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

Desperate: Brokers have reported a growing number of older borrowers seeking expensive capital release loans to meet spiraling bills

Struggling homeowners are being warned by the advertising watchdog to be wary of ’emotionally charged’ ads that urge them to unlock money from their properties.

Brokers have reported a growing number of older borrowers seeking to take out expensive capital release loans to meet spiraling bills.

And there are fears that some financial firms are exploiting the cost of living crisis by promoting the release of shares as a way to “relieve the pressure”.

Desperate: Brokers have reported a growing number of older borrowers seeking expensive capital release loans to meet spiraling bills

Desperate: Brokers have reported a growing number of older borrowers seeking expensive capital release loans to meet spiraling bills

The Advertising Standards Agency (ASA) told Money Mail it has seen an increase in complaints, which it takes “very seriously”.

It says that while TV ads aired by lenders generally don’t allude directly to the cost of living, members of the public have expressed concern that they are “emotionally charged and contain an element of appeal to fear” at a time when budgets are tight. Others have complained that the ads are misleading.

In total, the regulator has received around 30 complaints so far this year, but it adds that the number has increased “in recent times”.

Capital release allows homeowners aged 55 and over to withdraw tax-free cash from the value of their home.

Loans do not have to be repaid until the borrower dies or takes over. But if you don’t make monthly payments, compound interest charges can quickly eat into the value of your property.

There may also be significant penalties if you want to pay off the debt early. And the average interest rate charged has risen from 4.28% to 6.02% over the past year, according to data analysts Moneyfacts.

Despite this, loans have gained popularity among those who are asset rich but cash poor.

Landlords withdrew a record £3.1billion in property wealth in the first half of the year – a 36% increase on the same period in 2021 – trade body Equity Release Council has revealed.

With fixed-income retirees being among the hardest hit by the rising cost of living, many others may be tempted to follow suit.

Over-55s sit on a combined property wealth of £4.4trillion, according to insurer Just Group.

Still, experts warn that freeing up stock should only be a last resort and there are often other ways to boost your income.

Accessible Cash: Capital Release allows homeowners aged 55 and over to withdraw tax-free cash from the value of their home

Accessible Cash: Capital Release allows homeowners aged 55 and over to withdraw tax-free cash from the value of their home

Broker Age Partnership saw a 20% increase in requests to release shares from June to August compared to the same period last year, which it said was due to the soaring cost of living.

“People are freaking out,” says Andrew Morris, senior equity release adviser at Age Partnership.

“But when we discuss the borrower’s income and expenses, he often realizes that by reducing luxuries, he doesn’t need to free up money.”

Meanwhile, Warrington-based broker Mortgageable saw a 162% increase in the number of people applying for a capital-released loan in August compared to the same month in 2021.

“A lot of these owners seem frantic enough to urgently pursue the release of equity,” says Councilor Kev Tilley.

“A growing number of people want the release of equity to meet the demand for regular bills, rather than for the traditional reasons such as giving a deposit to their children, which is extremely concerning.”

Funding advisors should first guide borrowers to consider whether it is more appropriate to use savings, investments, or take out a traditional mortgage designed for retirees.

Other alternatives include asking family for help, taking on tenants, downsizing and reviewing benefit entitlements.

If you have a low income and are entitled to a state pension, you can, for example, claim a pension credit.

Financial adviser Robert Leatherland of Bespoke Wealth recently visited a landlady in her early 60s who was living alone in a mortgage-free bungalow worth around £500,000 near Portsmouth. She applied for the equity release because she feared her savings would soon run out.

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

Penalties: If you don't make monthly payments, compound interest charges can quickly erode the value of your home

Penalties: If you don’t make monthly payments, compound interest charges can quickly erode the value of your home

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 Leatherland. “But taking on long-term debt like releasing stocks because you’re worried about a short-term problem like rising energy costs, is not an appropriate solution.”

For owners who don’t want to downsize or don’t care about leaving an inheritance for family members, releasing equity may be the right solution.

There are also ways to reduce interest charges over the term of the loan. Instead of taking a large lump sum, many are now withdrawing an initial amount and leaving the rest of their money in a direct debit account that does not earn interest until they choose to access it.

And all of the new plans allow borrowers to pay off 10% of their debt each year without penalty if their financial situation improves in the future.

This means that a customer borrowing £80,000 at an average rate of 6.02% could in theory pay off their loan in 15 years.

Jim Boyd, managing director of the Equity Release Council, said: “Equity release is advised, not sold. Any plan taken out should be based on a calm, detailed assessment of a client’s long-term needs rather than an emotional response to short-term pressure.

moneymail@dailymail.co.uk

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