rate.

The MPC also decided to leave the current programme of quantitative easing at its current level of £275 billion, although the committee said that this would be kept under review and many experts are expecting a further expansion of the current programme early in the New Year.

The announcement will, of course, come as good news and a welcome Christmas present for the millions of borrowers with a variable rate home owner loan, who are still enjoying the benefits of a particularly cheap loan, although borrowers should take advantage of these savings to overpay on their loan and reduce the balance for when rates do eventually increase.

David Kern of the British Chamber of Commerce said “The decision by the MPC to leave interest rates unchanged was widely expected. However, the committee’s decision to leave quantitative easing at current levels is disappointing.”

“In light of the risks facing Britain’s recovery, a further £50 billion increase in QE to £325 billion would be welcomed by business. While many  commentators expect the MPC to wait until the New Year, an early announcement would have strengthened confidence.”

The financial situation for many people in the UK who are approaching retirement is becoming ever more desperate, as a growing number of individuals realise that they have not saved enough to fund their retirement, once it has become too late to do anything about it.

Whilst the economic climate in the UK is making it much harder for anyone to save money, or get a decent return from their savings, many people in the over 50’s age group are still struggling to pay off their home owner loan and in some cases, unsecured debts, such as personal loans and credit card debts.

And the situation seems to be getting worse for many in this age group, as the average savings pot for those over the age of 55 has fallen by around 27 per cent over the course of the past twelve months, according to research from Aviva.

As well as the fact that many over 55 year olds are still paying off existing loan and credit card debts, the average earnings for this age group have also fallen by around 4 per cent, whilst inflation is still running at more than 5 per cent, leaving many in the position where they are finding it hard to repay their personal loan debts, let alone save for retirement.

As a result of this problem, there has been a significant increase in the number of people who own their own property, taking advantage of equity release loans, or lifetime mortgages, as a way of helping to fund their retirement plans.

The research found that two thirds of recent retirees regret not having saved more towards their retirement planning and even with the use of an equity release loan, many who had planned to retire at the age of 65 will undoubtedly be forced to continue in work for many years beyond this age.

The government has announced that it is to conduct a review of the benefits available under its Support for Mortgage Interest (SMI) which is currently available to unemployed individuals who would otherwise be unable to pay their home owner loan.

SMI benefit currently pays the interest on home owner loan repayments up to loan amounts of £200,000 after a person has been unemployed for a thirteen week period, although it is means tested on things like savings levels.

Once a person has  qualified for SMI, the benefits are payable directly to the loan provider indefinitely, until the borrower returns to work, but the government has now said that his is unsustainable and has therefore proposed a review of this  valuable loan benefit.

The main proposals are that the benefit payable will only continue for a limited time, in order to incentivise a claimant to return to work as soon as possible. If a claimant wishes to take benefits for a longer period, the suggestion is that there is a charge placed on their property by the government, with this loan amount being repaid on the sale of the property.

Currently, SMI is costing the government somewhere in the region of £400 million per year, but without it, many home owners would fall into serious arrears on their home owner loan or mortgage and face the likelihood of eventual repossession.

Lord Freud, the Minister for Welfare Reform said “The current system of SMI payments does not encourage people to get on top of their own finances. It is also not sustainable. We are committed to supporting home owners to stay in their own homes when times are hard.”

“But in the future, this type of support must be fair and affordable so we are seeking views from experts and the wider public, including options for putting a charge on the homes of future claimants so when they sell up we can reclaim some of the costs.”

The loan debt charity, Credit Action, has just released the latest figures for personal loan and credit card debt in the UK and has accompanied this with a warning to consumers about taking out personal loans and using other forms of credit in the run up to the Christmas period.

The latest figures for the month of December from Credit Action have revealed the current state of people’s financial situation in the UK and it makes fairly disturbing reading.

The statistics show that the average household in the UK currently has around £55,808 worth of personal debt on things like personal loans and credit cards. This figure also includes a home owner loan or mortgage balance.

This works out at an average loan debt figure of £29,539 for every adult in the UK at the moment and consumers in the UK pay somewhere in the region of £174 million worth of loan and credit interest every day.

This financial burden obviously takes its toll on many individuals who simply can not afford to keep up with their loans and other debts, which has led to an average figure of £15.86 million worth of bad loan debts being written off by banks and building societies every day and a property being repossessed every 14.28 minutes.

Although the overall loan debt figure has increased since last month, if home owner loans and mortgages are excluded from the figures, the average personal debt works out at £7,984, which is lower than the previous month and suggests that people are trying to pay off their unsecured loan debts.

Michelle Highman of Credit Action said “Our figures suggest that, on average, the burden of consumer debt has eased up a little recently. Whilst this is clearly good news, we all need to be careful as we start the run up to Christmas.”

The likelihood of taking out home owner loan and buying their own house is becoming a distant dream for many individuals in the UK, as a new survey has discovered that, on average, it will take someone at last ten years to save up a large enough deposit to meet lenders strict loan to value ratio criteria.

The survey of over 1 million people, which was conducted by the savings and investment website InvestorBee, found that people living in the North of England had the best chance of being able to save a 20 per cent deposit to go with a home owner loan, due to lower house prices, but even here it will take a minimum of ten years to save a sufficient deposit.

However, for those people living in the Greater London area, it is more likely to take around 20 years to save enough money to get a home owner loan and get themselves on the housing ladder, due to the fact that property prices are so much higher than they are in the North, even though the average salary in this area is significantly higher than in the North.

The survey also found that people in the North of England were the best at saving for a home owner loan deposit, with average savings of around 10.6 per cent of their annual salary on a regular basis. The area with the lowest savings habit was Wales, with an average savings amount of just 9.3 per cent of salary.

Graham Mannion of InvestorBee commented on the trends, he said “On average across the UK, where Brits choose to save, they’re putting away 9.7 per cent of their salary. Retirement and emergency funds are currently the highest priority for savers.”